Director Can't Be Prosecuted U/S 138 Of Negotiable Instruments Act If Company Is Not Arraigned As Accused: Chhattisgarh High Court

The Chhattisgarh High Court recently held that a director could not be prosecuted under Section 138 of the Negotiable Instruments Act without the company being arraigned as an accused. Justice Gautam Bhaduri allowed the petition to quash the impugned orders and noted that only directors of the company are made the accused without making specific averments about the role played by them, and leaving the company out of the proceedings. The complaint under Section 138 of the Negotiable Instruments Act would thus not lie.The respondents filed different complaints under Section 138 of the Negotiable Instrument Act as the cheques issued by the petitioners on behalf of M/s. Saini Industries Limited was dishonored for want of funds in the account. After the statutory notice had been served, the repayment of the amount was not made; consequently, different complaints under Section 138 of the Negotiable Instruments Act were filed.The facts show that initially, after filing the complaint, objections were raised by the petitioners by filing interlocutory applications about the maintainability of the petition. The same having been dismissed, a revision was preferred. The Sessions Judge dismissed the revision by holding that the Directors cannot be absolved of their criminal liability, even though the company has not been arrayed as an accused. The issue before the Court was whether the complaint under Section 138 of the Negotiable Instruments Act without arraigning the company as an accused would be maintainable. The Court noted that where only directors of the company are made the accused, leaving the company, the complaint under Section 138 of Negotiable Instruments Act would not lie. It referred to the case of Hindustan Unilever Ltd. v. State of Madhya Pradesh (2020) 10 SCC 751, where the Court held the person in charge of and responsible to the company for the conduct of business would be guilty of the offence.Similarly, in Himanshu v. B.Shivamurthy & Another (2019) 3 SCC 797, the Supreme Court held that commission of offence by the company is an express condition precedent to attract the vicarious liability of others and the word "as well as the company" makes it clear when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof that the company is a juristic person.In the case of Aneeta Hada v. Godfather Travels & Tours Private Limited (2012) 5 SCC 661, the Supreme Court held that to maintain a prosecution against the Director; the company would be a necessary party. It also referred to the apex court judgment in Ramraj Singh v. the State of M.P. (2009) 6 SCC 729 where it was held that to launch a prosecution against the alleged Directors, there must be a specific allegation in the complaint as to the part played by them in the transaction. It held that there should be clear and unambiguous allegation as to how the Directors are in charge and responsible for the conduct of the company's business. The Court noted that though the petitioners have been described somewhere in the petition as Director in some petition for and on behalf of Saini Industries Limited would make it clear that the respondents were in the know of the fact that with whom they are dealing. The copy of the cheques produced in a few of the cases would also show that the cheques were issued on behalf of the company, not in the individual capacity of the petitioners. It thus noted that in the complaint when the company has not been arrayed as accused, the prosecution simpliciter against the Director without making specific averments about their role would not be maintainable. On the issue as to whether petitions filed at the stage of framing of charges would be maintainable, the Court noted that admittedly, the company was not made an accused in the cases expect the Directors, therefore, applying the law laid down by the Supreme Court as referred, it appears that while summoning the accused, the Magistrate has failed to see the principles of law. When the objection was made, the learned Sessions Judge also failed to take into account the principles laid down by the apex court. It referred to the case of Pepsi Foods Limited & Anr. v. Special Judicial Magistrate (1998) 5 SCC 749, which mandates that the Magistrate has to scrutinize the evidence brought on record carefully and cannot be a silent spectator at the time of recording of preliminary evidence, the petition under Section 482 would be maintainable for the reason that both the Courts below have failed to take into account.Accordingly, the impugned orders passed in the criminal revisions as also the criminal proceedings were quashed.Case Title: Charanjeet Singh Saini v. M/s Ispan IndiaCitation: 2022 LiveLaw (Chh) 22Click Here To Download The OrderRead The Order

Director Can't Be Prosecuted U/S 138 Of Negotiable Instruments Act If Company Is Not Arraigned As Accused: Chhattisgarh High Court

Shrutika Pandey

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