Sunita Palta

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Page 1 Wednesday, November 01, 2023

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2020 SCC OnLine Del 2592 : (2020) 2 RCR (Cri) 366 : 2020 ACD
452 : (2020) 267 DLT 723
In the High Court of Delhi

(BEFORE MANOJ KUMAR OHRI, J.)
Sunita Palta and Others … Petitioners;

Versus
Kit Marketing Pvt. Ltd. … Respondent.
CRL.M.C. No. 1410 of 2018
Decided on March 3, 2020
Page: 367
The Judgment of the Court was delivered by

MANOJ KUMAR OHRI, J.:— The present proceedings are instituted
under Section 482 Cr. P.C. 1973 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 offence
punishable under Section 138 N.I. Act.
2. The respondent, a private limited company, had filed a complaint
through its authorized representative stating that it was engaged in the
business of ply wood in the name and style of M/s Kit Marketing Private
Limited. The accused are regular purchasers of goods from the
complainant on credit basis and have made regular payment towards
sale consideration from time to time in the past. On 01.12.2016, there
was an outstanding balance of Rs. 36,46,758/- payable by the accused
against which following four account payee cheques were issued:
Cheque Nos. Dated Amount in Rs.
489872 02.09.2016 95,718/-
489853 09.09.2016 7,62,548/-
489897 19.09.2016 3,31,740/-
640194 07.11.2016 1,55,142/-
3. All the aforesaid cheques were drawn on State Bank of India,
Nehru Place, New Delhi from the account maintained by accused
company. The cheques were presented by the complainant in his bank
namely Axis Bank Limited. Mundka Delhi within the period of limitation
however the same were returned unpaid to the complainant vide bank's
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return memo dated 21.11.2016 and 13.12.2016 with the remarks

“Funds Insufficient”. The complainant issued a legal notice of demand
dated 19.12.2016, through speed post, calling upon the accused to
make payment within 15 days from the date of its receipt. The notices
were duly received by the accused persons on 20.12.2016. Since no
payment was made within the statutory period of 15 days, a complaint
under Section 138 read with Sections 141/142 of NI Act was filed on
30.01.2017. The complaint has been filed against the accused company
along with 7 other accused persons including the present petitioners.
4. Learned counsel for the petitioners contended that the petitioners
are the independent Non-executive Additional Directors and were never
involved in the day to day affairs of the company at any point of time.
In this regard, he has referred to the complaint where the present
petitioners were wrongly described as Directors. He also referred to
para 17 of the complaint which contained allegations against the
present petitioners and the same is reproduced hereunder:
“17. That the accused no. 1 is liable because the cheques in
question have issued on behalf of the accused no. 1 and the accused
no. 2 to 6 are liable being the managing directors and directors of
the accused no. 1 and also being responsible for the control and
management and day to day affairs of the accused no. 1 and the
accused no. 7 and 8 are liable being the signatories of the cheques
in question.”
5. The present petitioners were impleaded as accused nos. 5, 6 & 3.
Learned counsel for the pe titioners urged that it is an admitted case of
the respondent that the petitioners were neither the Managing Directors
nor the signatories to the cheques in question. Learned counsel for the
pe titioners also relied on the Form 32 with respect
Page: 368
to Sunita Palta (petitioner No. 1) and Bhagwan Singh Duggal

(petitioner no. 2) submitted on 29.06.2013 and 13.07.2013
respectively, showing them as independent Non-executive Additional
Directors. Similarly, Form No. DIR-12 with respect to Ashwini Kumar
Singh (petitioner No. 3) shows his status as independent Non-executive
Director w.e.f. 01.04.2014.
6. Learned counsel for the petitioners has also referred to the Annual
Report for the year 2016-17 of the accused company and the certificate
issued by the Company Secretary of the accused company which also
shows the status of petitioners as independent Directors.
7. On the other hand, learned counsel for the respondent has
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supported the impugned order. It was submitted that the petitioners

have the remedy to appear and place their defence before the trial
court. He, however, has not disputed the position with respect to Form
32/Form No. DRI-12 filed by the petitioners. He submitted that the
petitioners were named as Directors in the complaint on the basis of
the information which was downloaded from the official website of ROC.
8. I have heard learned counsels for the parties and have also gone
through the case records.
9. The vicarious liability of a person arises in terms of Section 141 of
the Negotiable Instrument Act. In S.M.S. Pharmaceuticals Ltd. v. Neeta
Bhalla reported as (2005) 8 SCC 89 : (2005) 4 RCR (Cri) 141, it was
held as follows:—
“10. While analysing Section 141 of the Act, it will be seen that it
operates in cases where an offence under Section 138 is committed
by a company. The key words which occur in the section are ‘every
person’. These are general words and take every person connected
with a company within their sweep. Therefore, these words have
been rightly qualified by use of the words:
‘Who, at the time the offence was committed, was in charge of,
and was responsible to the company for the conduct of the business
of the company, as well as the company, shall be deemed to be
guilty of the offence, etc’
What is required is that the persons who are sought to be made
criminally liable under Section 141 should be, at the time the offence
was committed, in charge of and responsible to the company for the
conduct of the business of the company. Every person connected
with the company shall not fall within the ambit of the provision. It
is only those persons who were in charge of and responsible for the
conduct of business of the company at the time of commission of an
offence, who will be liable for criminal action. It follows from this
that if a director of a company who was not in charge of and was not
responsible for the conduct of the business of the company at the
relevant time, will not be liable under the provision. The liability
arises from being in charge of and responsible for the conduct of
business of the company at the relevant time when the offence was
committed and not on the basis of merely holding a designation or
office in a company. Conversely, a person not holding any office or
designation in a company may be liable if he satisfies the main
requirement of being in charge of and responsible for the conduct of
business of a company at the relevant time. Liability depends on the
role one plays in the affairs of a company and not on designation or
status. If being a director or manager or secretary was enough to
cast criminal liability, the Section would have said so. Instead of
‘every person’ the section would have said ‘every director, manager
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or secretary in a company is liable’…, etc. The legislature is aware

