Court’s Decision
The Delhi High Court allowed the petition under Section 482 Cr.P.C., quashing the summoning order issued against the petitioner in a complaint under Sections 138/141 of the Negotiable Instruments Act, 1881. The Court held that as an Independent Director, the petitioner could not be held vicariously liable without any specific averment or evidence showing her involvement in the day-to-day affairs of the company at the time of the alleged offence. It emphasized that liability under Section 141 NI Act must be established through clear pleadings and evidence of operational control, which was absent in this case.
Facts
The complainant, a trader in plastic materials, received purchase orders from a private limited company for supply between July 2014 and January 2015. Materials were supplied, and a substantial sum remained due. The company issued three cheques, one of which—dated 30 January 2015 for ₹25 lakh—was dishonoured with the remark “payment stopped by drawer.” Despite legal notice, the amount remained unpaid.
A criminal complaint under Section 138 NI Act was filed, and the petitioner, appointed as an Additional Independent Director on 13 February 2015 (after the relevant purchase orders and cheque issuance), was summoned along with other accused. She challenged the summoning order, asserting she had no role in the company’s daily management and that her appointment postdated the alleged transactions.
Issues
- Whether an Independent Director appointed after the issuance of the dishonoured cheque can be held vicariously liable under Section 141 of the NI Act.
- Whether the complaint contained the necessary averments to establish her responsibility for the conduct of the company’s business at the time of the offence.
Petitioner’s Arguments
The petitioner contended that she was merely an Independent Director, appointed after the issuance of the cheque and without any involvement in day-to-day affairs. She relied on Form DIR-12, which recorded her appointment date and role. She argued that the summoning order was passed mechanically, without application of mind, and in absence of any material to show her operational control. She cited Central Bank of India v. Asian Global Ltd. (2010) 11 SCC 203, National Small Industries Corporation Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330, and Punjab National Bank v. Surendra Prasad Sinha, 1993 Supp. (1) SCC 499, to emphasize that mere designation as a director is insufficient to attract vicarious liability under Section 141 NI Act.
Respondent’s Arguments
Despite service of notice, the complainant and other respondents did not file a reply or advance arguments.
Analysis of the Law
The Court examined Section 141 NI Act, which makes every person in charge of and responsible for the conduct of a company’s business at the time of the offence liable. It also analyzed Section 149(6) of the Companies Act, 2013, defining “Independent Director” as one who is not involved in day-to-day management and meets specific independence criteria. Section 149(12) further limits their liability to acts committed with their knowledge, consent, connivance, or due to failure to act diligently.
The Court reiterated that Independent Directors, being non-executive, are not ordinarily responsible for operational decisions, and vicarious liability cannot be presumed. It stressed that complaints must contain specific allegations detailing the role and responsibility of the accused director during the relevant period.
Precedent Analysis
- Central Bank of India v. Asian Global Ltd. – Held that mere bald statements in a complaint without specific allegations about the role of a director are insufficient for prosecution under Section 141 NI Act.
- National Small Industries Corporation Ltd. v. Harmeet Singh Paintal – Clarified that vicarious liability under Section 141 NI Act must be strictly construed, requiring concrete averments of involvement in the company’s affairs at the relevant time.
- Punjab National Bank v. Surendra Prasad Sinha – Cautioned against mechanical issuance of summons without satisfying statutory requirements.
The Court applied these principles to conclude that the petitioner’s summoning was unsustainable.
Court’s Reasoning
The Court noted that the purchase orders and cheque issuance occurred before the petitioner’s appointment as an Independent Director. There was no evidence or even an assertion in the complaint that she was involved in operational decisions or management at the relevant time. Her role, as per the statutory definition, was advisory in nature and did not encompass day-to-day business control. Therefore, she could not be held vicariously liable.
Conclusion
The Court quashed the summoning order against the petitioner, holding that:
“An Independent Director is not automatically liable under Section 141 of the NI Act unless it is shown that they were in charge of and responsible for the conduct of the company’s business at the time of the offence.”
The petition was allowed, and all pending applications were disposed of.
Implications
This judgment reinforces legal protection for Independent and Non-Executive Directors from unwarranted criminal prosecution in cheque bounce cases, unless there is specific evidence of their operational involvement. It serves as a caution to complainants to draft precise pleadings and a reminder to magistrates to scrutinize the statutory requirements before issuing summons.
Referred Cases Summary
- Central Bank of India v. Asian Global Ltd. – Specific role allegations are mandatory for vicarious liability.
- National Small Industries Corporation Ltd. v. Harmeet Singh Paintal – Directors cannot be held liable under Section 141 NI Act without evidence of responsibility at the relevant time.
- Punjab National Bank v. Surendra Prasad Sinha – Summons must not be issued mechanically; statutory preconditions must be met.
FAQs
Q1. Can an Independent Director be prosecuted under Section 138 NI Act?
Yes, but only if there are specific allegations and evidence showing they were in charge of and responsible for the company’s business at the time of the offence. Mere designation is insufficient.
Q2. Does the timing of appointment matter in such cases?
Absolutely. If the director’s appointment postdates the cheque issuance or transaction, and there is no evidence of involvement in related decisions, liability cannot be imposed.
Q3. What safeguards exist for Independent Directors?
Section 149(12) of the Companies Act limits their liability to acts done with their knowledge, consent, connivance, or due to their negligence.
