Can Independent, Non-Executive Directors Of A Company Be Arrayed As Accused In Proceedings Against Dishonor Of Cheque: Delhi HC Answers [Read Judgment]

In a recent judgment, the Delhi High Court has recapitulated the law with respect to liability of Independent, Non-executive directors of company in complaints filed under Section 138 of NI Act 1881, for dishonor of cheque. The order passed by Justice Anu Malhotra has reiterated as under: (1) That Independent Non-Executive Directors are not involved in day-to-day affairs of the company and thus cannot be fastened with the vicarious liability to pay the dues of the company. In this regard, the court referred to the Apex Court's verdict in Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, whereby it was held that- "Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the company, one who actively looks after the day-to-day activities of the company and is particularly responsible for the conduct of its business. Simply because a person is a Director of a company, does not make him liable under the NI Act." (2) That in the absence of specific averments in relation to the specific role attributed against the Director, merely making a bald cursory statement that he was in-charge and responsible for the day-to-day affairs of the company, does not suffice to make him vicariously liable for dishonoring of the cheques not signed by him. "The complaint should spell out as to how and in what manner Respondent 1 [director] was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfillment of the requirements under Section 141," the court reiterated the law laid down in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330. (3) That Form 32, connoting that the director concerned was an Additional Director falling in the category of an Independent, Non-Executive Director, is a public document and its legitimacy has to be accepted prima facie. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, it was held that Form-32 submitted by the petitioner is a public document, the correctness of which has to be accepted. The observations have been made in a case filed by an Independent, Non-Executive Director of a company accused of dishonoring a cheque. He was accused of failing to make arrangements in their bank for honouring the cheques and was thereby accused of committing an offence punishable under Section 138 of the Negotiable Instruments Act, 1881. Seeking to quash the complaint and an adverse order passed by the Trial Court, the Petitioner-Director had submitted that grave miscarriage of justice had been caused to him by way of his having been summoned mechanically. While the Petitioner was alleged to be the Managing Director and the Whole Time Director of the delinquent company, the court asserted that since Form 32 depicted him to be an Independent Director, the same could not be disputed. Further, it was held that mere fact that he was a Key Managerial Person, having participated in all meetings of the delinquent company, could not be used to fasten any liability on him due to absence of an averment in that behalf in the complaint. "there is some distinction between being privy to what were the affairs of the company and being responsible for its dayto-day affairs or conduct of its business," the court remarked. In fact, it observed that the Petitioner was no more a KMP when the cheques in question were signed. The court concurred that the Petitioner could not be prosecuted given that Section 149(2) of the Companies Act, 2013 clearly stipulates that an Independent and/ or Non-Executive Director (not being a promoter or a key managerial personnel) shall be held liable in respect of such acts of omission or commission by a company which had occurred with his knowledge/ consent/ connivance/ indiligence. Thus, the court concluded that no vicarious liability could be inferred against the Petitioner and it observed, "the petitioner being an Independent and a Non-Executive Director, in the absence of any specific role attributed against the petitioner for his active participation in the day to day affairs of the company and of taking all decisions of the company, where the petitioner was not a signatory to the ...

Can Independent, Non-Executive Directors Of A Company Be Arrayed As Accused In Proceedings Against Dishonor Of Cheque: Delhi HC Answers [Read Judgment]

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Can Independent, Non-Executive Directors Of A Company Be Arrayed As Accused In Proceedings Against Dishonor Of Cheque: Delhi HC Answers [Read Judgment]

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