HC Overturns Trial Court’s Order as Petitioners, Being Non-Executive Directors, Weren’t Responsible for Cheque Dishonour

Case Details: Rajesh Madan v. Good Marketing and Sales Pvt Ltd - [2024] 167 taxmann.com 135 (HC-Delhi)

Judiciary and Counsel Details

• Jyoti Singh, J.
• Siddharth Aggarwal, Sr. Adv., Aditya Wadhwa, Ayush Srivastava, Siddharth Sunil, Ashish Raghuvanshi & Shivansh Agarwal, Advs. for the Petitioner.
• Mudit Jain, Adv. for the Respondent.

Facts of the Case

In the instant case, the accused company was engaged in the business of distributing mobile handsets, accessories, communication devices, etc., and was associated with the biggest brands in the Original Equipment Manufacturer space, including Apple products.

The accused entered into a distributorship agreement with the complainant, wherein the accused was to purchase certain products from the complainant. During the course of business, the complainant alleged that the accused had an outstanding balance against which it issued a cheque, but on presentation, the said cheque was dishonoured.

Thus, the complainant filed a complaint under section 138 of the Negotiable Instruments Act, 1881. The Trial Court, by the impugned order, summoned the accused company and its directors, including the petitioners.

It was noted that perusal of Form No. DIR-12 of the accused company reflects that the petitioners were Independent Non-Executive Directors at the time of the commission of the alleged offence.

Further, it was noted that in view of Section 141 of the Act and Section 149 of the Companies Act, 2013, the petitioners could be held vicariously liable only if it was shown that they were in charge of and responsible for the conduct of business of company at time of commission of offence and not otherwise and complainant was required to specifically aver in complaint as to how the petitioners were in charge of day to day affairs of company as well as conduct of its business, as per settled law.

High Court Held

The High Court observed that the relevant paragraphs from the complaint extracted hereunder would show that only bald and general allegations were made against the petitioners that they were responsible to the company for the conduct of its business, which were not sufficient to satisfy the mandatory requirements of Section 141(1) of the Act.

The High Court held that in a general statement that the petitioners were in charge of the company’s day-to-day business, no averments ascribing any role to petitioners led to an inference that they were involved in the company’s day-to-day functioning or in charge of its business, and there was no denial of the fact that the petitioners were independent Non-Executive Directors/Non-Executive Directors, respectively.

The High Court, further held that there were no allegations that the petitioners had any role in the dishonour of the cheque on presentation, and admittedly, the petitioners were not signatories. Thus, no criminal liability could be fastened on the petitioners and accordingly, the impugned order of the Trial Court was to be set aside.

List of Cases Reviewed

• S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, (2005) 8 SCC 89 (Para 20)
• National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, (2010) 3 SCC 330 (Para 21)
• Anita Malhotra v. Apparel Export Promotion Council and Another, (2012) 1 SCC 520 (Para 23)
• Siby Thomas v. Somany Ceramics Limited, (2024) 1 SCC 348 (Para 24) followed

List of Cases Referred to

• S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another (2005) 8 SCC 89 (para 3)
• Pooja Ravinder Devidasani v. State of Maharashtra and Another (2014) 16 SCC 1 (para 3)
• Sunita Palita and Others v. Panchami Stone Quarry (2022) 10 SCC 152 (para 3)
• S.P. Mani & Mohan Dairy v. Dr. Snehalatha Elangovan (2023) 10 SCC 685 (para 3)
• Sudeep Jain v. M/s. ECE Industries Ltd. 2013 SCC OnLine Del 1804 (para 3)
• Lalit Bhasin v. Pawan Trade Connect Pvt. Ltd. 2024 SCC OnLine Del 559 (para 3)
• Anita Malhotra v. Apparel Export Promotion Council and Another, (2012) 1 SCC 520 (para 4)
• J.N. Bhatia & Ors. v. State & Anr. 2006 SCC OnLine Del 1598 (para 4)
• Kanarath Payattiyath Balrajh v. Raja Arora 2017 SCC OnLine Del 7418 (para 5)
• National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another (2010) 3 SCC 330 (para 5)
• K.K. Ahuja v. V.K. Vora and Another (2009) 10 SCC 48 (para 8)
• Gunmala Sales Private Limited v. Anu Mehta and Others (2015) 1 SCC 103 (para 8)
• Sunil Todi and Others v. State of Gujarat and Another 2021 SCC OnLine SC 1174 (para 9)
• Rangappa v. Sri Mohan (2010) 11 SCC 441 (para 10), Basant Kumar Goswami v. State NCT of Delhi and Another 2023 SCC OnLine Del 7635 (para 11)
• Siby Thomas v. Somany Ceramics Limited (2024) 1 SCC 348 (para 24)
• Ashok Shewakramani and Others v. State of Andhra Pradesh and Another (2023) 8 SCC 473 (para 24)
• Alibaba Nabibasha v. Small Farmers Agri-Busines Consortium and Others 2020 SCC OnLine Del 1250 (para 25)
• Secunderabad Health Care v. Secunderabad Hospitals 1998 SCC OnLine AP 338 (para 26)
• V. Sudheer Reddy v. State of Andhra Pradesh and Others 1999 SCC OnLine AP 863 (para 27)
• Sabitha Ramamurthy and Another v. R.B.S. Channabasavaradhya (2006) 10 SCC 581 (para 29)
• Krishna Lal Chawla and Others v. State of Uttar Pradesh and Another (2021) 5 SCC 435 (para 29).