Vicarious liability can be attributed only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused/Director therein vicariously liable for the offence committed by the company.
| Case name: | National Small Industries Corp. Ltd V/s. Harmeet Singh Paintal & Anr. |
| Case number: | Criminal appeal 320-336 of 2010 & 337 of 2010 |
| Court: | Supreme court of India |
| Bench: | Justice P. Sathasivam Justice H.L. Dattu |
| Decided on: | February 15, 2010 |
| Relevant Act/Sections: | Section 138, 141, 142 of the Negotiable Instruments Act, 1881, Section 5, 291 of the Companies Act, 1956 |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The appellant – National Small Industries Corporation Ltd. had filed 12 criminal complaints under Section 138 read with Sections 141 and 142 of the Act against M/s Jay Rapid Roller Limited, a Company incorporated under the Companies Act, its Managing Director – Shri Sukhbir Singh Paintal, and its Director – Shri Harmeet Singh Paintal. It is the claim of the appellant that so as to make the Managing Director and Director of the Company liable to be prosecuted under the provisions of the Act, they had specifically averred in the complaint that all the accused persons approached it for financing of bill integrated market support programme.
- It was also stated that the accused persons had issued cheques which were dishonoured on presentation against which the appellant had filed criminal complaints under the provisions of the Act against all the respondents herein. It is their further case that all the accused persons accepted their liability and delivered various cheques, which are the subject matter of the present appeals.
- In the connected appeal, the appellant – DCM Financial Services Ltd., entered into a hire purchase agreement on 25.02.1996 with M/s International Agro Allied Products Ltd. At the time of entering into contract, the Company handed over post-dated cheques to the appellant towards payment of monthly hire/rental charges. Respondent No. 1 – Dev Sarin was one of the Directors of the said Company.
- The cheque issued by International Agro and Allied Products Ltd. in favour of the appellant was duly presented for payment on 28.10.1998 and the same was returned unpaid for the reason that the Company had issued instructions to the bankers stopping payment of the cheque. The appellant issued a legal notice on 05.12.1998 to the Company, Respondent No. 1 and other Directors under Section 138 of the Act informing them about the dis-honouring of the cheque in question. Despite the service of the notice, the Company did not make the payment to the appellant.
- The appellant, on 11.01.1999, filed a complaint before the Metropolitan Magistrate, New Delhi against respondent No. 1 and others under Section 138 read with Section 141 of the Act. By order dated 04.02.1999, the Metropolitan Magistrate, New Delhi, after recording evidence summoned the accused persons including respondent No. 1 herein.
- Respondent No. 1 filed an application before the Additional Sessions Judge, Delhi for dropping of proceedings against him. By order dated 08.09.2004, the Metropolitan Magistrate dismissed the said application. Aggrieved by the said order, the respondent filed a petition under Section 482 of the Criminal Procedure Code before the High Court for quashing of the complaint. The High Court, after finding that the averments against respondent No. 1 are unspecific and general and no particular role is assigned to the appellant, quashed the summoning order insofar as it concerned to him.
- The appellant was against the National Small Industries Corporation Limited against the common judgment and order dated 24.10.2007 passed by the High Court of Delhi at New Delhi in a batch of cases whereby the High Court quashed the summoning orders passed by the trial Court against respondent No.1 – Harmeet Singh Paintal, under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 whereby the High Court quashed the summoning order passed by the trial Court against respondent No.1 -Dev Sarin under Section 138 read with Section 141 of the Act.
- Since all these appeals are identical and same legal issues arise, they are being disposed of by this common judgment.
- ISSUE BEFORE THE COURT:
- Whether the order of the High Court quashing the summoning orders insofar as the respondents are concerned is sustainable and what should be the averments in the complaint under Section 138 read with Section 141 of the Act against the Director of a Company before he can be subjected to criminal proceedings?
- Whether the abovementioned complaint in both cases has satisfied the necessary ingredients to attract Section 141 insofar as the respondents, namely, Directors of the company are concerned?
- RATIO OF THE COURT
- The court observed that it is very clear from the provision that what is required is that the persons who are sought to be made vicariously liable for a criminal offence under Section 141 should be, 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. Every person connected with the company shall not fall within the ambit of the provision. Only those persons 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.
- It follows from the fact that if a Director of a Company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions. The liability arises from being in-charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company.
- The court observed that It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director.
- The court also held that the settled position is that a Managing Director is prima facie in-charge of and responsible for the company’s business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are concerned, they can be prosecuted only if they were in-charge of and responsible for the conduct of the business of the company
- The court held that if the accused is not one of the persons who falls under the category of “persons who are responsible to the company for the conduct of the business of the company” then merely by stating that “he was in-charge of the business of the company” or by stating that “he was incharge of the day-to-day management of the company” or by stating that “he was in-charge of, and was responsible to the company for the conduct of the business of the company”, he cannot be made vicariously liable under Section 141 (1) of the Negotiable Instruments Act, 1881 (Act). To put it clear that for making a person liable under Section 141 (2), the mechanical repetition of the requirements under Section 141 (1) will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and, therefore, responsible under sub-section (2) of Section 141 of the Act.
- In a catena of decisions, this Court has held that for making Directors liable for the offences committed by the company under Section 141 of the Act, there must be specific averments against the Directors, showing as to how and in what manner the Directors were responsible for the conduct of the business of the company.
- Therefore, this Court has distinguished the case of persons who are in-charge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in-charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the concerned Directors should be specific. The description should be clear and there should be some unambiguous allegations as to how the concerned Directors were alleged to be in- charge of and was responsible for the conduct and affairs of the company.
- Furthermore, it held that vicarious liability can be attributed only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused/Director therein vicariously liable for the offence committed by the company. It was further held that before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted. Thus, the issue in the present case is no more res integra and has been squarely covered by the decisions of this Court referred above. It is submitted that the aforesaid decisions of this Court have become binding precedents.
- Though the Court then said that an averment in the complaint that the accused is a Director and in-charge of and responsible for the conduct of the business may be sufficient but this would not take away from the requirement that an overall reading of the complaint has to be made to see whether the requirements of Section 141 have been made out against the accused Director or not. Furthermore, this decision cannot be said to have overruled the various decisions of this Court.
- The court laid down following principles:
- 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 27 presumption that every Director knows about the transaction.
- 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.
- 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 accused therein vicariously liable for offence committed by 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.
- Vicarious liability on the part of a person must be pleaded and proved and not inferred.
- If accused is Managing Director or 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.
- If 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.
- The person sought to be made liable should be incharge 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.
- DECISION HELD BY COURT:
- The judgement of this case was given by JUSTICE P.SATHASIVAM that Apart from the legal position with regard to compliance of Section 141 of the Act, in the appeals of National Small Industries Corporation, respondent No.1Harmeet Singh Paintal was no more a Director of the company when the cheques alleged in the complaint were signed and the same is evidenced from the Sixth Annual report for the year 1996-1997of the accused company.
- In the light of the above discussion and legal principles, The court is in agreement with the conclusion arrived at by the High Court and in the absence of specific averment as to the role of the respondents and particularly in view of the acceptable materials that at the relevant time they were in no way connected with the affairs of the company, The court rejected all the contentions raised by learned counsel for the appellants.
- Consequently, all the appeals fail and are accordingly dismissed.