India: Negotiable Instruments Act, 1881

FACTS

The Petitioner is the Director of a Company named as M/s Durga Trade Links Pvt. Ltd. (hereinafter referred to as "The Company").The Respondent is a Trust registered under the Indian Trusts Act, 1882.

The Respondent had entered into a contract for the construction of school buildings, etc. In this regard they required some steel for the construction of the said project. In lieu of such procurement of steel, the Respondents entered into a contract for the purpose of supply of steel with the Company.

The Respondent made an advance payment for the aforesaid contract of supply of steel however the Company failed to comply with the requirements of the contract entered into with the Respondent. Thus, the Respondent demanded for the refund of the excess amount paid by the Respondent along with interest.

The Respondent, along with M/s Educational Society of the Brothers of St. Patrick, M/s. Benedectine Sisters of St. Lioba Sadan Society and the Society of the Franciscan Servants of Mary lodged the Criminal Complaint Nos. 34297/2014, 33139/2014, 33141/2014 and 33288/2014 under Section 200 of Criminal Procedure Code, 1973 making allegations that the Petitioner had committed an offence under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'the said Act'.)

[The Petitioner is the Accused No. 3 and the Company is the Accused No. 1 in all of the above mentioned Criminal Complaints. The Learned Magistrate passed an order taking cognizance in all of the above mentioned Criminal Complaints.]

The current Criminal Petition has been filed by the Petitioner Director (Accused No.3) under Section 482 of the Criminal Procedure Code, 1973 to quash the entire proceedings against the Petitioner on the ground that there are no allegations against the Petitioner which attract Section 138 and 141 of the Negotiable Instruments Act, 1881.

ISSUE BEFORE HC

The question in this case was –

"Whether the pleadings as made in the Complaint lodged against the Petitioner-Director were sufficient and specific enough to be in compliance with the provisions of Section 141 of the Negotiable Instruments Act, 1881?"

It was the contention of the Petitioner that in order to attract Section 138 of the said Act, a strict compliance of Section 141 of the said Act is required.

The Petitioner has emphasized that the provisions of the said Act state that if a complaint is lodged against a company and any of the Directors are made a party, there must be specific allegations against such Directors about their activities in the accused Company and also the role played by him/her with regard to the day to day affairs of the Company. If such allegations in pleadings are not proved then no proceedings can be initiated against such a Director.

It is the case of the Petitioner that no such specific allegations have been made out in the pleadings against the Petitioner- Director.

On the other hand, it is the contention of the Respondents that there are sufficient allegations in the complaint to show the exact role of the Petitioner Director in the affairs of the Company and it is specifically alleged that the accused persons including the Petitioner Director have been running the Company and they have jointly issued the cheque for repayment of the legally enforceable debt and are therefore liable for the prosecution.

OBSERVATION

After hearing the contentions of both the parties, the Hon'ble Judge considered it necessary to analyze the Sections 141 and 138 of the Negotiable Instruments Act, 1881.

The relevant Sections have been reproduced herein below:

"141. Offences by Companies - (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Provided xxxx

(2)Notwithstanding anything contained in sub section (1), if any allegations are made against the Company and if it is proved that the offence has been committed with the consent or in connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence."

Therefore, from a bare reading of the above Section it is evident that in order to prove the said offence, there must be a specific allegations in the complaint which attract the above said provisions.

This Hon'ble Court has referred a decision of the Hon'ble Apex Court reported in [2009 (10) SCC 48] between  K.K. Ahuja Vs. V.K. Vora, wherein the Hon'ble Apex Court has observed that:

"Dishonour of cheque - offence by company - Vicarious liability of persons of the company - When arises - Essential  averments in complaint, requirement of - Held, persons/officers who were in charge of and also responsible for the conduct of business of the company, are vicariously liable for offences of company. Hence, no specific averment in complaint as to role of each is required - Duly affirmed sworn statement to that effect, may be sufficient - However, complaint against persons/officers who were either not responsible for conduct of business of the company, or were not in charge of the company should be specific as to their position, duties and role in the issue of said dishonoured cheque disclosing consent, connivance or negligence."

