Vicarious Liability Of Directors Of Company Not Attracted Unless Assertions As Required U/s 50(1) National Housing Bank Act Are Made: SC
The Supreme Court observed that since Section 50(1) of the National Housing Bank Act is pari materia with Section 141 of the Negotiable Instruments Act, vicarious liability of the Directors of the company is not attracted unless specific assertions are made.
A Bench of Justice Abhay S. Oka and Justice Augustine George Masih observed, “Hence, there were no assertions made that the second to seventh accused, at the time of the commission of the offence, were in charge of, and responsible to the first accused company for the conduct of its business. Unless assertions, as required by sub-Section (1) of Section 50, are made, vicarious liability of the Directors of the first accused company is not attracted.”
AOR Navin Prakash appeared for the appellant, while Sr. Advocate Joseph Aristotle S represented the respondents.
The Court noted that the Magistrate initially took cognizance of the complaint for the offence under Section 29A (i) read with Section 50 and punishable under Section 49 (2A) of the 1987 Act. Section 49(2A) prescribes a minimum sentence of one year, which may extend to five years. The complaint was quashed by the High Court on the grounds that the requirements of sub-Section (1) of Section 50 of the 1987 Act, similar to Section 141 of the Negotiable Instruments Act, 1881 (NI Act) were not met by the complainant.
The appellant's counsel argued that a plain reading of the complaint indicated a clear violation of Section 29A (i) of the 1987 Act. The complaint asserted that the second accused was the Managing Director and the others were Directors, all responsible for the conduct of the company’s business.
However, the Court noted the absence of specific averments required by sub-Section (1) of Section 50 of the 1987 Act in the complaint. “There is no dispute that sub-Section (1) of Section 50 is pari materia with Section 141 of the NI Act,” the Court stated.
The Court referred to the precedent set by a three-judge bench in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005), which clarified that specific averments are essential for establishing liability under Section 141 of the NI Act, and by extension, Section 50 of the 1987 Act. The Court concluded that merely being a director is insufficient to attract liability under these provisions.
Consequently, the Court held, “Hence, in the absence of the averments as contemplated by sub-section (1) of Section 50 of the 1984 Act in the complaint, the Trial Court could not have taken cognizance of the offence against the third to seventh accused, who are allegedly the directors of the first accused company. However, the second accused being the Managing Director, would be in charge of the company and responsible to the company for its business.”
Accordingly, the Supreme Court partly allowed the appeals.
Cause Title: National Housing Bank v. Bherudan Dugar Housing Finance Ltd. & Ors. (Neutral Citation: 2024 INSC 566)
Appearance:
Appellant: AOR Navin Prakash
Respondents: Sr. Advocate Joseph Aristotle S; Advocates Priya Aristotle and Nikita Patra; AOR Ashish Yadav