that it is a case of criminal liability which means serious
consequences so far as the person sought to be made liable is
concerned. Therefore, only persons who can be said to be connected
with the commission of a crime at the relevant time have been
subjected to action.
XXX XXX XXX
18. To sum up, there is almost unanimous judicial opinion that
necessary averments ought to be contained in a complaint before a
person can be subjected to criminal process. A liability under Section
141 of the Act is sought to be fastened vicariously on a person
connected with a company, the principal accused being the company
itself. It is a departure from the rule in criminal law against vicarious
liability. A clear case should be spelled out in the complaint against
the person sought to be made liable. Section 141 of the Act contains
the requirements for making a person liable under the
Page: 369
said provision. That the respondent falls within the parameters of

Section 141 has to be spelt out. A complaint has to be examined by the
Magistrate in the first instance on the basis of averments contained
therein. If the Magistrate is satisfied that there are averments which
bring the case within Section 141, he would issue the process. We have
seen that merely being described as a director in a company is not
sufficient to satisfy the requirement of Section 141. Even a non-director
can be liable under Section 141 of the Act. The averments in the
complaint would also serve the purpose that the person sought to be
made liable would know what is the case which is alleged against him.
This will enable him to meet the case at the trial.”
10. Again in, K.K. Ahuja v. V.K. Vora reported as (2009) 10 SCC 48,
the vicarious liability of the officers of the company was summarised as
under:—
“27. The position under section 141 of the Negotiable Instruments
Act, 1881 can be summarized thus:
(i) If the accused is the Managing Director or a Joint Managing
Director, it is not necessary to make an averment in the
complaint that he is in charge of, and is responsible to the
company, for the conduct of the business of the company. It is
sufficient if an averment is made that the accused was the
Managing Director or Joint Managing Director at the relevant
time. This is because the prefix Managing to the word Director
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makes it clear that they were in charge of and are responsible

to the company, for the conduct of the business of the
company.
(ii) In the case of a director or an officer of the company who
signed the cheque on behalf of the company, there is no need
to make a specific averment that he was in charge of and was
responsible to the company, for the conduct of the business of
the company or make any specific allegation about consent,
connivance or negligence. The very fact that the dishonoured
cheque was signed by him on behalf of the company, would
give rise to responsibility under Sub-section (2) of Section 141.
(iii) In the case of a Director, Secretary or Manager (as defined in
Section 2(24) of the Companies Act) or a person referred to in
Clauses (e) and (f) of Section 5 of Companies Act, an averment
in the complaint that he was in-charge of and was responsible
to the company, for the conduct of the business of the
company is necessary to bring the case under Section 141(1).
No further averment would be necessary in the complaint,
though some particulars will be desirable. They can also be
made liable under Section 141(2) by making necessary
averments relating to consent and connivance or negligence, in
the complaint, to bring the matter under that sub-section.
(iv) Other officers of a company cannot be made liable under Sub-
section (1) of Section 141. Other officers of a company can be
made liable only under Sub-section (2) of Section 141, be
averring in the complaint their position and duties in the
company and their role in regard to the issue and dishonour of
the cheque, disclosing consent, connivance or negligence.”
11. The issue relating to vicarious liability of a Non-executive
Director came up before the Supreme Court in Pooja Ravinder
Devidasani v. State of Maharashtra reported as (2014) 14 Scale 170 :
(2015) 1 RCR (Cri) 271, and it was held as under:—
“17…Non-executive Director is no doubt a custodian of the
governance of the Company but does not involve in the day-today
affairs of the running of its business and only monitors the executive
activity. To fasten vicarious liability under Section 141 of the Act on
a person, at the material time that person shall have been at the
helm of affairs of the Company, one who actively looks after the day-
to-day activities of the Company and particularly responsible for the
conduct of its business. Simply because a person is a Director of a
Company, does not make him liable under the N.I. Act. Every person
connected with the Company will not fall into the ambit of the
provision. Time and again, it has been asserted by this Court that
only those persons who were in charge of and responsible for the
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conduct of the business of the Company at the time of commission

