Section 138 NI Act - Summons To Directors Justified If Complaint Avers That They Were In Charge & Responsible For Conduct Of Business Of Company : Supreme Court

The Supreme Court has reiterated that the summons issued by a Magistrate on a complaint under Section 138 of the Negotiable Instruments Act to the Directors of a Company is justified if the complaint contains the basic averment that they were in charge and responsible for the conduct of the business of the company.

A bench comprising Justices Ajay Rastogi and Abhay S Oka was dealing with an appeal against a High Court judgment which refused to exercise powers under Section 482 of the Code of Criminal Procedure to quash the summons issued to the Directors of a Company, which was facing a complaint over dishonour of cheque(Ashutosh Ashok Parasrampuriya and another versus M/s Gharrkul Industries Pvt Ltd).

The complaint had averred that all Directors of the appellant Company are responsible for its business and all the appellants are involved in the business of the Company and are responsible for all the affairs of the Company. Taking this into account, the High Court had dismissed the petition filed under Section 482 CrPC by the Directors.

Approving the decision of the High Court, the Supreme Court noted that it is well settled by precedents that powers under Section 482 CrPC cannot be invoked to quash the summons against the Directors if the complaint has the basic averments against them. The Court noted that Section 141 of the NI Act imposes vicarious liability on the "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"

However, it is open for the Directors to contest during the trial that they were not in charge and were not responsible for the conduct of the company.

"We are concerned in this case with Directors who are not signatories to the cheques. So far as Directors who are not the signatories to the cheques or who are not Managing  Directors or Joint Managing Directors are concerned, it is clear from the conclusions drawn in the afore­stated judgment that it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company", the Court observed.

The Court added that "this averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director". If this basic averment is missing, the Magistrate is legally justified in not issuing process.

"In the case on hand, reading the complaint as a whole, it is clear that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business and all the appellants were involved in the business of the  Company and were responsible for all the affairs of the Company. It may not be proper to split while reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to fulfil the requirement of Section 141 of the NI Act. The complaint specifically refers to the point of time when the cheques were issued, their presentment,dishonour and failure to pay in spite of notice of dishonour. In the given circumstances, we have no hesitation in overruling the argument made by the learned counsel for the appellants".

Case Details

Case Title : Ashutosh Ashok Parasrampuriya and another versus M/s Gharrkul Industries Pvt Ltd

Coram    : Justice Ajay Rastogi and Justice Abhay S Oka

Citation : LL 2021 SC 560

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