Negotiable Instruments Act, 1881
Section 138 read with Section 141 & 142—Dishonour of cheque—Petition to quash complaint filed on the basis that petitioner was an independent and non-executive director who was not managing the day-to-day affairs of the accused company and was not a signatory to the cheque—Merely holding a designation or office in a company was not sufficient for liability under Section 141 of the Negotiable Instruments Act—It is evident from complaint that only bald averments have been made against third to eighth accused being directors of first accused/company and in-charge of and responsible for conduct, affairs and business of the accused company—Considering that fourth to eighth accused were dropped by the complainant, there was no reason for the complainant to have continued with proceedings against third accused/the petitioner—Merely mention of the name of third accused on the letter head as being the Head of the Group, does not ipso facto or ipso jure make him in-charge of and responsible for affairs and business of company at the time the offence was committed—A non-executive director may be custodian of governance of the company but are not involved in the day-to-day affairs of running its business and only monitor executive activities of the company—Creeping up an escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Negotiable Instruments Act—Since no prejudice is caused to the complainant as the signatory of cheque and admittedly the Managing Director of accused company is already arrayed as second accused and is continued to be part of proceedings—High Courts have power to quash proceedings under Section 138 of the NI Act qua those accused who do not fall within the rubric of vicarious liability—Complaint and its proceedings quashed qua petitioner/third accused.
Held : It is common knowledge that very large business conglomerates spawn and sustain hundreds of companies under them which may be ultimately held by a particular business family or a group of investors, but officers and professionals are appointed to run the day-to-day affairs of such companies. The whole purpose of having a Managing Director and executive directors appointed for a company is to ensure that all executive decisions are resident with that Managing Director and his / her team of executive directors. A number of non-executive Directors or Directors who are not executive Directors are present on the Board of the Companies for their expert independent advice or oversight of the functioning of the company. Even the role of 'Chairman'/ 'Chairperson' is not typically of an executive nature since the Chairperson presides over the general meetings or of the functioning of the company and guides its business policies and need not interfere in the day-to-day affairs of the company. Chairperson of large business conglomerates are in fact even further removed from the minutiae of everyday operations of the company and distant from the micro-management which is required to be done by the executive directors and officers of the company. Needless to say, this has to be assessed in context of the peculiar facts of each case.
Creeping up an escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Negotiable Instruments Act. Particularly, since no prejudice is caused to the complainant in this case as the signatory of the cheque and admittedly the Managing Director of the accused company is already arrayed as second accused and is continued to be part of proceedings. It does not need to be reiterated, as has been held by various decisions, including the ones noted above, that the High Courts have the power to quash proceedings under Section 138 of the NI Act qua those accused who do not fall within the rubric of vicarious liability as now defined and refined by various decisions of the Hon'ble Supreme Court.
The complaint and its proceedings would be quashed qua the petitioner herein (arrayed as A-3 in the said complaint).
[Paras 18 to 23]