High Court of Judicature at Bombay Aurangabad Bench Considers Applications to Quash Process Issued Under Section 138 of the Negotiable Instruments Act, 1881 for Want of Specific Averments Under Section 141. Applicants, Former Directors, Assert They Ceased to Be Directors Before the Offence and Were Not in Charge of Daily Affairs.

Criminal applications under Section 397 read with Section 482 of the Code of Criminal Procedure, 1973 to quash the process issued in a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.

Applicants sought to quash the process issued against them and to be discharged from the complaint.

Applicants claimed that the complaint did not contain the necessary averments to make them vicariously liable under Section 141 of the Negotiable Instruments Act and that they had ceased to be directors of the accused company before the offence occurred.

The Chief Judicial Magistrate issued process on 19 December 2002. The Adhoc Additional Sessions Judge-1, Osmanabad rejected the criminal revision applications on 22 October 2012.

Whether the complaint contained specific averments as required under Section 141 of the Negotiable Instruments Act, 1881 to make the applicants vicariously liable. Whether the applicants, being additional directors/non-executive directors, could be deemed to be in charge of and responsible for the conduct of the business of the company at the time of the offence. Whether the applicants had ceased to be directors prior to the offence by operation of law under the Companies Act, 1956.

Applicants argued that they were non-executive or additional directors not involved in day-to-day affairs and that the complaint lacked specific averments as required by Section 141 of the Negotiable Instruments Act. Applicants contended that after the Annual General Meeting on 29 September 2001, they did not sign Form No. 29 under Section 264(2) of the Companies Act, 1956, and therefore ceased to be directors before the cheque was issued on 20 April 2002. Applicants relied on orders of SEBI and Supreme Court judgments to show that vicarious liability does not attach without specific averments and that they were not responsible for the conduct of the business. Respondent argued that the complaint contained sufficient and complete particulars as required by law and that the applicants were directors involved in day-to-day working, thus process was rightly issued.

The complainant has filed complaint under Section 138 of the Act claiming that the complainant Bank had credited an amount of Rs.30 Crores in the account of Accused No.1 Company to procure Government Securities. Although the amount was paid, Government Securities were not procured and hence complainant persuaded Accused No.1 Company and the Accused No.1 issued cheque on 20th April 2002, in favour of the complainant Bank. The cheque got dishonoured and the complaint has been filed contending that Accused No.1 along with Directors – Accused Nos. 2 to 12, have committed offence under Section 138 of the Act. The Chief Judicial Magistrate recorded statement of the complainant and process was issued on 19th December 2002, without considering that the complainant failed to make out the case against Accused Nos. 2 to 12. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the laws in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were incharge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If accused is a Director or an Officer of the company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint. (vii) The person sought to be made liable should be incharge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.

The complaint was filed in 2002 under Section 138 of the Negotiable Instruments Act, 1881. The Chief Judicial Magistrate, Osmanabad issued process on 19 December 2002. The applicants filed Criminal Revision Application Nos. 16 of 2003, 14 of 2003, and 9 of 2003, which were rejected by the Adhoc Additional Sessions Judge-1, Osmanabad on 22 October 2012. The applicants then filed the present Criminal Applications under Section 397 read with Section 482 of the Code of Criminal Procedure, 1973.

• Negotiable Instruments Act, 1881: 138, 141
• Code of Criminal Procedure, 1973: 397, 482
• Companies Act, 1956: 260, 264(2)