Complainant U/S 138 NI Act May Not Know Exact Role Of Company Directors, Basic Averment About Vicarious Liability Sufficient: Karnataka High Court

A single judge bench of Justice M Nagaprasanna observed,

"The complainant is supposed to know only generally as to who were in-charge of the affairs of the Company... the complainant is expected to allege that the persons named in the complaint are in-charge of the affairs of the Company... The burden would be on the Board of Directors or persons in-charge of the affairs of the Company to show that they are not liable to be convicted."

The reason for this is that only the Directors of the Company have special knowledge of the role that they play in the Company. "The existence of any special circumstance that makes them not liable is something that is particularly within their knowledge and it is for them to establish in the trial to show that at the relevant point in time they were not in-charge of the affairs of the Company," Court said.

In this regard, it heavily relied on Supreme Court's decision in SP Mani & Mohan Dairy v. Dr. Snehalatha Elangovan, where it was held as follows:

1) The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction.

In the instant case, the Petitioners, directors of Hoysala Projects Private Limited (the Company) sought dismissal of the complaint against them.

The respondent- Complainant averred that it had entered into certain transactions with the the Company, in furtherance of which, the authorised signatory of the Company issued certain cheques in its favour, which were dishonoured for want of sufficient funds.

The petitioners contended that they had no role to play in the transaction, which is between the Company and the complainant. They are only the directors of the Company and were not aware of the day-to-day affairs. It was submitted that accused No.1 is the Company, accused No.2 is the Chairman and Managing Director, accused No.5 is the Director, the signatory to the cheques. Therefore, accused Nos.1, 2 and 5 are the ones who have to answer the charge and not the petitioners.

Findings:

The bench primarily relied on SP Mani (supra) to reiterate that once necessary averments are made in the statutory notice issued by the complainant in regard to vicarious liability of the partners (in this case directors) and upon receipt of such notice, if the partner (director) keeps quiet and does not say anything in reply to the same, then the complainant has all the reason to believe that what he has stated in the notice has been accepted by the noticee.

Further it has said the complainant is supposed to know only generally as to who were in-charge of the affairs of the Company. It is only the Directors of the Company or the Partners of the Firm who will have special knowledge of the role that they play in the Company. The burden would be on the Board of Directors or persons in-charge of the affairs of the Company to show that they are not liable to be convicted.

Following which the court said, "The contents of the notice, the reply given by the noticee and the contents of the complaint would form an important part of arraigning the accused into the proceedings under Section 138 of the NI Act."

It then said, "The complainant in the afore-quoted paragraphs has clearly narrated that accused No.2 is the Chairman and Managing Director and accused Nos. 3 to 5 are the Directors of accused No.1 Company. They are responsible for the day-to-day affairs being in charge of all the affairs of the Company. Respondent has produced certain documents before this Court which is form No.12 issued in terms of Section 7(1)(c), 168 & 170(2) of the Companies Act, 2013 which depict the petitioners to be whole time Directors and promoters of the Company.''

It added, ''The said documents would become circumstance enough for the petitioners to be hauled into these proceedings as, in terms of the judgment of the Apex Court in the case of S.P.MANI (supra), a basic averment that is required for the complainant to allege is the role of the petitioners. It is later, for the petitioners to defend themselves in the proceedings.''

Accordingly, in view of the contents of the legal notice and the complaint averments (supra) making allegations and the documents which depicted the petitioners to be whole time Directors and Promoters, the High Court dismissed the quashing petition. It said, "A basic averment that is required for the complainant to allege is the role of the petitioners. It is later, for the petitioners to defend themselves in the proceedings."

Case Title: HEENA THIRUMALI SATEESH & ANR v. M/S MINIMELT ENGINEERS INDIA

Case No: CRIMINAL PETITION No.2340 OF 2022

Citation: 2022 LiveLaw (Kar) 455

Date of order: 02ND DAY OF NOVEMBER, 2022

Appearance: DILIP KUMAR I.S., ADVOCATE for petitioner; AJAY R.A., ADVOCATE for respondent.

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