Tanvi Pilane
Published on: March 9, 2022 at 10:18 IST
Justice Syed Aftab Rizvi of the Allahabad High Court Ruled that one does not become liable under Section 138 of the Negotiable Instruments Act by merely being the Director of a Company.
The Petition of Jatinder Pal Singh was allowed by the Court and the Summoning Order and proceedings against the Director of the Company were quashed.
The Accused no. 1, in this case, is a Public Limited Company registered under the Companies Act, 1956. The Directors and Executive Directors of the Company are the other accused who are responsible for the acts of the Company which the Accused no. 1.
The Two Checks issued by Accused No. 1 of Rs. 1,00,00,000 each for the supply of two sets of Battery Bank and Charger and other accessories. The checks were dishonored when presented for payment with the remark ‘Exceeds Arrangement’.
Despite the receipt of the Legal Notice issued by the Complainant, the Accused failed to pay the amount of the dishonored checks in the stipulated period. Following this, the Complainant filed a complaint against the Accused and The Magistrate summoned the applicant and the other accused in the complaint about an offense under Section 138 of the Negotiable Instruments Act.
The Applicant, aggrieved by the aforementioned Summoning Order, filed a Criminal Revision No. 72 of 2019 which by the order dated 2.02.2021 was dismissed by Special Judge SC/ST Act vide judgment.
The Judgements in the Case of S.M.S. Pharmaceuticals Ltd. Vs. Neta Bhalla and another (2005) 8 Supreme Court Cases 89 and Srikanth Singh Vs. North East Securities Limited (2007) 12 SCC 788 was referred to by the Court.
In the aforementioned cases, the Supreme Court held that it must be proved that the Director was Responsible for the Conduct of the Business of the Company at the time when the offense was committed for him to be Vicariously Liable. Merely being the Director of a company is not enough, vicarious liability must be proved.
The Court observed that there is no proof that the Applicant was involved in the day-to-day affairs of the Company since the documents filed by the Applicant show that he was only a Nominee Director who has resigned now.
Therefore, the Court held that Applicant cannot be held liable for an offense under Section 138 of the Negotiable Instruments Act and allowed the application dated 2.01.2021 and the Summoning Order dated 7.91.2021 passed against the Applicant was quashed.
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