Case Note & Summary
The proceedings arose out of four criminal complaints filed by respondent no.1, a company registered under the Companies Act, against respondent no.2 company and its directors, including the petitioner, for offences under Section 138 of the Negotiable Instruments Act, 1881. The petitioner, who was an additional director of respondent no.2 company for a limited period, challenged the orders of the Judicial Magistrate Junior Division 'D' Court at Panaji/Merces issuing process against him in Criminal Case Nos. OA/NIA/398/2022/D, OA/NIA/399/2022/D, OA/NIA/46/2023/D and OA/NIA/47/2023/D. The High Court of Bombay at Goa heard the criminal writ petitions finally at the admission stage with consent of the parties. The background facts indicated that respondent no.1 and respondent no.2 entered into a share purchase and acquisition agreement dated 01.06.2021, under which respondent no.2 through its then directors respondent nos.3 and 4 agreed to acquire 80% equity shares of respondent no.1 for an acquisition price of Rs.80,00,000. A signing amount of Rs.3,00,000 was paid and post-dated cheques were issued as per a payment schedule. The cheques in question, bearing nos. 000118 to 000121, for amounts ranging from Rs.10,00,000 to Rs.15,00,000, were presented for payment between 25.06.2022 and 30.11.2022 and were dishonoured on 23.09.2022 and 02.01.2023 due to insufficiency of funds. Respondent no.1 issued legal demand notices, but payment was not made, leading to the complaints under Section 138 of the NI Act. The Magistrate issued process against the petitioner by orders dated 29.12.2022, 21.08.2023 and 27.03.2023, and the petitioner's discharge application was dismissed on 13.12.2023. The principal legal issue before the High Court was whether the averments in the complaint were sufficient to issue process against the petitioner under Section 138 read with Section 141 of the NI Act. The petitioner argued that he was not a signatory to the agreement or the cheques, had been appointed as additional director only on 17.03.2022 and as director on 30.09.2022, with tenure ending 27.06.2023, and that the complaint contained no specific role attributed to him in the day-to-day management of the company. He relied on decisions requiring strict compliance with Section 141, such as Padmakar Dattatray Matkar v. Malani Combines and Others, Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited and Another, and K. S. Mehta v. Morgan Securities and Credits Private Limited. Respondent no.1 contended that the petitioner held a key managerial position, had received Rs.10,00,000 from his personal account, and that the complaint read as a whole sufficiently alleged liability of all accused persons. Reliance was placed on Ashutosh Ashok Parasrampuriya v. Gharrkul Industries Private Limited, N. Rangachari v. Bharat Sanchar Nigam Limited, and HDFC Bank Limited v. State of Maharashtra. The court examined the complaint and found that the agreement was originally between respondent no.1 and respondent no.2 through respondent nos.3 and 4, and that the petitioner was not in the picture at that time. He was not a signatory to the agreement or the cheques. The averments in the complaint merely stated in general terms that accused persons failed to adhere to the payment schedule and that cheques were dishonoured, without any particulars attributing a specific role to the petitioner. The court observed that Section 141 of the NI Act deems a person guilty only if he was in charge of and responsible to the company for the conduct of its business at the time of the offence, and that a bald statement that all directors were responsible was insufficient. Accordingly, the court held that the process issued against the petitioner was mechanical and lacked compliance with Section 141, and it quashed the impugned orders and the criminal proceedings against the petitioner.
Headnote
A) Criminal Law - Vicarious Liability of Directors - Section 141 of Negotiable Instruments Act, 1881 - Requirement of Specific Averments - The complaint against the petitioner under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 lacked particulars attributing any role to him in the day-to-day business of the company; he was not a signatory to the share purchase agreement or the dishonoured cheques and was appointed as director only on 17.03.2022, after the cheques were issued. The court reasoned that a bald statement that all accused persons failed to adhere to the payment schedule without specifying the petitioner's role did not satisfy Section 141, which requires a person to be in charge of and responsible to the company for the conduct of its business at the time of the offence. Held that the process issued against the petitioner was mechanical and liable to be quashed. (Paras 5-7)
Issue of Consideration
Whether the averments in the complaint are sufficient to issue process against the petitioner under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.
Final Decision
The High Court allowed the criminal writ petitions and quashed the process issued against the petitioner in Criminal Case Nos. OA/NIA/398/2022/D, OA/NIA/399/2022/D, OA/NIA/46/2023/D and OA/NIA/47/2023/D, holding that the complaint lacked specific averments under Section 141 of the Negotiable Instruments Act, 1881 attributing responsibility to the petitioner for the dishonoured cheques.
Law Points
- Section 141 NI Act requires specific averments that accused was in charge of and responsible for company's business
- general allegations insufficient
- director appointed after issuance of cheques and not signatory cannot be held liable without specific role
- strict compliance with Section 141 necessary
- complaint must disclose role in day-to-day affairs
- hypertechnical approach not applicable but statutory requirements must be met
