Delhi High Court Reiterates Factors To Be Considered Before Making A Person Vicariously Liable For Offences By Company Under S.138 NI Act

The Delhi High Court has reiterated the various necessary factors to be kept in mind before making a person vicariously liable for offences committed by a company under sec. 138 of the Negotiable Instruments Act, 1881.

Justice Subramonium Prasad listed out the following factors as laid down by the Supreme Court in various judgments:

- The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

- Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

- Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.

- Vicarious liability on the part of a person must be pleaded and proved and not inferred.

- If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

- If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.

- The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.

The Court dismissed a plea seeking quashing of Criminal Complaint filed under Section 138 of the Negotiable Instruments Act. The petitioner also sought to quash an order dated 03.02.2021 passed by the Trial Court issuing summons to him.

The respondent No.2 in the petition had filed a complaint before the Court of Metropolitan Magistrate, Saket Court alleging that he was appointed as the CFO of the India Ahead News Private Ltd. which is engaged in the business of running a TV news channel.

It was alleged in the complaint that the petitioner and the accused No.2, who was the son of the petitioner, were the directors of India Ahead News Pvt. Ltd. and that they were responsible for the day to day affairs of the company had been running the TV channel and actively controlling all the operations of the company.

It was alleged that in the year 2019, the salaries of staff including the complainant started getting delayed and the statutory obligations like the PF, ESI etc. were not being fulfilled by the company. It was further stated that since the dues and the arrears of salary were mounting up, at the request of petitioner's son, the complainant had offered to take a salary cut. However, when the cheques were presented for encashment, they were were returned with remark "insufficient fund".

The complaint came up for hearing in January last year however, since there was nothing on record to show that the accused No.2 and 3 were the directors of the company, the complainant was directed to place on record the Master Data of the company.

The said Master Data of the company was filed. After the pre- summoning evidence, summons were issued. The said order and the complaint was challenged before the High Court.

Senior counsel appearing for the petitioner submitted that the petitioner was over 80 years of age having several physical ailments and was no longer looking into day-to-day affairs of the company.

It was argued that the complainant being the former CFO of the company was well aware of the affairs of the company and he knew who was responsible for the conduct of the business of the company. It was thus stated that the averments in the complaint did not reflect the role of each of the directors in the company and summons could not have been issued to the Petitioner.

On the other hand, it was argued on behalf of the complainant/ respondent no. 2 that the petitioner and his son were together running the company. It was argued that there were only two directors and both the directors were responsible for the conduct of the affairs of the company.

Furthermore, it was argued that the question as to whether the Petitioner was also involved in the affairs of the company, was a matter of trial and the complaint could not be quashed. Accordingly, it was stated that offence under Section 138 of the NI Act was made out and no interference was warranted from the High Court at the present stage.

"It is not the case of the petitioner herein that he is a non-executive director. The petitioner is a full-time director. The complaint read as a whole indicates that at the time of cheques being issued by the company and returned by the bank, the son of the petitioner and the petitioner were the only directors of the company and were responsible for the conduct of the business of the company. This Court is, therefore, not inclined to interfere with the order dated 03.02.2021 issuing summons to the petitioner herein," the Court said.

The Court added that it was for the petitioner to establish in trial that he was not responsible for the conduct of the business of the company owing to his age and that the mere ipse dixit of the petitioner that he is 80 years of age and was unable to manage the affairs of the company could not be accepted and the complaint could not be quashed on that basis.

It added "The observations made by this Court is limited to the issue as to whether the complaint should be quashed or not because of the fact that the complaint does not state the exact role of the petitioner in the conduct of the business of the company. Needless to state, it is always open for the petitioner to substantiate his assertion that he was not responsible for the conduct of the business of the company by leading evidence which should be considered on its own merits without being influenced by the observations made in this order."

Accordingly, the plea was dismissed.

Case Title: GOPALA KRISHNA MOOTHA v. THE STATE GOVT OF NCT OF DELHI & ANR

Citation: 2022 LiveLaw (Del) 136

Click Here To Read Order