Negotiable Instruments Act Being Penal Statute Should Receive Strict Construction: Delhi High Court

The Delhi High Court has observed that the Negotiable Instruments Act, 1881 should receive strict construction for the reason of being a penal statute.

Justice Manoj Kumar Ohri also observed that specific averments in a criminal complaint which satisfies the requirements of sec. 141 of the Act are imperative in nature.

Sec. 141 of the Negotiable Instruments Act talks about the offences by companies. It states that "if a person committing an offence under sec. 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly."

The Court was dealing with two petitions filed by a dormant Director out of the many Directors of one company namely Daily Life Retail and Trading Pvt. Ltd., seeking quashing of the complaint cases and other proceedings initiated under sec. 138 and 141 of the Act. 

It was also prayed that the order dated 07.04.2021 passed by the Metropolitan Magistrate (N.I. Act) of the Saket Courts be quashed whereby his application seeking discharge of the proceedings against him was dismissed.

The facts of the case are that the complainant namely M/S IFCI Factors Limited, respondent no. 1 in the matter, had filed the two complaints claiming that the cheques in question were issued in its favour by the accused company, and that they were dishonoured and returned with the remarks 'account closed'.

Resultantly, a legal notice dated July 30, 2010 was issued and on failure of the accused persons to clear the outstanding payment in terms of the cheques in question, the complaints were filed.

It was thus the case of the petitioner that only bald and vague allegations were made against him as he was a dormant Director out of the many Directors of the accused company.

It was submitted that the petitioner was not responsible for the running of day-to-day affairs of the company and that he was neither a signatory to the Agreement executed between the complainant company and the accused company, nor did he sign the cheques in question.

It was also argued that the two complaints were bereft of the necessary ingredients as required under sec. 138 of the Act.

Perusing the said complaints in question, the Court was of the view that the the complainant alleged that the petitioner had agreed to guarantee the repayment of all payments payable by the accused company in terms of the Factoring Agreement.

"From a reading of the judicial dicta on Section 141 N.I. Act and in light of the discussion undertaken hereinabove, this Court is of the opinion that the N.I. Act being a penal statute should receive strict construction. Thus, specific averments in a criminal complaint which satisfy the requirements of Section 141 N.I. Act are imperative," the Court observed.

On the facts of the case, the Court said:

"On a prima facie view of the material placed on record in the present case, it is apparent that specific allegations have been levelled against the petitioner. Apart from the basic averment that the petitioner was in-charge of and responsible for the day-to-day business of the accused company, it was further averred in the complaint that the petitioner, being a Director, was in charge of the financial decision-making of the accused company and he had agreed to guarantee repayment of all amounts payable by the accused company to the complainant in terms of the Factoring Agreement."

The Court however said that the issue whether or not the conditions stipulated in sec. 141 of the Act were fulfilled in the case shall be a matter of trial.

Opining that the allegations levelled could not be called as bald and vague, the Court dismissed the petitions.

Appearances: Advocates Amit George, Saurabh Bhargavan, Rayadurgam Bharat and Shweta Sharma appeared for the petitioner.

Title: R. VIJAY KUMAR v. M/S IFCI FACTORS LIMITED & ORS.

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