Company Executive Director Not Shielded From NI Act Proceedings Merely Because His Name Not In ROC: Telangana High Court

The Telangana High Court has held that an Executive Director of a company will not be shielded from proceedings under the Negotiable Instruments Act merely because his/her name is not reflected in the record of the Registrar of Company Affairs (ROC).

"While relying upon the records of Registrar of Company Affairs, learned counsel for the petitioner would submit that it is an established fact that the petitioner is not an authorized signatory for the affairs of accused Company as his name is not shown in the said records. Therefore, prosecuting the petitioner would render an abuse of process of law. This contention does not find any merit for consideration by this Court in the absence of any shield provided in the N.I.Act on that aspect."

Justice E.V. Venugopal further observed that the ROC does not authenticate the role of Directors.

"Moreover, it can be inferred that R.O.C. records doesn’t authenticate the role of the Directors except that the recorded authorized signatories under R.O.C. records are designated to deal with the necessary provisions contemplated under the Companies Act with Registrar of Company Affairs and not on the affairs of the business transactions of the legal entities particularly in relation to N.I.Act. "

The Bench was hearing a petition filed by one of the accused in a cheque bouncing case, claiming that the N.I. proceedings initiated against him as the executive director of M/s Bheema Cement Ltd were untenable and deserved to be quashed.

The proceedings under the NI Act were initiated by M/s Gangadhar Oil Refinery India Limited (Respondent No. 1) against M/s. Bheema Cements Limited, its Chairman, Managing Director, Whole-time Director, Director, Director, Executive Director and authorized signatories contending that all the accused were vicariously liable under sections 138 and 142 of the N.I. Act for issuing cheques that dishonoured and prayed for compensation

The Oil Refinery contended that M/s Bheema had been purchasing Indonesian steam coal and South African steam coal on credit from them, and made part payments for the same by way of letter of credit.

After all accounts were adjusted, M/s Bheema owed an amount of INR4,08,75,201/- to the respondent No1/oil refinery. The refinery made multiple demands for payment of amounts due in the years 2013 and 2014, but the cheques issued by M/s Bheema were dishonoured either due to insufficient funds or the account being blocked.

Aggrieved, the refinery initiated proceedings against M/s Bheema and the other accused. They contended that the Executive Director (petitioner herein) was in charge of the day-to-day working of the Corporation and worked in connivance with the signatories, who in turn issued the Cheques.

The counsel on behalf of the petitioner contended that even though the petitioner entered into the role of the Executive Director, none of the ROC records reflected the same. Furthermore, the petitioner was neither the signatory on the cheques nor responsible for the day-to-day functioning of the Company and as such cannot be made liable for the cheque that was dishonored.

The respondent on the other hand contended that the petitioner had admitted to being the Executive Director of the Company in a letter and also in another case pending before the Sessions Court. Further, the petitioner had admitted in the above-mentioned case, that he was the Executive Director of the Company as of 2014 and later became a shareholder and thereafter resigned from the post of Executive Director.

Justice Venugopal observed, that by a letter dated 2005, the accused company had promoted the petitioner herein to the post of Executive Director and made him the head of the day-to-day functioning of the Company with specialization in finance and as such he could not evade liability.

"it can be averred that the petitioner herein being in active connivance in relation to the affairs of the company, mischievously and intentionally issued the cheque in question in favor of the Bank concerned. Therefore, the petitioner is also vicariously liable under Section 141 of N.I. Act as he is responsible to the company for the conduct and business of the company and also in charge of business of the company. "

While dismissing the petition the Court directed that if the petitioner wanted to elicit that he was not an Executive Director he could do so in the trial before the Lower Court.

CRIMINAL PETITION Nos. 9706, 9715, 9724, 9725, 9726, 9727 and 9728 of 201

Counsel for petitioner: K ANNAPURNA REDDY

Counsel for respondents: K. Rama Rao, representing V. R. Avula

Vizarath Ali, Assistant Public Prosecutor

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