Case Note & Summary
The petitioner, Pradeep Khetshi Shah, filed a criminal writ petition under Article 227 of the Constitution of India and Section 482 of the Code of Criminal Procedure, 1973, challenging the orders and proceedings initiated by respondent No.2 under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The respondent No.2, a public limited company acting as a spot exchange, had filed a complaint against accused No.1 (a company) and its directors (accused Nos. 2 to 7) for dishonour of a cheque issued by accused No.1. The cheque was signed by accused No.2, the Managing Director. The complaint alleged that accused Nos. 2, 3, and 4 managed the day-to-day affairs of accused No.1 and were in charge and control, and that accused Nos. 5 to 7 were also aware and responsible for the day-to-day affairs. The petitioner, who was accused No.3, sought quashing of the proceedings against him and other non-signatory directors. The legal issue was whether the complaint contained sufficient averments to attract vicarious liability under Section 141 of the NI Act. The petitioner argued that there were no specific allegations that he was in charge of and responsible for the conduct of the business, and that mere designation or general statements were insufficient. The respondent contended that the allegations were sufficient to proceed. The court analyzed the law, relying on precedents such as S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and others, and held that for vicarious liability, the complaint must specifically state that the accused was in charge of and responsible for the conduct of the business. The court found that the complaint lacked such specific averments against accused Nos. 3 to 7, and therefore quashed the proceedings against them, while allowing the complaint to proceed against accused No.1 and accused No.2.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Vicarious Liability of Directors - Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 - The court examined whether directors who are not signatories to the cheque can be prosecuted under Section 138 read with Section 141 of the NI Act. 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 company at the time the offence was committed. Mere designation as director or general allegations that the accused were aware and responsible for day-to-day affairs are insufficient. The court quashed proceedings against accused Nos. 3 to 7 as the complaint lacked such specific averments. (Paras 10-20)
Issue of Consideration
Whether criminal proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 can be quashed against directors who are not signatories to the cheque and against whom there are no specific averments of being in charge of and responsible for the conduct of business of the company.
Final Decision
The court allowed the petition and quashed the criminal proceedings against the petitioner (accused No.3) and accused Nos. 4 to 7. The proceedings against accused No.1 (company) and accused No.2 (Managing Director and signatory) were allowed to continue.
Law Points
- Vicarious liability under Section 141 NI Act requires specific averments that the accused was in charge of and responsible for the conduct of business
- mere designation or general allegations insufficient
- criminal proceedings can be quashed if complaint lacks such averments
