Case Note & Summary
The petitioners, who were Directors of a cooperative housing society, filed a writ petition under Article 226 of the Constitution of India read with Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of Criminal Case No. 1234 of 2011 pending before the Metropolitan Magistrate, 37th Court, Andheri, Mumbai, arising out of a complaint filed by the respondent under Section 138 of the Negotiable Instruments Act, 1881. The respondent had supplied goods to the society, and the society issued cheques which were dishonoured. The respondent filed a complaint against the society and its Directors, including the petitioners. The petitioners contended that they were not in charge of the day-to-day affairs of the society and that the complaint did not contain any specific averments to show that they were responsible for the conduct of the business of the society. The court examined the provisions of Section 141 of the Negotiable Instruments Act, which deals with offences by companies. It noted that for a Director to be held vicariously liable, the complaint must specifically allege that the Director was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court found that the complaint merely named the petitioners as Directors without any such specific averments. Relying on the Supreme Court's decision in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, the court held that the requirement of specific averments is mandatory. Consequently, the court quashed the criminal proceedings against the petitioners, allowing the writ petition.
Headnote
A) Criminal Law - Negotiable Instruments Act - Dishonour of Cheque - Vicarious Liability of Directors - Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 - The petitioners, Directors of a cooperative housing society, sought quashing of criminal proceedings for dishonour of cheques issued by the society. The court held that for vicarious liability to attach, the complaint must contain specific averments that the accused was in charge of and responsible for the conduct of the business of the society. In the absence of such averments, the proceedings against the Directors are liable to be quashed. (Paras 6-10) B) Criminal Procedure Code - Quashing of FIR - Abuse of Process - Section 482 of the Code of Criminal Procedure, 1973 - The High Court has inherent power to quash proceedings to prevent abuse of process of court. Where the complaint does not disclose the essential ingredients of the offence against the Directors, continuing the proceedings would be an abuse of process. (Paras 11-12)
Issue of Consideration
Whether the Directors of a cooperative housing society can be prosecuted under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 for dishonour of cheques issued by the society, in the absence of specific allegations that they were in charge of and responsible for the conduct of the business of the society.
Final Decision
The court allowed the writ petition and quashed the criminal proceedings against the petitioners.
Law Points
- Vicarious liability under Section 141 of the Negotiable Instruments Act
- 1881 requires specific averments that the accused was in charge of and responsible for the conduct of the business of the company
- Directors of a cooperative housing society cannot be automatically deemed to be in charge of the day-to-day affairs of the society
- Quashing of criminal proceedings is warranted when the complaint lacks necessary averments to satisfy the requirements of Section 141
- The power under Section 482 of the Code of Criminal Procedure
- 1973 can be exercised to prevent abuse of process of court.
