S.138 NI Act | Non-Executive Directors Not Liable For Company's Actions/ Omissions Unless Involved In Day-To-Day Affairs: Bombay High Court

Amisha Shrivastava

19 July 2022 5:23 AM GMT

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S.138 NI Act | Non-Executive Directors Not Liable For Companys Actions/ Omissions Unless Involved In Day-To-Day Affairs: Bombay High Court

The Bombay High Court has quashed criminal proceedings against independent non-executive directors of Tecpro Systems Ltd while stating that they were not responsible for day-to-day functioning of the company. The court was dealing with an application requesting quashing of criminal proceedings before the trial court in a cheque bounce case under the Negotiable...

"Non-executive director not being a promoter of or key managerial persons shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently", the court stated.

Justice Prakash D. Naik passed this order in exercise of its discretionary powers under section 482 CrPC.

Elektromag Devices Private Ltd. Elektromag had filed a complaint under Section 138 of NI Act against Tecpro Systems, a material handling company, alleging that the cheque worth almost Rs. 30 lakh issued by the latter in its favour in exchange for certain goods and consignment was dishonoured on account of insufficient funds. Due notice was issued to Tecpro and its directors, secretary, and authorised signatories in August, 2013, but to no avail.

The present application was filed by Satvinder Jeet Singh Sodhi and Sakti Kumar Banerjee, both independent directors arrayed in the criminal complaint. The applicants claimed that they were not involved in the day-to-day functioning of the company and had no knowledge about the transaction.

The court relied on Section 149 (6)(9) and (12) of the Companies Act (provisions related to independent director) as well as judgments in Apex Court case Pooja Ravinder Devidasani v. State of Maharashtra and other cases in arriving to a conclusion. The court said that a person will have vicarious liability under Section 141 of the NI Act if that person actively looked after daily activities of the company at the time of commission of the offence. Merely being director of a company does not make anyone liable under the NI Act

"In the light of the averments made in the complaint, role of independent Directors, documents on record, petitioners cannot be prosecuted for the offences punishable under Section 138 of NI Act by invoking Section 141 of the said Act", the Court held.

The court quashed the criminal proceedings against the applicants and ordered an expedited trial against the rest of the accused.

S.138 NI Act | Non-Executive Directors Not Liable For Company's Actions/ Omissions Unless Involved In Day-To-Day Affairs: Bombay High Court

Amisha Shrivastava

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