- The Hon’ble High Court, in the case of Jatinder Pal Singh v. M/S Statcon Power Controls Ltd. & Ors has held that a nominee director, not involved in day-to-day affairs of the company, can’t be held liable for any offence committed by the company.
- The High Court evoked its inherent powers to prevent any abuse of the process of any court or to secure the ends of justice under section 482 of CrPC, 1973 and quashed the impugned orders and summon.
- The opposite party no.1, of the given application, had filed acomplaint against the opposite party no.2 (in which the applicant was a director) and its directors on account of dishonor of cheques issued by the company and non-payment of dues even after a legal notice was served for the same.
- On the aforesaid complaint the learned Magistrate by the impugned order dated 7.1.2014 had summoned the applicant and other accused named in the complaint to face trial for the offence under section 138 of Negotiable Instrument Act, 1881. Which is a penal provision dealing with the punishment of dishonor of cheque. Consequently, further proceeding followed there on and the present application was presented.
- The learned counsel for the applicant contended that the learned Magistrate, while issuing such summon, had not taken notice of the fact that there were no specific allegations in the complaint against the applicant.The applicant, being a nominee director, was not involved in routine affairs of the company, so he cannot be held responsible for dishonor of any cheque issued by other Managing Directors. He was not authorized signatoree of the company.
- Relying on judgment in case of Chintalapati Srinivasa Raju V. SEBI (2018),the learned counsel submitted that being a non- executive Director in a company,proceedings under section 138 cannot be proceeded against him under section Negotiable instrument act.
- The learned counsel for the opposite party no.2, in support of the summon issued and other proceedings, contented that in the complaint itself,in light of which the summons were issued, the company (opp. Party-2) had accused all directors as well as executive director responsible for the acts and deeds of the company.
- The revision petition by the applicant before the learned magistrate had also been dismissed on merits. He further pleaded for the direction to be issued to the trial court to ensure the presence of the other accused persons and decide the case expeditiously
- Along with other leading case laws, the court relied on the judgement of Srikanth Singh Vs. North East Securities Limited (2007), where Hon’ble Apex Court held that for vicarious liability of Director of a company it must be proved that the Director was responsible for the misconduct of the affairs at the time of commission of offence. Only being a director is not enough to cast a liability. Vicarious liability must be clearly established proved and cannot be merely inferred.
- The court observed that there were no specific allegations averted that applicant is involved in day-to-day affairs of the company. The documents filed by the applicant established that he was a nominee Director and who has resigned now.
- The court held that the Learned Magistrate had failed to consider that in absence of specific allegations, the applicant can’t be prosecuted for any offence under section 138.
- The honorable High Court allowed the application and quashed the summoning orders against the applicant along with any incidental proceedings.
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