Sections 138, 141 NI Act – Liability Depends On Role Of Director In Affairs Of Co. And Not On Designation Alone - SC

The Bench of Justice Indira Banerjee and Justice JK Maheshwari observed –

"Liability depends on the role one plays in the affairs of a company and not on designation or status alone as held by this Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla."

The Court also held that it would be a travesty of justice to drag Directors who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc. into criminal proceedings under the NI Act, only because of their designation.

In this case, the Respondents M/s Panchami Stone Quarry (PSQ) filed a petition of complaint against the Appellants under Section 138/141 NI Act.

In the petition of complaint, PSQ impleaded M/s MBL Infrastructure Limited, a public limited company, within the meaning of the Companies Act 2013 as Accused No.1. One Mr Anjanee Kumar Lakhotia, Managing Director of the Accused Company was impleaded as the Accused No.2 and the Appellants were impleaded as Accused Nos. 3, 4 and 5. Appellant No.1 was the fourth accused, Appellant No.2 was the fifth accused and Appellant No.3 was the third accused.

Pursuant to some purchase orders made by the Appellants, PSQ supplied materials to the accused company and raised bills totalling Rs.2,31,60,674/- on the accused company.

In the discharge of its liability against the bills raised by PSQ on the Accused Company, the Accused Company had issued an Account Payee Cheque or a sum of Rs.1,71,08,512/ in favour of PSQ.

Upon depositing the cheque, PSQ received intimation of dishonour of the cheque from its banker.

PSQ alleged that the accused company did not pay the amount of the dishonoured cheque within the time stipulated. PSQ filed a complaint under Section 138 read with Section 141 NI Act, through its Proprietor.

The Additional Chief Judicial Magistrate, 2nd Court, Suri, Birbhum registered the petition as a complaint case, and after taking cognizance, directed issuance of summons to the Accused, with liberty to the Accused to adopt plea bargaining. Thereafter, the case was transferred to Judicial Magistrate, 2nd Court, Suri, Birbhum.

Thereafter, the accused appeared through their Advocates and filed petitions under Sections 205 and 305 CrPC.

Section 205 - Magistrate may dispence with personal appearance of accused, ii) Section 305 - Procedure when corporation or registered society is an accused.

The Judicial Magistrate, 2nd Court, Suri, Birbhum declined to dispense with the appearance of the Appellants and directed the accused to appear on the next date.

Appellants then filed a Criminal Revisional Application before the Calcutta High Court under Section 482 CrPC praying that the proceedings under Section 138 read with Section 141 of the NI Act pending in the Court of the Judicial Magistrate, 2nd Court, Suri be quashed and pending such order, all proceedings in the said case be stayed.

The Single Bench of the High Court rejected the application under Section 482 of the CrPC.

Aggrieved, the Appellants approached the Supreme Court.

The Appellants claimed that they are independent non-executive Directors of the Accused Company, who are in no way responsible for the day-to-day affairs of the Accused Company.

Senior Advocate Sidharth Luthra appeared for the Appellants before the Apex Court.

The Apex Court noted that the High Court rightly held that when a complaint was filed against the Director of the company, a specific averment that such person was in charge of and responsible for the conduct of the business of the company was an essential requirement of Section 141 of the NI Act, in this context, the Bench further observed –

"The High Court also rightly held that merely being a Director of the company is not sufficient to make the person liable under Section 141 of the NI Act. The requirement of Section 141 of the NI Act was that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company. This has to be averred as a fact."

"The High Court also rightly held that the Managing Director or Joint Managing Director would admittedly be in charge of the company and responsible to the company for the conduct of its business by virtue of the office they hold as Managing Director or Joint Manging Director. These persons are in charge of and responsible for the conduct of the business of the company and they get covered under Section 141 of the NI Act. A signatory of a cheque is clearly liable under Section 138/141 of the NI Act," the Court held.

The Bench further held that the High Court failed to appreciate that none of these Appellants was Managing Director or Joint Managing Director of the accused company. Nor were they signatories of the cheque which was dishonoured.

"The High Court proceeded to hold that, in construing a complaint, a hyper technical approach should not be adopted, to quash the same. The High Court observed rightly that the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions, resulting in enactment of Sections 138 and 141 of the NI Act has to be borne in mind," the Bench opined.

The Court held that a complaint should also not be read with a pedantically hyper technical approach to deny relief under Section 482 of the Cr.P.C. to those impleaded as accused, who do not have any criminal liability in respect of the offence alleged in the complaint.

The Court also observed that every person connected with the company does not fall within the ambit of Section 141 of the NI Act.

The Bench additionally also held that a Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions.

The Bench thus held that the High Court erred in law in not exercising its jurisdiction under Section 482 CrPC to grant relief to the Appellants.

In the light of these observations, the Court allowed the appeal and set aside the impugned order of the High Court and quashed the criminal case pending against the Appellants with a specific finding that the proceedings may continue against the other accused in the criminal case, including in particular the Accused Company, its Managing Director/Additional Managing Director and/or the signatory of the cheque in question.

Cause Title -  Sunita Palita & Others v. M/s. Panchami Stone Quarry

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