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One cannot be prosecuted under NI Act for being Director of a company: Allahabad High Court

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The Allahabad High Court has observed that one cannot be prosecuted under Section 138 of the Negotiable Instruments Act, merely for being a Director of the company.

The Single-Judge Bench of Justice Syed Aftab Husain Rizvi passed this order, while hearing an application under Section 482 CrPC, filed by Jatinder Pal Singh.

The application sought quashing of the judgement and order dated January 2, 2021 passed by the Special Judge SC/ST (Prevention of Atrocities) Act, Gautam Budh Nagar and further to quash the summoning order dated January 7, 2014 passed by the ACJM IIIrd, Gautam Budh Nagar in a complaint pending before the Court of Judicial Magistrate Additional Gautam Budh Nagar, under Section 138 r/w 142 of NI Act.

The opposite parties filed a complaint alleging therein that the complainant is engaged in business of manufacturing and trading in signaling equipment, industrial batteries and other equipment. The accused no 1/company is also a public limited company incorporated under the Companies Act, 1956 having its registered address at “Techpro Towers” Cross Road, SIPCOT IT Park, Siruseri, Chennai-603103, Tamil Nadu and the other accused are the Directors/Executive Directors of the company/accused no 1 and are responsible for the acts and deeds of the company/accused no 1.

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The accused no 1 has placed a purchase order dated 4th July, 2012 on the complainant at Administrative Office of the complainant at A-34, Sector-59, Gautam Budh Nagar, Noida-201301 Uttar Pradesh for the supply of two sets of Battery Bank, Charger along with accessories and the total amount of the abovementioned purchase order including taxes and duties was Rs 4,58,42,880 (Rupees Four Crores Fifty Eight Lakhs Forty Two Thousand Eight Hundred Eighty only). The complainant supplied one set of battery banks along with its relevant accessories to the accused at their site on April 25, 2013 as per Purchase Order. The accused issued cheques dated May 16, 2013 for Rs 1,00,00,000 each (Rupees One Crore each) drawn on Axis Bank Limited, Chennai in favour of the complainant towards the payment for goods supplied at their site. The complainant presented the said cheques with its Banker State Bank of India, Noida for realization of the amount of the said cheques. On 15th July, 2013 the cheque dated 16th May, 2013 for Rs One Crore drawn on Axis Bank Ltd Chennai has been deposited in bank by the complainant and the same has been presented on the banker of accused no 1 through the complainant’s banker namely State Bank of India, Noida and on presentation for payment the same has been dishonored on 16th July, 2013 with the remarks “Exceeds Arrangement”.

On 15th July, 2013 another cheque dated 16th May, 2013 for Rs One Crore drawn on Axis Bank Ltd Chennai has been deposited in bank by the complainant and the same has been presented on banker of accused no 1 through the complainant’s banker namely State Bank of India, Noida and on presentation for payment the same has been dishonored on 16th July, 2013 with the remarks “Exceeds Arrangement”.

The complainant issued legal notice dated July 24, 2013 by Registered A.D post demanding payment of the amount due under the said two cheques. The notices have been served on all the accused on July 29, 2013. Despite receipt of the legal notice they failed to pay the amount of the dishonored cheques within the stipulated time of 15 days.

On the aforesaid complaint the Magistrate by the order dated January 7, 2014 has summoned the applicant and other accused named in the complaint to face trial for the offence under section 138 N.I Act. Aggrieved with the aforesaid summoning order the applicant filed a criminal revision, which has been dismissed by Special Judge SC/ST Act vide judgment and order dated January 2, 2021.

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The contentions of the counsel for the applicant are that the impugned order of summoning is a non speaking order. The Magistrate has not taken notice of the fact that there was no specific averment in the complaint against the applicant.

He also contended that the applicant was only a nominee Director appointed on April 24, 2012 and the applicant resigned from the Board of Directors of O.P No 2 on January 19, 2014.

The applicant is not involved in day to day affairs of the company, so he can not be held reliable for dishonour of any cheque issued by other Managing Directors. The applicant has not signed the dishonoured cheques on behalf of the company nor he is authorized signatory of the company.

The O.P No 1(M/S Statcon Power Controls Ltd) has merely implicated the applicant without assigning any specific role to the applicant in the execution of dishonour of the cheques with intention of harassing the applicant. The O.P No 1 has not made any specific averment against the applicant as to the part played by him in the whole transaction.

It is further contended that merely being a Director in a company is not sufficient to make the applicant liable under section 141 of the N.I Act. For imputing liability on the applicant the O.P No 1 ought to have brought incontrovertible material on record to show that the applicant is incharge of and responsible for the conduct of affairs of the company. In the absence of such material and in the light of general averments the applicant can not be prosecuted.

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Counsel for the opposite party opposed the application and submitted that the applicant is a Director of the company. Two cheques have been issued by the company in favour of O.P No 1. Both the cheques have been dishonoured. Legal notices were issued to the applicant and other accused persons but they did not comply with it, then a complaint was filed. The Magistrate being satisfied with the material on record has taken cognizance of the offence and has summoned the applicant and other accused. There is no illegality in the summoning order. The revision preferred by the applicant has also been dismissed on merits. The revisional court did not find any merit in it.

Counsel also contended that the complaint was filed in the year 2014 and has been lingering before the trial court since then. Only the applicant has put his appearance before the trial court. None of the remaining accused has appeared. He submitted that a direction be issued to the trial court to ensure the presence of the other accused persons and decide the case expeditiously.

The Court noted that, in case of Srikanth Singh Vs North East Securities Limited (2007) 12 SCC 788 the Apex Court has held that for vicarious liability of Director of a company 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 can not be merely inferred.

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It is clear from the perusal of the complaint that there is no specific averment that the applicant is involved in day-to-day affairs of the company. There is only a general allegation that the 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 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 NI Act. The Magistrate has failed to consider the matter properly. The order of summoning regarding the applicant is unjust and illegal and cannot be sustained”

-the Court observed.

“Application U/s 482 Cr.P.C is allowed and the order dated January 2, 2021 passed in Criminal Revision NO 72 of 2019 and further the summoning order dated January 7, 2014 passed against the applicant-accused Jatinder Pal Singh are quashed”, the Court ordered.

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