Non-Executive Directors of Company immune from Cheque Dishonour Proceedings: Delhi HC

Case Covered:

SUNITA PALTA & ORS 

Versus 

M/S KIT MARKETING PVT LTD 

Facts of the case:

The present proceedings are instituted under Section 482 Cr.P.C challenging the order dated 14.02.2017 passed by the Metropolitan Magistrate in CC No.874/2017 whereby the present petitioners were summoned for the offense punishable under Section 138 N.I. Act. 

The respondent, a private limited company, had filed a complaint through its authorized representative stating that it was engaged in the business of plywood in the name and style of M/s Kit Marketing Private Limited. The accused are regular purchasers of goods from the complainant on a credit basis and have made a regular payment towards sale consideration from time to time in the past. 

Read the full text of the case here.

Observations of the court:

Recently, in Chintalapati Srinivasa Raju v. Securities and Exchange Board of India reported as (2018) 7 SCC 443, it has been held as follows:- 

“23….Non-Executive Directors are, therefore, persons who are not involved in the day-to-day affairs of the running of the company and are not in charge of and not responsible for the conduct of the business of the company.”

To a similar effect are the decisions of Coordinate Benches of this Court in Kanarath Payattiyath Balrajh v. Raja Arora reported as 2017 SCC Online 7418, Har Sarup Bhasin v. M/s Origo Commodities India Pvt. Ltd. reported as 2020 SCC Online Del 9 and Chanakya Bhupen Chakravarti & Anr. v. Rajeshri Karwa & Ors. reported as 2018 SCC Online Del 12968. 

Sub-sections (6) and (12) of Section 149 of the Companies Act, 2013 defines an “independent director” as under:-
“149. Company to Have Board of Directors

(6) An independent director in relation to a company means a director other than a managing director or a whole-time director or a nominee director,–

(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company.” 

(12) Notwithstanding anything contained in this Act,-

(i) an independent director;

(ii) a non-executive director not being a promoter or key managerial personnel

shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.”

Admittedly, the petitioners are neither the Managing Directors nor the Authorized Signatories of the accused company. The accused company and the Managing Director are arrayed as accused No.1 and 2 along with others in the complaint pending before the concerned Metropolitan Magistrate. A perusal of the complaint filed under Section 138 r/w Sections 141/142 of NI Act filed by the complainant shows that except for the general allegation stating that the petitioners were responsible for control and management and day to day affairs of the accused company, no specific role has been attributed to the petitioners. To fasten the criminal liability under The Negotiable Instruments Act, 1881, the above-generalized averment without any specific details as to how and in what manner, the petitioners were responsible for the control and management of affairs of the company, is not enough. 

In Pepsi Foods v. Special Judicial Magistrate and Ors. reported as (1998) 5 SCC 749, it was held that summoning an accused person cannot be resorted to as a matter of course and the order must show a due application of mind. 

In view of the facts of the case and the aforementioned enunciation of law, I deem it fit to allow the present petition. The impugned order with respect to summoning the present petitioners for the offense under Section 138 of NI Act, is thus quashed. 

Copy of this order is communicated to the concerned trial court. 

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