Proceedings U/S 138 Of NI Act Not Maintainable Against Independent Non-Executive Directors Of A Company, Reiterates Delhi HC [Read Judgment]

The order passed by Justice Manoj Kumar Ohri relies on a Supreme Court judgment in Pooja Ravinder Devidasani v. State of Maharashtra & Anr., 2014(14) SCALE to highlight that for arraigning a director as an accused in criminal proceedings for dishonor of cheque, it must be shown that the director concerned was in charge of and was responsible to the Company for the conduct of its business.

In Pooja Ravinder Devidasani (supra), the apex court had examined the issues relating to vicarious liability of a Non-executive Director. It concluded therein,

"Non-executive Director is no doubt a custodian of the governance of the Company but does not involve in the day-today affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business. Simply because a person is a Director of a Company, does not make him liable under the N.I. Act. Every person connected with the Company will not fall into the ambit of the provision."

This position was reiterated by the top court recently in Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443 and by a coordinate bench of the Delhi High Court in Har Sarup Bhasin v. M/s Origo Commodities India Pvt. Ltd., 2020 SCC Online Del 9.

In the present case, the Petitioners, non-executive independent additional directors of a private company had challenged the summoning order passed by the court of Metropolitan Magistrate in proceedings under Section 138, initiated by M/S Kit Marketing Pvt. Ltd.

They submitted that the cheques in question were drawn from the account maintained by company in which they were non-executive directors and that they were never involved in the day to day affairs of the company at any point of time.

The court also noted that it was an admitted case of the Respondent that the Petitioners were neither the Managing Directors nor the signatories to the cheques in question. Further, the Respondents had not made any specific averment regarding the involvement of the Petitioners in the day to day affairs of the company.

In this backdrop the court held,

"A perusal of the complaint filed under Section 138 r/w Sections 141/142 of NI Act filed by the complainant shows that except for the general allegation stating that the petitioners were responsible for control and management and day to day affairs of the accused company, no specific role has been attributed to the petitioners. To fasten the criminal liability under The Negotiable Instruments Act, 1881, the above generalised averment without any specific details as to how and in what manner, the petitioners were responsible for the control and management of affairs of the company, is not enough."

Accordingly, the court quashed the impugned summoning orders qua the Petitioners herein.

Last year, the Supreme Court had also observed in AD Radha Krishna v. Dasari Deepthi & Ors., 2019 SCC Online SC 357, that,

"In a case pertaining to an offence under S. 138 and S. 141 of the Act, the law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for, the conduct of the company's business at the time when the offence was committed. The High Court, in deciding a quashing petition under S. 482, Cr.P.C., must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time."

Case Details:

Case Title: Sunita Palta & Ors. v. M/S Kit Marketing Pvt Ltd

Case No.: Crl MC 1410/2018

Quorum: Justice Manoj Kumar Ohri

Appearance: Advocate Saraswata Mohapatra (for Petitioner); Advocate Rajiv Sharma (for Respondent)

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