In CRL. M.C. 3602/2022 -DEL HC- ‘Mere designation as director of company is insufficient to establish vicarious liability under Section 141 of the NI Act’: Delhi High Court quashes summons against lawyer in cheque dishonour case
Justice Dinesh Kumar Sharma [21-09-2023]

Read Order: Varun V. Amit Khanna and Ors

Chahat Varma

New Delhi, September 22, 2023: The Delhi High Court has recently quashed the summons orders issued against a practicing lawyer in a case registered under Section 138 of the Negotiable Instruments Act (NI Act). The petitioner, who was an Additional/Non-Executive Director of the accused company, had been summoned in his capacity as a director.

The present petitions had been filed with the aim of quashing the complaint cases and the summoning orders. These summoning orders pertained to the petitioner, who was a legal professional practicing before the Delhi Courts, and they were related to the alleged offense under Section 138 of the NI Act.

In brief, the alleged facts involved local brokers and associates of 'Today Homes and Infrastructure Pvt Ltd' (the accused company) approaching the complainants/respondents for investment in an upcoming residential project. The complainants were induced to enter into agreements with the company, under which the company was obligated to deliver possession of flats within 36 months from the agreement date. Each complainant was allotted one residential flat and made the corresponding payments. However, the company failed to deliver possession of the flats within the specified timeframe. Consequently, the complainants filed a complaint with the NCDRC, which, on January 31, 2017, directed the company to refund the entire amount received from the complainants, inclusive of service tax, VAT, and simple interest, within three months from the order date. To fulfil this liability, Mr. Naveen Thakur and Mr. Rajesh Kumar (accused Nos. 4 and 5 in the complaints), acting on behalf of the accused company, issued six 'At par' cheques in favour of each complainant. The complainants successfully presented the first two cheques, which were honoured. However, when they attempted to deposit the subsequent two cheques, each valued at Rs 10,00,000 and drawn on IndusInd Bank, these cheques were dishonoured. As the requisite payment was not made within the stipulated time frame, multiple complaint cases were filed under Section 138. In these cases, the petitioner was included as accused No. 3 and was summoned in his capacity as a director of the accused company.

The bench of Justice Dinesh Kumar Sharma noted that merely stating the accused person's designation within the company or reiterating the language of Section 141 of the NI Act was inadequate to establish guilt under Section 141 of the NIA. It emphasized that it was no longer a matter of debate that there must be specific allegations and assertions explaining how and in what capacity the accused, who was alleged to have committed an offense under Section 138 of the NIA, was involved in or responsible for conducting the company's business at the time when the offense occurred.

The bench clarified that the legal precedent was clear on this matter, stating that in order to establish vicarious liability under Section 141 of the NI Act, a specific role or involvement must be attributed to the accused individual.

The bench cited the case of Sunita Palita & Others vs M/s Panchami Stone Quarry [LQ/SC/2022/934], in which the Supreme Court had allowed the appeal, stating that the appellants in that case were neither the Managing Director nor the Joint Managing Director of the accused company, and they were not signatories to the relevant cheques. The court clarified that these accused individuals were independent, non-executive directors who had no involvement in the day-to-day operations of the accused company.

The bench observed that in the present case, the petitioner had been appointed as an Additional Director/Non-Executive in the accused company w.e.f. 25.10.2019. However, upon examining the complaint, it became evident that the cheques in question, had been issued on 24.07.2019. This date was before the petitioner's appointment as an Additional/Non-Executive Director in the accused company.

The bench also remarked that the Magistrate, when issuing the summons, had taken cognizance of the offense under Section 138 and had mechanically summoned the petitioner in their capacity as a Director of the accused company, without exercising proper judicial discretion or consideration.

The bench concluded that, based on the information provided, it was evident that the petitioner could not have been responsible for or in charge of the day-to-day affairs of the company or its business conduct at the time when the cheques were issued. Additionally, the petitioner was not a signatory to the cheques in question. Therefore, it would be a miscarriage of justice and an abuse of the court's process to keep the complaints pending against the petitioner, especially in the absence of any substantial evidence against him for committing the alleged offense.

Therefore, the bench ruled that the summoning orders against the petitioner were to be set aside. Consequently, the petitioner was acquitted of the offenses alleged under Section 138 of the NI Act.