Case Note & Summary
The matter arose from two criminal writ petitions filed under Article 227 of the Constitution of India before the High Court of Judicature at Bombay, challenging orders of the Metropolitan Magistrate summoning the petitioners as accused in complaints under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The complaints were filed by respondent no.2, the complainant, alleging dishonour of cheques issued by accused no.1, a limited company in the infrastructure business. Accused no.2 to 12 were described as directors and CFO, and accused no.13 as the company secretary. The complainant alleged that the company entered into a facility agreement with L&T Infrastructure Finance Co. Ltd. for Rs.100 crores, that a loan of Rs.68,97,39,582 was assigned to the complainant, and that cheques were dishonoured. The Magistrate issued process on 11 September 2017 and 13 October 2017 in two separate cases. Initially, the High Court rejected the petitions qua petitioners no.1 to 6 and 8 by order dated 16 August 2019. The complainant subsequently filed an affidavit stating that petitioners no.7, 9 and 10 were independent directors and the complainant was not desirous of pursuing the complaint against them. The remaining issue before the court was whether the complaint against petitioner no.11, the company secretary, was maintainable. The petitioners argued that under Section 141 of the Negotiable Instruments Act, a company secretary can be vicariously liable only if the complaint avers that he was in charge of and responsible to the company for the conduct of its business, or in the alternative that the offence was committed with his consent, connivance or negligence. They contended that the complaint only stated that accused no.2 to 13 were looking after and responsible for day-to-day affairs, but did not allege that petitioner no.11 was in charge of the business, nor did it particularize any role or negligence. Reliance was placed on the Supreme Court decision in K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48. The court reproduced the complaint averments in paragraphs 2, 3 and 5, finding that they stated accused no.2 to 13 were looking after and responsible for day-to-day affairs, conduct and management of the company, but did not aver that petitioner no.11 was 'in charge' of the business. Following para 23 of K.K. Ahuja, the court held that liability under Section 141(1) requires both a legal requirement of being responsible under the governing companies statute and a factual requirement of being in charge of the business. The expression 'looking after' was treated as distinct from 'in charge'. For Section 141(2), the court found the averments vague and general, without any particularisation of the company secretary's role in the facility agreement dated 28 March 2010, and without any allegation of consent, connivance or negligence. Accordingly, the court concluded that petitioner no.11 could not be made liable under either subsection of Section 141. The petitions were allowed, and Criminal Case No. 7854/SS/2016 and Criminal Case No. 9698/SS/2016 pending before the Metropolitan Magistrate, 33rd Court, Ballard Pier, Mumbai were quashed qua petitioner no.11/accused no.13. Rule was made absolute.
Headnote
A) Negotiable Instruments - Vicarious Liability of Company Secretary - Section 141(1) Negotiable Instruments Act, 1881 - A company secretary can be vicariously liable under Section 141(1) only if the complaint avers that he was both responsible to the company for the conduct of business and in charge of the business; a general averment that he was 'looking after and responsible for day-to-day affairs' does not satisfy the 'in charge' requirement. In this case, the complaint lacked a specific averment that petitioner no.11 was in charge of the business of the company. The court followed K.K. Ahuja v. V.K. Vora to hold that liability under Section 141(1) could not be attracted. Held that summons against petitioner no.11 under Section 141(1) was unsustainable. (Paras 7-14) B) Negotiable Instruments - Vicarious Liability of Officers Under Section 141(2) Negotiable Instruments Act, 1881 - For officers of a company to be liable under Section 141(2), the complaint must contain specific averments disclosing consent, connivance or negligence in the issue and dishonour of the cheque; vague and general allegations of being responsible for affairs are insufficient. The complaint in this case did not particularize the role of petitioner no.11 in the facility agreement dated 28 March 2010 or allege connivance or negligence. Held that petitioner no.11 could not be made liable under Section 141(2), and the criminal cases were quashed qua accused no.13. (Paras 14-15)
Issue of Consideration
Whether a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 against a Company Secretary is maintainable in the absence of averments that he was in charge of and responsible for the conduct of the business of the company, and in the absence of specific allegations of consent, connivance or negligence under Section 141(2).
Final Decision
The petitions were allowed. Criminal Case No. 7854/SS/2016 and Criminal Case No. 9698/SS/2016 pending on the file of Metropolitan Magistrate, 33rd Court, Ballard Pier, Mumbai were quashed qua petitioner no.11-accused no.13 in the complaints. Rule was made absolute.
Law Points
- Vicarious liability under Section 141(1) Negotiable Instruments Act
- 1881 requires averment that accused was both in charge of and responsible to company for conduct of business
- general averment of looking after day-to-day affairs is insufficient
- liability under Section 141(2) requires specific allegations of consent
- connivance or negligence
- company secretary cannot be prosecuted on vague and general allegations
