- Home
- /
- High Courts
- /
- Delhi High Court
- /
- Independent, Non-Executive...
Independent, Non-Executive Directors Of Company Cannot Be Held Liable Under Section 138 Of NI Act Without Specific Allegations: Delhi High Court
Rajesh Kumar
27 Aug 2024 5:15 AM GMT
The Delhi High Court bench of Justice Amit Mahajan has held that independent, non-executive directors of an accused company cannot be held liable under Section 138 of the Negotiable Instruments Act, 1881, if the complaints do not include specific allegations detailing their active role in the offence. Brief Facts: The matter pertained to petitions which challenged summoning...
The Delhi High Court bench of Justice Amit Mahajan has held that independent, non-executive directors of an accused company cannot be held liable under Section 138 of the Negotiable Instruments Act, 1881, if the complaints do not include specific allegations detailing their active role in the offence.
Brief Facts:
The matter pertained to petitions which challenged summoning orders. Mr. Sandip Vinodkumar Patel & Ors. (Petitioners) sought. the quashing of these orders as well as the dismissal of the associated complaints filed under Section 138 of the Negotiable Instruments Act, 1881, in conjunction with Sections 141 and 142.
The background of the complaints involved an alleged transaction where the management of Sadbhav, together with the Petitioners, approached the Respondent company, STCI, for a corporate loan of ₹50 crores. On March 30, 2021, loan facility agreements were executed, and the amount was disbursed to Sadbhav on March 31, 2021. Subsequently, post-dated cheques were issued to the complainant for the payment of interest and repayment of the principal loan amount. However, when these cheques were presented for clearance, they were returned with the remark "Funds insufficient." This led to the filing of separate complaints by the complainant for the dishonor of the cheques under the respective loan agreements.
The Petitioners, who were independent directors of the accused company, argued that they cannot be held vicariously liable under Section 141 of the Negotiable Instruments Act. They submitted evidence, including Form 32 filed with the Registrar of Companies, indicating that they were appointed as Independent Additional Directors and were non-executive directors. Despite this, they are being implicated in the case under Section 141 of the Act.
Observations by the High Court:
The High Court noted that according to Section 141, a person can be held vicariously liable for an offence committed by a company if they are responsible for the conduct of the company's business at the relevant time.
The High Court referred to the Supreme Court judgment in Sunita Palita v. Panchami Stone Quarry [(2022) 10 SCC 152]. The Supreme Court held that a director who is not in charge of or responsible for the business of the company at the time of the offence cannot be held liable under Section 141. The Supreme Court held that it would be unjust to involve directors who are not connected with the issuance of the dishonoured cheque in criminal proceedings simply based on their designation. The decision noted that independent, non-executive directors are not involved in the day-to-day operations of the company and therefore are not responsible for its business conduct.
The Supreme Court's decision in Pooja Ravinder Devidasani v. State of Maharashtra [(2014) 16 SCC 1] clarified that non-executive directors, who do not participate in the company's day-to-day affairs, cannot be held responsible for the business operations. Further, it was held that complaints need to contain specific averments demonstrating that such directors were indeed in charge of and responsible for the company's business operations.
The High Court held that the complaints lacked specific allegations regarding the Petitioners' roles and responsibilities in relation to the dishonoured cheques. The general statements that all accused were responsible for the company's business management did not meet the requirements under Section 141.
Additionally, the High Court noted that, according to the decision of the Supreme Court in National Small Industries Corporation Ltd. v. Harmeet Singh Paintal [(2010) 3 SCC 330], merely stating that directors are in charge of and responsible for the business is insufficient to establish liability under Section 141. The High Court also referred to Pepsi Foods Ltd. v. Special Judicial Magistrate [(1998) 5 SCC 749], which held that summoning an accused should not be automatic and must show proper application of mind.
Therefore, the High Court exercised its discretion under Section 482 of the Criminal Procedure Code to quash the complaints and all consequential proceedings against the Petitioners.
Case Title: Mr. Sandip Vinodkumar Patel & Ors. Vs Stci Finance Ltd., & Anr.
Case Number: CRL.M.C. 3362/2024 & CRL.M.A. 12953/2024 and connected matters
Advocate for the Petitioner: Mr. Trideep Pais, Adv. (through VC) Ms. Devika Mohan, Adv.
Advocate for the Respondent: Ms. Vinita Sasidharan, Adv.
Date of Judgment: 12th August, 2024