"If a mere reproduction of the wording of Section 141(1) in the complaint is sufficient to make a person liable to face prosecution, virtually every officer/employee of a company without exception could be impleaded as accused by merely making an averment that at the time when the offence was committed they were in charge of and were responsible to the company for the conduct and business of the company. That would be absurd and  not intended under the Act. As the trauma, harassment and hardship of criminal proceedings in such cases, may be more serious than the ultimate punishment, it is not proper to subject all and sundry to be impleaded as accused in a complaint against a company, even when the requirements of Section 138 read with Section 141 of the Act are not fulfilled."

This Hon'ble Court referred another decision reported in 2015 SAR (CRIMINAL) 288 between Pooja Ravinder Devidasani Vs. State Of Maharashtra & Another wherein the Hon'ble Apex Court has observed with reference to Sections 138 and 141 of the Negotiable Instruments Act, 1881 in the following manner:

"Negotiable Instruments Act, 1881 - Secs. 138, 141 - Offence under  Section 138committed by a company- For fastening vicarious liability on a person/Director- Conditions to be satisfied-Cheques dishonoured not signed by the accused who had even resigned long before the issuance of the cheques in question - Accused admittedly was not Managing Director but only a non-executive Director of the Company, who is no  doubt a custodian of the governance of the Company but does not involve in the day-to- day affairs of the running of its business and only monitors the executive activity - To fasten vicarious liability under  Section 141  of the Act on a person, at the material time that person should have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business - Merely because a person is a Director of a Company, does not make him liable under Section 141 of the NI Act-Every person connected with the Company does not fall into the ambit of the provision-Time and again it has been asserted by the Supreme Court that only those person who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action - A Director who was not incharge of and was not responsible for the conduct of the business of the Company at the relevant time will not be liable for an offence under  Section 141  of the Act-A person 'in-charge of a business' means that the person should be in overall control of the day-to-day business of the Company-For  making a Director of a Company liable for the offences committed by the Company under  Section 141  of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company-Summoning of an accused, in a criminal case is a serious matter-Criminal law cannot be set into motion as a matter of course-Order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto."

CONCLUDING VIEW

Based on an analysis of the relevant sections and the aforementioned judgments, the Hon'ble Court observed that while filing the complaint "there must be a foundation that must be laid in the complaint itself with regard to the requirement of law".

Further, the Hon'ble Court went on to consider whether any details had been given in the Complaint, in compliance with Section 141 of the said Act. He concluded that the only allegation specifically made in the complaint is that all the accused persons being theDirectors are in-charge of running the affairs of the Company on a day to day basis and that they jointly issued the cheque.

This Hon'ble Court went on to conclude that merely such allegations are not sufficient to attract the provisions of Section 138 coupled with Section 141 of the said Act and that the averments made in the  complaint itself  are insufficient to draw any inference at the stage of presumption of offence against the Petitioner- Director.

This Hon'ble Court therefore held that:

"The petitions are allowed. All further proceedings in -

CC Nos. (1) 34297/2014; (2) 33139/2014; (3) 33141/2014 and (4) 33288/2014 pending on the file of the XLII Addl. CMM, Bengaluru, respectively in so far as this petitioner is concerned, are hereby quashed.

As the matter is of the year 2014, the trial Court is directed to expedite and dispose of the same as expeditiously as possible, against other accused."

Thus, this Criminal Petition was accordingly allowed.

AMLEGALS REMARKS

This decision has re-iterated the importance and necessity of compliance of the Parties with the sine qua non of the provisions as specified in the Negotiable Instruments Act, 1881.

It has re-emphasized that the reason behind having a certain set of procedures is:

a. to simplify the work of the Courts,

b. to avoid unnecessary harassment to unrelated parties, and

c. to achieve efficient results from the judicial system.

With regard to an Accused-Company and Accused-Directors, the provisions of Sections 138 and 141 of the Negotiable Instruments Act, 1881 need to be complied at its first place in consonance with each other and cannot be given effect in isolation of each other.

This content is purely an academic analysis under "Legal intelligence series".

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