Complainant U/S 138 NI Act May Not Know Exact Role Of Company Directors, Basic Averment About Vicarious Liability Sufficient: Karnataka High Court

The Karnataka High Court has said that in proceedings initiated against directors of a company under Section 138 of the Negotiable Instruments Act, the complainant is only expected to make necessary averments regarding their vicarious liability and thereafter, the burden is upon such directors to show that they are not liable to be convicted. A single judge bench of Justice M Nagaprasanna observed,"The complainant is supposed to know only generally as to who were in-charge of the affairs of the Company... the complainant is expected to allege that the persons named in the complaint are in-charge of the affairs of the Company... The burden would be on the Board of Directors or persons in-charge of the affairs of the Company to show that they are not liable to be convicted."The reason for this is that only the Directors of the Company have special knowledge of the role that they play in the Company. "The existence of any special circumstance that makes them not liable is something that is particularly within their knowledge and it is for them to establish in the trial to show that at the relevant point in time they were not in-charge of the affairs of the Company," Court said.In this regard, it heavily relied on Supreme Court's decision in SP Mani & Mohan Dairy v. Dr. Snehalatha Elangovan, where it was held as follows:1) The primary responsibility of the complainant is to make specific averments in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction.2) The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or the firm and those who are in charge of it.3) Final judgment and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction.4) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. In the instant case, the Petitioners, directors of Hoysala Projects Private Limited (the Company) sought dismissal of the complaint against them.The respondent- Complainant averred that it had entered into certain transactions with the the Company, in furtherance of which, the authorised signatory of the Company issued certain cheques in its favour, which were dishonoured for want of sufficient funds. The petitioners contended that they had no role to play in the transaction, which is between the Company and the complainant. They are only the directors of the Company and were not aware of the day-to-day affairs. It was submitted that accused No.1 is the Company, accused No.2 is the Chairman and Managing Director, accused No.5 is the Director, the signatory to the cheques. Therefore, accused Nos.1, 2 and 5 are the ones who have to answer the charge and not the petitioners. Findings: The bench primarily relied on SP Mani (supra) to reiterate that once necessary averments are made in the statutory notice issued by the complainant in regard to vicarious liability of the partners (in this case directors) and upon receipt of such notice, if the partner (director) keeps quiet and does not say anything in reply to the same, then the complainant has all the reason to believe that what he has stated in the notice has been accepted by the noticee. Further it has said the complainant is supposed to know only generally as to who were in-charge of the affairs of the Company. It is only the Directors of the Company or the Partners of the Firm who will have special knowledge of the role that they play in the Company. The burden would be on the Board of Directors or persons in-charge of the affairs of the Company to show that they are not liable to be convicted. Following which the court said, "The contents of the notice, the reply given by the noticee and the contents of the complaint would form an important part of arraigning the accused into the proceedings under Section 138 of the NI Act." It then said, "The complainant in the...

Complainant U/S 138 NI Act May Not Know Exact Role Of Company Directors, Basic Averment About Vicarious Liability Sufficient: Karnataka High Court

Mustafa Plumber

Tags