A Director not involved in Day-to-Day Affairs of Company cannot be Prosecuted for Cheque Bounce Cases: Allahabad HC [Read Order]–TAXSCAN

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By Taxscan Team – On March 11, 2022 3:08 pm

NI Act - Director - Affairs of Company - Cheque - Allahabad HC - taxscan

The Allahabad High Court has held that a director, who is not involved in the day to day affairs of a company, cannot be prosecuted for the offence under section 138 (Dishonour of cheque for insufficiency, etc., of funds in the account) of the Negotiable Instruments Act, 1881.

While allowing the application filed by Jatinder Pal Singh,under section 482 Cr.P.C, Justice Syed Aftab Husain Rizvi held that “It is clear from the perusal of the complaint that there is no specific averment that applicant is involved in day-to-day affairs of the company. There is only general allegation that applicant is a Director of the company. The documents filed by the applicant establishes that the applicant was a nominee Director and who has now resigned. Considering the aforesaid facts and the law propounded on the point it is clear that in absence of specific allegations about the applicant he can not be prosecuted for any offence under section 138 N.I. Act,”

In the instant matter, an application was filed by the Director under Section 482 CrPC, seeking to quash the summoning order passed by Magistrate under section 138 r/w 142 of the NI Act. The applicant entered in an agreement to purchase two sets of Battery Bank, Charger along with accessories from the complainant for Rs. 4,58,42,880.00/ -. Later, first set of battery bank along with accessories were supplied to the applicant in exchange of which applicant provided two cheques for Rs. 1,00,00,000 each (Rupees One Crore each). On being deposited in the bank, both cheques given by the applicant were dishonored with the remarks “Exceeds Arrangement”.

A legal notice was issued by the complainant to applicant demanding payment of the amount due under the said two cheques which was not done by the applicant. Due to the failure of payment being done by the applicant, the complainant filed complaint, consequentially to which summons were issued to the applicant to face trials. The applicant filed a criminal revision against the summoning order by the Magistrate which was later dismissed.

Relying upon the Supreme Court judgement namely S.M.S. Pharmaceuticals Ltd. Vs. Neta Bhalla and another where the certain conditions u/s 141 N.I. Act have been laid which have to be satisfied before the liability can be extended to officers of a company and stated that –”The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the Company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in.”

With regard to the issue of vicarious liability of Director of a company, the court further relied on the judgement of Srikanth Singh Vs. North East Securities Limited, where it was held – “it must be pleaded and shown that the Director was responsible for the conduct of the business of the company at the time of commission of offence. Only being a Director is not enough to cast a criminal liability. Vicarious liability must be pleaded and proved and cannot be merely inferred.”

Jatinder Pal Singh VS M/S Statcon Power Controls Ltd

CITATION: 2022 TAXSCAN (HC) 103To Read the full text of the Order CLICK HERE

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