Kiran Vittal Poojary and Ors. Vs. Prismatic Engineering Private Limited and Ors. - (High Court of Karnataka) (06 Jun 2019)

Persons who were in charge of and responsible for conduct of business of company at time of commission of offence are only liable for criminal action

MANU/KA/3599/2019

Banking

The Petitioner is a employee of SIDBI Venture Capital Limited, which appointed the Petitioner as a nominee Director of the Avni Energy Solutions Private Limited. As nominee Director, the Petitioner has no role in day to day affairs of the company. The petitioner had also resigned from the Board of Directors on 9th September, 2016 as Nominee Director and was appointed as Observer on the Board of Directors on the same day.

The complainant is a company registered under the Companies Act, 1956. In the course of transaction, towards part payment of the dues, an invoice was issued along with a cheque dated. The complainant submitted the cheque. However, the cheque was dishonoured with the endorsement that 'the payment was stopped by the Drawer'. The complainant thereupon sent a legal notice and thereafter the complaint was filed. The Magistrate by an order has taken cognizance of the offence and directed issuance of summons to the Petitioner. In the aforesaid factual background, the Petitioner has approached this court under Section 482 of the Code of Criminal Procedure, 1973 seeking quashment of proceedings.

A Liability under Section 141 of the Section 141(1), Negotiable Instruments Act, 1881 is fastened vicariously on a person connected with the company. Therefore, the persons who are sought to be criminally made liable should be at the time of commission of offence, in charge of and responsible to the company for conduct of the company. It is well settled that, every person connected with affairs of the company would not fall within the ambit of Section 141 of the Act and only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of offence will be liable for criminal action.

In SS.M.S. Pharmaceuticals ltd. Vs. Neeta bhalla and another', It has been held that mere reproduction of the wording of Section 141(1) of the complaint is not sufficient to make a person liable to face prosecution.

It is evident that, no specific role has been attributed to the Petitioner and there has been a reproduction of the language of the provision used in Section 141 of the Act. Admittedly, the Petitioner was a nominee Director who had resigned on 9th September, 2016. Section 2(60) of the Companies Act, 2013 defines the expression 'officers who is in default' to mean the officers of a company mentioned therein viz., whole time director, key managerial personnel, where there is no key managerial personnel such director or directors as specified by the board in this behalf, any person who under the immediate authority of the board or any key managerial person is charged with any responsibility as well as any person in accordance with whose advise directions or instructions the board of directors of the company is accustomed to act.

In the instant case, from the averments made in the complaint, the Petitioner also does not fall within the meaning of the expression 'officers who is in default'. Thus, even if the averments made in the complaint are taken to be correct in its entirety, then also no offence is made out against the Petitioner. The continuance of the proceedings against the Petitioner in the fact situation of the case amounts to abuse of process of law. In view of preceding analysis, the entire proceedings are hereby quashed. Petitions allowed.

Relevant : SS.M.S. PHARMACEUTICALS LTD. VS. NEETA BHALLA AND ANOTHER', MANU/SC/0622/2000

Tags : PROCEEDINGS QUASHING OF