of an offence will be liable for criminal action. A Director, who was
not in charge of and was not responsible for the conduct of the
Page: 370
business of the Company at the relevant time, will not be liable for an
offence under section 141 of the N.I. Act. In National Small Industries
Corporation (supra) this Court observed:
“13. Section 141 is a penal provision creating vicarious liability,

and which, as per settled law, must be strictly construed. It is
therefore, not sufficient to make a bald cursory statement in a
complaint that the Director (arrayed as an accused) 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.
14. A company may have a number of Directors and to make
any or all the Directors as accused in a complaint merely on the
basis of a statement that they are in charge of and responsible for
the conduct of the business of the company without anything
more is not a sufficient or adequate fulfillment of the
requirements under Section 141.”
18. In Girdhari Lal Gupta v. D.H. Mehta, (1971) 3 SCC 189, this
Court observed that a person ‘in charge of a business’ means that
the person should be in overall control of the day to day business of
the Company.
19. A Director of a Company is liable to be convicted for an
offence committed by the Company if he/she was in charge of and
was responsible to the Company for the conduct of its business or if
it is proved that the offence was committed with the consent or
connivance of, or was attributable to any negligence on the part of
the Director concerned (See : State of Karnataka v. Pratap Chand).
20. In other words, the law laid down by this Court is that for
making a Director of a Company liable for the offences committed by
the Company under section 141 of the N.I. Act, there must be
specific averments against the Director showing as to how and in
what manner the Director was responsible for the conduct of the
business of the Company.”
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12. In Nandakumar v. ECE Industries Ltd. in SLP (Crl.) No.

2770/2013 decided on 04.08.2014. while setting aside the order of
dismissal of the petition of the accused filed un der Section 482 Cr. P.C.
1973 by the High Court, the Supreme Court held as under:—
“Therefore, it is clear that merely being a Director of a company is
not sufficient to make the person liable under Section 141 of the Act,
till it is shown that the said Director was in-charge of and
responsible for the conduct of his business.
The Court below and the High Court erred in not appreciating the
fact that the complainant in the mechanical way cited the names of
the appellants which alleged to have been obtained from the website
of the Ministry of Corporate Affairs and unnecessary dragged the
appellants in litigation who were not directly charged or responsible
for the company for the conduct of business. The requirement of
Section 141 of the Negotiable Instrument Act is against the persons
responsible for the conduct or business of the company at the
relevant time. In absence of such allegation against the appellants,
we hold that the complainant misused the mandate of Section 138 of
the Negotiable Instrument Act.”
13. Recently, in Chintalapati Srinivasa Raju v. Securities and
Exchange Board of India reported as (2018) 7 SCC 443 : (2018) 5 RCR
(Civil) 241, it has been held as follows:—
“23…. Non-Executive Directors are, therefore, persons who are not
involved in the day-today 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.”
14. To the similar effect are the decisions of Coordinate Benches of
this Court in Kanarath Payattiyath Balrajh v. Raja Arora reported as
2017 SCC OnLine Del 7418, Har Sarup Bhasin v. Origo Commodities
India Pvt. Ltd. reported as 2020 SCC OnLine Del 9 and Chanakya
Bhupen Chakravarti v. Rajeshri Karwa reported as 2018 SCC OnLine Del
12968.
15. Sub-sections (6) and (12) of section 149 of
Page: 371
the Companies Act, 2013 defines an “independent director” as under:—
“149. Company to Have Board of Directors

xxx xxx xxx
(6) An independent director in relation to a company, means a
director other than a managing director or a whole-time director or a
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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.”
xxx xxx xxx
(12) Notwithstanding anything contained in this Act,—
(i) an independent director;
(ii) a non-executive director not being 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.”
16. 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 generalised 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.
17. In Pepsi Foods v. Special Judicial Magistrate reported as (1998)
5 SCC 749 : (1997) 4 RCR (Cri) 761, it was held that summoning an
accused person cannot be resorted to as a matter of course and the
order must show 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 offence under section 138 of NI Act, is
thus quashed.
18. Copy of this order be communicated to the concerned trial court.
———
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SCC Online Web Edition, © 2023 EBC Publishing Pvt. Ltd.

Page 1 Wednesday, November 01, 2023

In the High Court of Delhi

Sunita Palta and Others … Petitioners;

The Judgment of the Court was delivered by

return memo dated 21.11.2016 and 13.12.2016 with the remarks

to Sunita Palta (petitioner No. 1) and Bhagwan Singh Duggal

supported the impugned order. It was submitted that the petitioners

or secretary in a company is liable’…, etc. The legislature is aware

said provision. That the respondent falls within the parameters of

makes it clear that they were in charge of and are responsible

conduct of the business of the Company at the time of commission

“13. Section 141 is a penal provision creating vicarious liability,

12. In Nandakumar v. ECE Industries Ltd. in SLP (Crl.) No.

the Companies Act, 2013 defines an “independent director” as under:—

“149. Company to Have Board of Directors

this text must be verified from the original source.

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