The Supreme Court has held that Managing Director is by way of post incharge of Company's doings but to implede other Independent Directors under Section 141 of the NI Act, special averrments has to be made.
The Division Bench comprising of Justice Indira Banerjee and Justice JK Maheshwari while adjudicating an appeal observed that impleadment of all Directors of an Accused Company on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company, without anything more, does not fulfil the requirements of Section 141 of the NI Act.
In the present appeal, the appellants have claimed that they are independent non-executive Directors of the Accused Company, who are in no way responsible for the day-to-day affairs of the Accused Company.
The Counsel for the appellant submitted that Section 205 Cr.P.C. confers discretion on the Court to exempt personal appearance of an accused, till such time as his appearance may be considered necessary. In considering an application under Section 205 of the Cr.P.C., the Magistrate has to bear in mind the nature of the case, as also the conduct of the persons summoned. It was averred that the Magistrate may not exempt personal appearance, where any useful purpose would be served by requiring the personal attendance of the accused, or where the progress of the trial was likely to be hampered on account of his absence.
He pointed out that Section 305 Cr.P.C. provides how a body corporate, made accused in a criminal case, may be represented. The Magistrate overlooked the fact that the Accused Company was being represented by an authorized officer.
He further argued that Section 141 of the NI Act being a penal provision creating vicarious liability, the same must be strictly construed. Mere statement in the complaint that the Appellants were in charge of and responsible to the Accused Company, for the conduct of the business of the Accused Company without any specific role attributed to the Appellants, was not sufficient for proceeding against the Appellants under Section 141 of the said Act.
The Counsel placed reliance on S.M.S. Pharmaceuticals Ltd Vs. Neeta Bhalla & Anr, 2007 Latest Caselaw 174 SC and emphatically argued that the Appellants are independent, non-executive Directors of the Accused Company and in no way responsible for the day-to-day affairs of the Accused Company. Such Directors are inducted in the company for their expertise or special knowledge in any particular discipline. They are not in charge of the management of the company.
The Court at first cited cases which discuss the principles of the vicarious liability of the officers of a company in respect of dishonour of a cheque including Pooja Ravinder Devidasani Vs. State of Maharashtra & ANR., 2014 Latest Caselaw 796 SC, Girdharilal Gupta & ANR Vs. D. N. Mehta, Collector of Customs & ANR, 1970 Latest Caselaw 165 SC.
It stated that a Director of a company is liable to be convicted for an offence committed by the company if he/she was in charge of and was responsible to the company for the conduct of its business or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any negligence on the part of the Director concerned but for making a Director of a company liable for the offences committed by the company under Section 141 of the NI Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the company.
The Court further observed that when the accused is the Managing Director or a Joint Managing Director of a company, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company for the conduct of the business of the company because the prefix “Managing” to the word “Director” makes it clear that the Director was in charge of and responsible to the company, for the conduct of the business of the company.
"A Director or an Officer of the company who signed the cheque renders himself liable in case of dishonour. Other officers of a company can be made liable only under sub-section (2) of Section 141 of the NI Act by averring in the complaint, their position and duties in the company, and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence."
The Court stated that in the order, it has rightly held that merely being a Director of the company is not sufficient to make the person liable under Section 141 of the NI Act and that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company.
"The High Court also rightly held that the Managing Director or Joint Managing Director would admittedly be in charge of the company and responsible to the company for the conduct of its business by virtue of the office they hold as Managing Director or Joint Manging Director. These persons are in charge of and responsible for the conduct of the business of the company and they get covered under Section 141 of the NI Act. A signatory of a cheque is clearly liable under Section 138/141 of the NI Act," it added.
The High Court, however, failed to appreciate that none of these Appellants were Managing Director or Joint Managing Director of the Accused Company. Nor were they signatories of the cheque which was dishonoured, the Court remarked.
The Court was in agreement with the views of High Court that complaint should also not be read with a pedantically hyper technical approach to deny relief under Section 482 of the Cr.P.C. to those impleaded as accused, who do not have any criminal liability in respect of the offence alleged in the complaint.
Noting that a Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions, the Court opined that though the even though High Court deprecated the adoption of a hyper technical approach in construing pleadings, to quash criminal proceedings, it adopted a hyper technical approach in rejecting the application under Section 482 of the Cr.P.C., on a cursory reading of the formalistic pleadings in the complaint, endorsing the contents of Section 141 of the NI Act, without any particulars.
It overlooked that the Appellants were non-Executive Independent Directors of the Accused Company, based on unimpeachable materials on record, the Court said.
It thus accordingly allowed the appeal.
CASE TITLE: SUNITA PALITA & OTHERS vs M/S PANCHAMI STONE QUARRY
CASE DETAILS: CRIMINAL APPEAL NO. OF 2022
CORAM: Justice Indira Banerjee and Justice JK Maheshwari
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