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Non-Executive Director of Company Not Liable Under S. 138 Of The NI Act Unless Involved in Day-to-Day Affairs: Bombay High Court

The Bombay High Court has upheld that non-executive directors of a company are not liable under Section 138 of the Negotiable Instruments Act, 1881 unless they are involved in day-to-day operations through Justice Prakash D. Naik in the case of Satvinder Jeet Singh Sodhi and Anr. v. State of Maharashtra (CRIMINAL APPLICATION NO.74 OF 2021)

FACTS OF THE CASE:

The complaint was filed for an alleged violation of Section 138 of the Negotiable Instruments Act, 1881 saying that the complainant company is in the business of selling various types of material handling equipment.

On behalf of accused no.1, directors of accused no.1 placed orders with the complainant for an Electromagnetic Oil Cooled Overband Magnetic Separator. The complainant company delivered the material to the consignee at the request of the accused no.1 company. The accused made no objections to the quality or quantity of the goods. To discharge his liability, accused No. 1 issued a cheque signed by accused Nos. 11 and 12. The cheque had a value of Rs.29,31,849.30. The complainant presented the cheque to their banker. It was refused due to “insufficient funds.” 

On the 17th of August, 2013, notice was duly served on accused nos.1, 2, 3, 6, 9, 11, and 12, and the envelope was returned to the advocate with the statement “Not claimed” for accused nos.5 and 8. Regarding accused nos. 4, 7, and 10, the complaint received no mail acknowledgement. On September 30, 2013, a complaint was filed for the offence punishable under Section 138.

Mr. Abhijeet Desai, Counsel for the Applicants, stated that in order to prosecute the accused under Section 141 of the Act, the individual must be in charge of day-to-day operations and responsible for the company’s commercial operations.

Mr. A.R. Patil, Counsel for the Respondents, argued that the applicants’ arguments that they are independent non-executive Directors or that there are no averments to satisfy the requirements of Section 141 of the NI Act must be considered at the trial.

JUDGEMENT:

The Court examined Sections 149 (6)(9) and (12) of the Companies Act and found that an independent director or non-executive director who is not a promoter or key managerial person shall be held liable only for acts of omission or commission by a company that occurred with his knowledge, attributable through Board processes, and with his consent or connivance, or where he failed to act diligently.

It was observed that “In the light of the averments made in the complaint, role of independent Directors, documents on record, petitioners cannot be prosecuted for the offences punishable under Section 138 of NI Act by invoking Section 141 of the said Act”.

As a result, the court quashed the criminal proceedings against the applicants and ordered an expedited trial for the remaining defendants.

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JUDGEMENT REVIEWED BY REETI SHETTY

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