Case Note & Summary
The petitioners, accused Nos. 3 and 5 in C.C. No. 32585/2011 pending before the XV ACMM, Bangalore, filed a petition under Section 482 of the Code of Criminal Procedure, 1973 seeking quashing of the proceedings against them. The case was initiated by the respondent-complainant under Section 138 of the Negotiable Instruments Act, 1881 against a company and its directors for dishonour of a cheque issued towards repayment of a loan. The petitioners contended that they were not in charge of the day-to-day affairs of the company and were not responsible for the conduct of its business at the time of the offence. The court examined the material on record and found that the transaction was between the complainant and the first accused company, and the liability for repayment was not solely on the petitioners. The court held that merely being a director does not attract vicarious liability under Section 138 of the NI Act unless the director was in charge of and responsible for the conduct of business at the time the offence was committed. Since the petitioners were not shown to be involved in the day-to-day affairs or the signing of the cheque, the proceedings against them were quashed to prevent abuse of process of court.
Headnote
A) Criminal Law - Negotiable Instruments Act - Section 138 - Vicarious Liability of Directors - Directors not in charge of day-to-day affairs or signing of cheque cannot be prosecuted - The court held that merely being a director does not attract liability under Section 138 unless the director was in charge of and responsible for the conduct of business at the time the offence was committed. (Paras 2-4)
B) Criminal Procedure Code - Section 482 - Quashing of Proceedings - Abuse of Process - Proceedings against directors who are not necessary parties can be quashed to prevent abuse of process of court. (Para 4)
Issue of Consideration
Whether directors who are not in charge of and responsible for the conduct of business of the company at the time of the offence can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881?
Final Decision
The petition is allowed. The entire proceedings in C.C. No. 32585/2011 on the file of XV ACMM, Bangalore, insofar as the petitioners are concerned, are quashed.
Law Points
- Section 138 NI Act
- vicarious liability of directors
- quashing of criminal proceedings
- Section 482 CrPC
Case Details
2014 LawText (KAR) (03) 5
Criminal Petition No.5772 of 2013
Pankaj Dhirajlal Sanghvi and Suryakanth Nanalal Doshi
M/s. Religare Finvest Ltd.
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Nature of Litigation
Criminal petition under Section 482 CrPC seeking quashing of proceedings in a cheque dishonour case under Section 138 NI Act.
Remedy Sought
Petitioners (accused Nos. 3 and 5) sought quashing of proceedings in C.C. No. 32585/2011 pending before XV ACMM, Bangalore.
Filing Reason
Petitioners contended they were not necessary parties as they were not in charge of day-to-day affairs of the company and not responsible for conduct of business at the time of offence.
Issues
Whether directors who are not in charge of and responsible for the conduct of business of the company at the time of the offence can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881?
Submissions/Arguments
Petitioners argued that they are not necessary parties to the proceedings as they were not in charge of day-to-day affairs of the company and not responsible for conduct of business at the time of the offence.
Respondent-complainant initiated proceedings under Section 138 NI Act against the company and its directors for dishonour of cheque.
Ratio Decidendi
Merely being a director does not attract vicarious liability under Section 138 of the Negotiable Instruments Act, 1881 unless the director was in charge of and responsible for the conduct of business at the time the offence was committed. Proceedings against directors who are not shown to be involved in day-to-day affairs or signing of cheque are liable to be quashed to prevent abuse of process of court.
Judgment Excerpts
Admittedly the transaction between complainant-respondent and the first accused – company is in respect of financing provided by the respondent – complainant in favour of Vijay Steels Tubes and Fittings Pvt. Ltd., for its business activities.
The material available on record discloses that the liability for repayment of entire loan from the first accused – company is not only by the petitioners herein.
In that view of the matter, the petition is allowed. The entire proceedings in C.C.No.32585/2011 on the file of XV ACMM, Bangalore, insofar as the petitioners are concerned, are quashed.
Procedural History
The petitioners, accused Nos. 3 and 5 in C.C. No. 32585/2011 pending before XV ACMM, Bangalore, filed a petition under Section 482 CrPC seeking quashing of proceedings against them. The court heard the matter and passed the order on 19 March 2014.
Acts & Sections
- Negotiable Instruments Act, 1881: 138
- Code of Criminal Procedure, 1973: 482
