Delhi High Court Rules Independent Non-Executive Directors Not Liable Under Section 138 Of The NI Act Without Specific Allegations

Delhi High Court Rules Independent Non-Executive Directors Not Liable Under Section 138 Of The NI Act Without Specific Allegations

Justice Amit Mahajan of the Delhi High Court has ruled that independent, non-executive directors of an accused company cannot be held liable under Section 138 of the Negotiable Instruments Act, 1881, unless the complaints detail their active role in the offence.

The case involved petitions challenging summoning orders issued against Mr. Sandip Vinodkumar Patel and others. The petitioners sought to quash these orders and dismiss the associated complaints filed under Section 138 of the Negotiable Instruments Act, 1881, in conjunction with Sections 141 and 142.

The complaints arose from a transaction where the management of Sadbhav, along with the petitioners, approached the respondent company, STCI, for a corporate loan of ₹50 crores. On March 30, 2021, loan facility agreements were executed, and the amount was disbursed to Sadbhav on March 31, 2021. Post-dated cheques were issued for interest and principal repayment. When these cheques were presented, they were returned due to insufficient funds, leading to separate complaints for dishonour.

The petitioners, who were independent directors of the accused company, argued that they could not be held vicariously liable under Section 141 of the Negotiable Instruments Act. They presented evidence, including Form 32 filed with the Registrar of Companies, showing they were appointed as Independent Additional Directors and were non-executive. Despite this, they were implicated in the case under Section 141.

The High Court observed that, under Section 141, a person can only be held vicariously liable if they are responsible for the company's business conduct at the relevant time.

The court referred to the Supreme Court judgment in Sunita Palita v. Panchami Stone Quarry, which held that directors not in charge of or responsible for the company's business at the time of the offence cannot be held liable under Section 141. It emphasized that it would be unjust to implicate directors not involved in the dishonoured cheque’s issuance based solely on their designation.

Further, the Supreme Court's decision in Pooja Ravinder Devidasani v. State of Maharashtra clarified that non-executive directors, not participating in day-to-day affairs, cannot be held responsible for business operations. Complaints must include specific allegations showing such directors' involvement.

The High Court noted that the complaints lacked specific allegations about the petitioners' roles concerning the dishonoured cheques. General assertions that all accused were responsible for business management did not meet the requirements under Section 141.

The court also cited the Supreme Court decision in National Small Industries Corporation Ltd. v. Harmeet Singh Paintal which stated that merely claiming directors are in charge is insufficient for establishing liability. Additionally, the court referred to Pepsi Foods Ltd. v. Special Judicial Magistrate, which held that summoning should not be automatic and must show proper consideration.

As a result, the High Court exercised its discretion under Section 482 of the Criminal Procedure Code to quash the complaints and all consequential proceedings against the petitioners.