[Cheque Dishonor Case] Mere Designation As Director Of Company Is Insufficient To Establish Vicarious Liability U/s. 141 NI Act: Delhi HC

The Delhi High Court has quashed the summons orders issued against a practicing lawyer in a case registered under Section 138 of the Negotiable Instruments Act (NI Act), who as an Additional/Non-Executive Director of the accused company, had been summoned in his capacity as a director.

The High Court held so while considering petitions seeking to quash the complaint cases and the summoning orders, which pertained to the petitioner, who was a legal professional practicing before the Delhi Courts, and were related to the alleged offense under Section 138 of the NI Act.

A Single Judge Bench of Justice Dinesh Kumar Sharma observed that “merely mentioning the designation of the accused person in the company or reproducing the phraseology of the section 141 NIA is not sufficient to attract the guilt under section 141 NIA. The law is no longer res integra that specific allegations/averments have to be made as to how and in what manner the accused alleged to have committed an offence under section 138 NIA, was responsible for, or had a role in the conduct of the business of the company, at the relevant time, when the offence is said to have been committed. Simply because the accused person was a Director or was holding some other office in the company, the vicarious liability cannot be extend to such persons”.

Advocate Puneet Singh Bindra appeared for the Petitioner.

The brief facts of the case involved local brokers and associates of Today Homes and Infrastructure Pvt Ltd (accused company) approaching the complainants/respondents for investment in an upcoming residential project. The complainants were induced to enter into agreements with the company, under which the company was obligated to deliver possession of flats within 36 months from the agreement date. Each complainant was allotted one residential flat and made the corresponding payments. However, the company failed to deliver possession of the flats within the specified timeframe. Consequently, the complainants filed a complaint with the NCDRC, which, on January 31, 2017, directed the company to refund the entire amount received from the complainants, inclusive of service tax, VAT, and simple interest, within three months from the order date. To fulfil this liability, one Naveen Thakur and Rajesh Kumar, acting on behalf of the accused company, issued six 'At par' cheques in favour of each complainant. The complainants successfully presented the first two cheques, which were honored. However, when they attempted to deposit the subsequent two cheques, each valued at Rs 10,00,000 and drawn on IndusInd Bank, these cheques were dishonored. As the requisite payment was not made within the stipulated time frame, multiple complaint cases were filed under Section 138. In these cases, the petitioner was included as accused and was summoned in his capacity as a director of the accused company.

After considering the submission, the Bench noted that merely stating the accused person's designation within the company or reiterating the language of Section 141 of the NI Act was inadequate to establish guilt under Section 141 of the NIA.

The Bench emphasized that it was no longer a matter of debate that there must be specific allegations and assertions explaining how and in what capacity the accused, who was alleged to have committed an offense under Section 138 of the NIA, was involved in or responsible for conducting the company's business at the time when the offense occurred.

The Bench also clarified that the legal precedent was clear on this matter, stating that in order to establish vicarious liability under Section 141 of the NI Act, a specific role or involvement must be attributed to the accused individual.

Referring to the decision in case of Sunita Palita & Others vs M/s Panchami Stone Quarry [(2022) 10 SCC 152], the Bench found that in the present case, the petitioner had been appointed as an Additional Director/Non-Executive in the accused company w.e.f. Oct 25, 2019, whereas the cheques in question had been issued before his appointment as an Additional/Non-Executive Director in the accused company.

The Bench also remarked that the Magistrate, when issuing the summons, had taken cognizance of the offense under Section 138 and had mechanically summoned the petitioner in their capacity as a Director of the accused company, without exercising proper judicial discretion or consideration.

The High Court concluded that, based on the information provided, it was evident that the petitioner could not have been responsible for or in charge of the day-to-day affairs of the company or its business conduct at the time when the cheques were issued.

Additionally, noting that the petitioner was not a signatory to the cheques in question, the High Court added that it would be a miscarriage of justice and an abuse of the court's process to keep the complaints pending against the petitioner, especially in the absence of any substantial evidence against him for committing the alleged offense.

Therefore, the High Court acquitted the petitioner of the offenses alleged under Section 138 of the NI Act.

Cause Title: Varun v. Amit Khanna and Ors.

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