By Vikas Rathi, Lawyer, Lex Maven
Recently, the Hon’ble Supreme court in the matter of Pawan Kumar Goel v. State of U.P. Criminal Appeal No. 1999 of 2022 (arising out of Special Leave Petition (Crl.) No. 1697 of 2020). D/d. 17.11.2022 by bench comprising Krishna Murari and Bela M. Trivedi, JJ. has framed following questions in respect of liability of Directors of company in case dishonour of cheque and offence u/s. 138 of Negotiable Instruments Act –
Two main issues which falls for our consideration in this appeal are :-
(1) Whether a director of a company would be liable for prosecution under section 138 of NI Act without the company being arraigned as an accused?
(2) Whether a complaint under section 138 of NI Act would be liable to be proceeded against the director of the company without their being any averments in the complaint that the director arrayed as an accused was in charge of and responsible for the conduct and business of the company?
The bench discussed Section 141 of NI Act which deals with offences by companies while extending the liability to every individual; who when the offence was committed was responsible for the conduct of the business which also extends towards key managerial positions like that of the Director. section 141 of the NI Act reads as under: –
141. Offences by companies. –
(1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation. – For the purposes of this section-
(a) “company” means any body corporate and includes a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the firm.
The bench observed that a bare perusal of Section 138 and section 141 of NI Act indicates that section 138 of the NI Act casts criminal liability punishable with imprisonment for a term that may be extended to two years or with a fine that may extend to twice the amount of the cheque, or with both on a person who issues a cheque towards discharge of a debt or liability in whole or in part and the cheque is dishonoured by the bank on presentation. While Section 141 extends such criminal liability in case of a company to every person who at the time the offence was committed, was in charge of, and was responsible for the conduct of the business of the company.
The bench mainly referred earlier cases of Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. (2012) 5 SCC 661, S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla & Another (2005) 8 SCC 89, K.K. Ahuja v. V.K. Vora & Anr. (2009) 10 SCC 48 and K. Srikanth Singh v. North East Securities Ltd – 2007 (12) SCC 788 for answering the questions so framed and held that –
“19. (a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
(c) The answer to question (c ) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under subsection (2) of Section 141.”
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