Case Note & Summary
The applicants, K & K Foundry Pvt. Ltd. and its two directors, filed an application under Section 482 of the Code of Criminal Procedure, 1973 seeking quashing of Summary Criminal Case No. 12363/2018 pending before the Judicial Magistrate First Class, Nagpur, for an offence under Section 138 of the Negotiable Instruments Act, 1881. The non-applicant, Goyal Iron and Steel (Nagpur) Pvt. Ltd., had filed the complaint alleging that the applicant company had issued eight cheques totaling ₹2,75,20,619/- towards payment for pig iron supplied, which were dishonored due to insufficient funds. A statutory notice was issued but the amount was not paid. The applicants contended that the complaint did not contain specific averments against the directors (applicants 2 and 3) regarding their role in the company's business, and therefore, the proceedings against them were an abuse of process. The court analyzed the complaint and found that it merely described the directors as directors without stating that they were in charge of and responsible for the conduct of the business. Relying on the principle that vicarious liability under Section 138 NI Act requires specific averments, the court held that the complaint against the directors did not meet the legal requirements. Consequently, the court quashed the complaint against the directors but allowed it to proceed against the company. The court emphasized that continuing proceedings against the directors would be an abuse of process of law.
Headnote
A) Criminal Law - Negotiable Instruments Act - Section 138 - Vicarious Liability of Directors - Requirement of Specific Averments - The court considered whether directors can be held vicariously liable under Section 138 NI Act without specific allegations of their role in the company's affairs. Held that mere description as directors is insufficient; complaint must contain specific averments that the directors were in charge of and responsible for the conduct of the business at the time of the offence. (Paras 6-10) B) Criminal Procedure Code - Section 482 - Quashing of Complaint - Abuse of Process - The court examined the scope of inherent powers to quash a complaint that does not disclose essential ingredients of the offence. Held that where the complaint lacks specific averments against directors, continuing proceedings would be an abuse of process of law. (Paras 11-13)
Issue of Consideration
Whether a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 can be sustained against the directors of a company in the absence of specific averments regarding their role and responsibility in the conduct of the company's business.
Final Decision
The court allowed the application in part and quashed the complaint against applicant nos. 2 and 3 (directors) while permitting the complaint to proceed against applicant no. 1 (company).
Law Points
- Section 138 Negotiable Instruments Act
- 1881
- vicarious liability of directors
- quashing of criminal complaint
- Section 482 CrPC
- requirement of specific averments
