Case Note & Summary
The applicants, Mukund Ajay Kumar Choudhary, Kapil Ajay Kumar Choudhary, and Ajay Kumar Choudhary, were directors of CLC Industries Ltd., the accused No.1 in a complaint under Section 138 of the Negotiable Instruments Act, 1881. The respondent, K.B. Board Mills LLP, had supplied paper cones on credit to the company, and a cheque for Rs.20,00,000 was issued by authorized signatories (accused Nos.8 and 9) dated 26/12/2018. The cheque was dishonoured due to signature mismatch. After demand notice, the amount was not paid, leading to the complaint. The applicants, being directors, were arrayed as accused Nos.2, 3, and 4. They filed an application under Section 482 CrPC seeking quashing of the complaint against them. The legal issue was whether directors could be vicariously liable under Section 138 NI Act without specific allegations that they were in charge of and responsible for the conduct of the business at the time of the offence. The applicants argued that the complaint lacked such averments and that they were not involved in day-to-day affairs. The respondent contended that directors are liable. The court analyzed the complaint and found that it did not contain specific statements that the applicants were responsible for the conduct of the business. Relying on precedents, the court held that vicarious liability requires such allegations. The court quashed the complaint against the applicants, allowing the application.
Headnote
A) Criminal Law - Negotiable Instruments Act - Section 138 - Vicarious Liability of Directors - Complaint Quashed - The applicants, directors of the accused company, sought quashing of complaint under Section 138 NI Act. The complaint lacked specific averments that they were in charge of and responsible for the conduct of the business of the company at the time the cheque was issued. Held that without such allegations, directors cannot be held vicariously liable. The complaint against them was quashed. (Paras 1-24) B) Criminal Procedure Code - Section 482 - Quashing of Complaint - Abuse of Process - The High Court exercised inherent powers to quash the complaint against the directors as the continuation of proceedings would be an abuse of process of law. The allegations in the complaint did not make out a case against them. (Paras 1-24)
Issue of Consideration
Whether the criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 against the applicants (accused Nos.2, 3 and 4), who are directors of the company, can be quashed in the absence of specific allegations regarding their role and responsibility in the conduct of the company's business at the time the cheque was issued.
Final Decision
The application is allowed. The Summary Criminal Complaint Case No.1185/2019 pending before the Judicial Magistrate, First Class, Hinganghat, District Wardha is quashed and set aside insofar as it relates to the applicants (accused Nos.2, 3 and 4). Rule is made absolute accordingly.
Law Points
- Vicarious liability of directors under Section 138 NI Act requires specific averments of role and responsibility at time of offence
- Quashing under Section 482 CrPC for abuse of process
- Directors not liable merely because they are directors
