Summary
The Bombay High Court had quashed a Section 138 NI Act complaint against a director of the borrower company for want of the averments required by Section 141 to fasten vicarious liability. The Supreme Court restored the proceedings, holding that the complaint need not parrot the words of Section 141(1); an averment that the directors were responsible for the company's day-to-day affairs, management and working, read with the other averments and annexed documents, is in substance the same as being in charge of and responsible to the company for the conduct of its business, and the complainant is not required to plead the specific administrative role of each director.
Issues
- Whether a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act must reproduce the exact statutory words 'in charge of, and was responsible to the company for the conduct of the business of the company' for a director to be proceeded against.
- Whether an averment that the accused directors are responsible for the day-to-day affairs, management and working of the company satisfies Section 141(1).
- Whether the complainant must additionally attribute a specific role to each director in the complaint.
Provisions considered
- Section 141(1), Negotiable Instruments Act, 1881Where the offence under Section 138 is committed by a company, every person who at the time was in charge of, and responsible to the company for the conduct of its business is deemed guilty, subject to the proviso for lack of knowledge or due diligence. The Court held that the complaint must spell out facts bringing the accused within these parameters, but substance prevails over form and the averment of responsibility for day-to-day affairs, management and working met the requirement. (¶¶ 16, 17, 20, 21, 34, 39)
- Section 138, Negotiable Instruments Act, 1881The complaint arose from dishonour of a cheque for Rs 6,02,04,217 issued by the borrower company with the remark 'account blocked' after its loan account became a non-performing asset; the prosecution of the company and its three directors was under this section. (¶¶ 2, 3)
Held
- Going by the meaning of 'in charge of' in Ramanatha Aiyar's Advanced Law Lexicon (a person in overall control of the day-to-day business of the company), an averment that the accused directors are 'responsible for its day-to-day affairs, management and working' of the company is in substance the same as the statutory phrase 'in charge of and was responsible to the company for the conduct of the business of the company', and read with the other averments fulfils Section 141. (¶¶ 17, 19, 20, 21)
- The conclusion in para 19(a) of S.M.S. Pharmaceuticals-I that the complaint must specifically aver that the accused was in charge of and responsible for the conduct of the company's business must be read with the rest of that judgment, especially para 18; it does not require the words of Section 141 to be mechanically parroted, and that judgment itself cited Monaben Ketanbhai Shah holding that the complaint is to be read as a whole without a hypertechnical approach. (¶¶ 23, 24, 25, 26, 27)
- Sabitha Ramamurthy, S.M.S. Pharmaceuticals-II and A.K. Singhania establish that no particular form is prescribed and it is unnecessary to reproduce the words of the section; what is required is a clear statement of fact enabling a prima facie view that the accused is vicariously liable, while insisting on strict compliance with the statutory requirements. (¶¶ 28, 29, 30)
- Ashok Shewakramani and Siby Thomas turned on their own facts, where omnibus averments lumped directors with others or merely stated that partners were responsible for day-to-day conduct without disclosing any clear role; they do not assist an accused where the complaint clearly avers that the named directors were responsible for the company's day-to-day affairs, management and working. (¶¶ 31, 32, 35)
- Repetition of the exact words of Section 141 in the same order, like a mantra or magic incantation, is not the mandate of the law; the complaint must spell out that the accused falls within the parameters of Section 141(1), and substance prevails over form. (¶ 34)
- The complainant is not obliged to plead the specific administrative role of each director. Following K.K. Ahuja and S.P. Mani, the complainant is expected to know only generally who is in charge of the company's affairs; a director's actual role is within the special knowledge of the company and its directors, for them to establish at trial. The requirement of specific averments in Harmeet Singh Paintal is to be understood as confined to the transaction concerning the cheque, which is within the complainant's knowledge. (¶¶ 36, 37, 38)
- On the facts, the averments that the respondent director was responsible for the day-to-day affairs, management and working of the company and participated in negotiating the credit facility, together with the annexed board resolution authorising her to negotiate with the bank, execute promissory notes, mortgages and guarantees and deposit title deeds, and the sanction letters requiring her performance guarantee, satisfied Section 141(1); the High Court was wholly unjustified in quashing the proceedings against her. (¶¶ 5, 6, 7, 8, 9, 10, 39)
Result
Appeal allowed; judgment of the Bombay High Court dated 10.01.2024 in Criminal Writ Petition No. 275 of 2022 set aside; order issuing process to respondent no. 2 in C.C. No. 2486/SS/2019 restored to the file of the Metropolitan Magistrate, 7th Court, Bhiwandi, Dadar, Mumbai, to proceed in accordance with law.