Vicarious Liability of Directors of Company for offences committed under S. 138 NI Act: Person claiming to not being able to manage business due to his age, could this be accepted as defence? Del HC answers

Delhi High Court: Subramonium Prasad, J., addressed a matter pertaining to vicarious liability of directors of the company alleged for offences under Section 138 NI Act.

Petitioner sought to quash a criminal complaint which was filed under Section 138 of the Negotiable Instruments Act, 1881 along with this, he also sought to quash an order passed by the trial court issuing summons to the petitioner.

Respondent 2 had filed a complaint under Section 138 read with Section 142 of the NI Act before the Court of Metropolitan Magistrate, Saket Court.

Respondent 2 was appointed as CFO of India Ahead News Private Ltd. which was engaged in the business of running a TV news channel. Petitioner and accused 2 were the directors of India Ahead News Pvt. Ltd. and they were responsible for the day-to-day affairs of the company.

The complainant was taken in service by respondent 1 at a fixed salary of Rs 10,00,000 per month plus GST less TDS along with monthly expenditure and reimbursement if Rs 1,50,000 per month, along with this a stake of 10% was also assured to the complainant.

In the year 2019, the salaries of the staff along with complainant’s started getting delayed and even the statutory obligations like PF, ESI, etc., were not being fulfilled by the company. Since the dues and the arrears of salary were mounting up at the request of petitioner’s son the complainant offered to take a salary cut.

Further, when the cheques for payment of arrears of salary were presented for encashment the same were returned with remark “insufficient fund”. Hence, a legal notice was issued in compliance with to mandate of Section 138 NI Act demanding payment.

Since there was nothing on record to show that the accused’s 2 & 3 were the directors of the company, the complainant was directed to place on record the Master Data of the company. After the pre-summoning evidence, summons was issued and the said order of the Court has been challenged before this Court.

Despite several attempts to settle the dispute, the parties could not arrive at a settlement.

Supreme Court has in a number of decisions laid down the factors necessary to be kept in mind before making a person vicariously liable for the offences committed by the company under Section 138 of the NI Act:

(i) The primary responsibility is on the complainant to make specific averments as are required under the law 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 the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that accused were in charge 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 the accused is a Managing Director or a 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 the accused is a Director or an officer of a 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 in charge 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.

[Refer Gunmala Sales Private Limited v. Anu Mehta, (2015) 1 SCC 103; National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2007) 4 SCC 70; Saroj Kumar Poddar v. State (NCT of Delhi), (2007) 3 SCC 693; N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481; N. Rangachari v. BSNL, (2007) 5 SCC 108; Paresh P. Rajda v. State of Maharashtra, (2008) 7 SCC 442; K.K. Ahuja v. V.K. Vohra, (2009) 10 SCC 48.]

The complaint read as a whole indicated that at the time of cheques being issued by the company and returned by the bank, the son of the petitioner and the petitioner were the only directors of the company and were responsible for the conduct of the business of the company. Hence, this Court was not inclined to interfere with the order issuing summons to the petitioner.

High Court stated that the petitioner should have established in trial that he was not responsible for the conduct of the business of the company owing to his age and the mere ipsi dixit of the petitioner that he was 80 years of age and was unable to manage the affairs of the company and the same cannot be accepted at present stage.

Supreme Court’s decision in Ashutosh Ashok Parasrampuriya v. Gharrkul Industries (P) Ltd., 2021 SCC OnLine SC 915 squarely covers the present case.

Lastly, the Court concluded that the observations of this Court are limited to the issue as to whether the complaint should be quashed or not because of the fact that the complaint does not state the exact role of the petitioner in the conduct of the business of the company.

“…it is always open for the petitioner to substantiate his assertion that he was not responsible for the conduct of the business of the company by leading evidence which should be considered on its own merits without being influenced by the observations made in this order.”

Therefore, the petition was dismissed. [Gopala Krishna Mootha v. State Govt of NCT of Delhi, 2022 SCC OnLine Del 530, decided on 21-2-2022]


Advocates before the Court:

For the Petitioner: Neeraj Malhotra, Senior Advocate with Shiv Gupta, Devahuti Tamuli, Advocates

For the Respondents: Neelam Sharma, APP for the State

Kamlesh Mahajan, Advocate for R-2

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