Roles of directors must be specified if allegations are made holding them liable for the conduct of the company: High Court of Telangana

The Hon’ble Justice B. Vijaysen Reddy judged a case dealing with section 138 of the Negotiable Instruments Act, where he held that “Mere assurance of payment or selection of jewelry cannot be the basis to rope in the petitioners. It is vaguely stated in the complaint that the petitioners are directors and responsible for the day-to-day affairs of the A1 company. But in the given facts and circumstances of the case and particularly the uncontroverted claim of the petitioners that they are household ladies, this Court is of the opinion that vague and omnibus against the petitioners/directors as being responsible for the day-to-day affairs of A1 company is not sufficient. Mere verbatim reproduction of the words contained in Section 141 of the Negotiable Instruments Act without any specific role attributed to each of the petitioners in the A1 company, cannot be the basis to prosecute the petitioners, as the same would unjust and result in abuse of process of law”. This case was Smt. Akkinapalli Sujatha & others Vs. The State of Telangana [CRIMINAL PETITION No.8231 of 2011]


Brief facts of the case are, the complainant is a wholesale dealer in gold. A1 is the jewelry shop. A2 is the Managing director of A1. A3 to A9 are the directors of the company. A2 to A9 visited the complainants shop to do business transactions. They shopped for Rs. 25,49,121. They paid through 2 cheques; one worth Rs. 4,75,000/- and the other Rs.20,74,121/-. Both these cheques were dishonoured. The complainant sent a statutory notice to A1 to A9 which was returned with an endorsement ‘not claimed’. He then filed a case before the Hon’ble High Court.

The counsel for the petitioners contends that A3-A9 have resigned from A1 company. Furthermore, since A2 has signed on these cheques, he must be held liable for such a dishonour. After hearing both the counsels, the High court observed that occupation in the cause title of the petition of the petitioners No. 5,7,8 and 9 was ‘house wife’. The learned judge was of the opinion that “though allegations are made against all the petitioners that they have selected the jewelry and assured payment to complainant, such facts are not relevant to prosecute them for the offence under Section138 read with Section 141 of the Negotiable Instruments Act. The petitioners are neither signatory of the cheques nor in any way responsible for issuance of the subject cheques. Accused No.2 is said to be the Managing Director, who signed the cheques.”  

The court placed heavy reliance on National Small Industries Corporation v. Harmeet Singh Panital [(2010) 3 SCC 330] wherein the supreme court held that, “It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability.”

The court allowed the criminal petition and quashed the proceedings in CC.No.1011 of 2010 on the file of the II Additional Chief Metropolitan Magistrate, Hyderabad, against the petitioners/accused Nos.5, 7, 8 and 9.

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