Recently, the Jharkhand High Court addressed a matter involving the quashing of criminal proceedings under Section 138 of the Negotiable Instruments Act. The Court considered whether the absence of the company as an accused could invalidate proceedings against its directors. It observed that while a company must generally be a named party in such cases, its directors can still face prosecution if they were responsible for issuing the dishonoured cheques in their official capacity.
In the present case, two writ petitions were filed to quash criminal proceedings related to two complaint cases involving dishonoured cheques. In each case, a director of Morias Infrastructure Pvt. Ltd. was alleged to have issued cheques for Rs. 50 Lakhs that were later dishonoured, prompting complaints under Section 138 of the Negotiable Instruments Act. the complainant claimed ownership of certain land and alleged that the sale agreement with Morias Infrastructure Pvt. Ltd. was altered without consent. The respondent alleged that initial payments, including the issued cheques, failed due to insufficient funds.
The petitioners argued that a substantial amount had already been paid as part of a compromise and that the company itself, as a legal entity, was not named as an accused in the complaints. The petitioner relied on the Supreme Court’s decision in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., contending that the complaint should be dismissed on these grounds.
The Court examined the legal implications under Section 141 of the Negotiable Instruments Act, which outlines the conditions under which company directors or other officers may be held liable. The Court noted, “While the essential element for implicating a person under Section 141(1) is his or her being in charge of and responsible to the company in the conduct of its business at the time of commission of the offence, the emphasis in Section 141(2) is upon the holding of an office and consent, connivance or negligence of such officer irrespective of his or her being or not being actually in charge of and responsible to the company in the conduct of its business”.
The Court highlighted the distinction in Section 141(1) regarding the responsibility of a director actively controlling company affairs, while Section 141(2) pertains to liability stemming from the position held, irrespective of active control if negligence or connivance is established. The Court observed that while it is generally necessary for a company to be named as an accused, the complaint has named the directors in their official capacity with explicit mention of the company. Therefore, the directors could be held liable under Section 138 as they were directly involved in the issuance of cheques. The Court further noted, “From perusal of the complaint petition, the Court finds that although the company has not been made accused separately, the complainant has made the Director as accused who has signed the cheque as an accused and mentioned the company name i.e., M/s Morias Infrastructure Private Limited in the complaint petition in the name of the accused persons column, just below the name of the Director which clearly reveals that company name is there and involvement of the company is also there”.
This reasoning allowed the court to conclude that although the company was not named as a separate accused, the directors were liable due to their active role in the transactions in question. The Court referenced the Supreme Court ruling in Rajneesh Aggarwal v. Amit J. Bhalla (2001), affirming that directors can be summoned if they had been issued a notice for cheque dishonour and failed to fulfil the payment obligations. Based on these findings, the Court dismissed the writ petitions and allowed the complaint cases to proceed against the directors, underscoring that directors are accountable when they actively participate in business conduct involving financial transactions.
Case Title: Ripunjay Prasad Singh v. The State of Jharkhand & Anr.
Citation: W.P. (Cr.) No. 485 of 2024 with W.P. (Cr.) No. 486 of 2024
Coram: Justice Rajesh Bindal, Justice R. Mahadevan
Advocate for Petitioner: Adv. Kaushik Sarkhe
Advocate for Respondent: Adv. Binit Chandra, Shashank Shekhar
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