Summary
The High Court had quashed in full a complaint under the National Housing Bank Act, 1987 against a housing finance company, its Managing Director and five Directors. The Supreme Court held that the complaint lacked the averment required by Section 50(1), which is pari materia with Section 141 of the NI Act, so it was rightly quashed against the Directors; but a Managing Director is in charge of the company by virtue of office and no reason had been given for quashing it against the company, so the complaint was restored against those two.
Issues
- Whether a complaint under the National Housing Bank Act, 1987 that does not aver that the Directors were, at the time of the offence, in charge of and responsible to the company for the conduct of its business can proceed against them.
- Whether the complaint could be quashed against the Managing Director and against the company itself.
Provisions considered
- Section 50(1), National Housing Bank Act, 1987Read as pari materia with Section 141 of the NI Act. Vicarious liability of directors arises only if the complaint asserts that, when the offence was committed, they were in charge of and responsible to the company for the conduct of its business; a general averment that they conduct the business and look after day-to-day affairs did not meet this requirement. (¶¶ 4, 6, 8)
- Section 141, Negotiable Instruments Act, 1881The Court applied the three-Judge Bench answers in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla: the specific averment is essential, a director is not deemed to be in charge merely by being a director, but a managing director is in charge of and responsible for the company's business by virtue of office. (¶¶ 4, 7, 8)
- Section 29A(i) read with Section 49(2A), National Housing Bank Act, 1987The offence of which the Magistrate took cognizance on the complaint; Section 49(2A) carries a minimum sentence of one year extendable to five years. The Court did not examine the merits of the alleged violation. (¶ 1)
Held
- Section 50(1) of the 1987 Act is pari materia with Section 141 of the NI Act. Unless the complaint asserts that the accused directors, at the time the offence was committed, were in charge of and responsible to the company for the conduct of its business, their vicarious liability is not attracted and cognizance cannot be taken against them. (¶¶ 4, 6, 7, 8)
- An averment that the Directors conduct the company's business, are responsible for its management and look after its day-to-day affairs, without the assertion tied to the time of the offence, does not satisfy Section 50(1); the complaint was rightly quashed against the third to seventh accused. (¶¶ 5, 6, 8)
- A Managing Director is, by virtue of that office, in charge of and responsible to the company for its business, so there was no justification for quashing the complaint against the second accused. (¶¶ 7, 8)
- The High Court gave no reasons for quashing the complaint against the accused company, and the quashing could not stand as against it. (¶ 8)
Result
Appeals partly allowed; High Court order modified: the complaint before the Judicial Magistrate, Egmore, Chennai stands quashed against the third to seventh accused but shall proceed in accordance with law against the company and its Managing Director.