Top News Headlines 12th Mar 2022: Nominee Director Not Responsible For Routine Affairs Can’t Be Charged U/S 138 Of Negotiable Instrument Act, 1881

Nominee Director Not Responsible For Routine Affairs Can’t Be Charged U/S 138 Of Negotiable Instrument Act, 1881 : Allahabad HC

• 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 a complaint 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 proceedings followed thereon and the present application was presented.
• The learned counsel for the applicant contended that the learned Magistrate, while issuing such a summons, 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 an authorized signatory 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 summons issued and other proceedings, contended 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 and proven and cannot be merely inferred.
• The court observed that there were no specific allegations that the 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.

Minor Being A Party To Suit Without A Next Friend Is A Curable Irregularity Under CPC, 1908: Kerala HC

• The Hon’ble High Court of Kerala has observed, in the case of Krishna Moorthy Rao & Anr. V. S.Bhanumathi @ Lakshmi & Anr that a minor who filed a suit without appointing a next friend as laid down under Order 32 Rule 2 of C.P.C, can restore the defect by appointing a next friend, seeking such prayer by filing a separate petition for the same and the Suit can be proceeded.
• The petitioner here, was a defendant in a civil case regarding a property matter pending before the appropriate court and filed this original petition under Article 227 of The Constitution of India challenging the order of the learned lower court to allow appointment of a guardian for the minor petitioner in the civil case after the initiation of proceedings.
• Article 227 envisages that every High Court shall have superintendence over all courts and tribunals throughout the territories where it exercises its jurisdiction.
• The Learned Counsel for the petitioner opposing such order of the lower court contended that on a plain reading of Order 32 Rule 2 of the CPC, it is undoubtedly clear that where a Suit is instituted without a next friend, plaint is to be taken off the file.
• Relying on the judgment of Kamalammal v. A.M.Shanmugham & Ors, he reiterated the difference between a plaint being taken off the file and being dismissed. A plaint is dismissed, when one knowing that he was a minor and incompetent to institute a suit without the next friend and yet filing a suit with a view to deceive the court. On the other hand, it is taken off the file, in case a minor filed the suit without realizing his minority.
• Through leading case laws, the learned council emphasized on how appointing a next friend in a suit instituted by a minor is a prerequisite to be complied 
• to avoid any irregularity and further pointed that there was no direct decision of this Honorable High Court on this point.
• The Honorable Mr. Justice A. Badharudeen, differing from this opinion, cited Ahammed Pillai v. Subaida Beevi's case where this High court had held that such an omission would only be an irregularity and not a fatal defect in the proceedings. The decree as such would be valid and cannot be set aside when such a set aside is proved to affect the petitioner prejudicially. Hence the irregularity in question was held to be a curable one depending upon the facts and circumstances of the case. 
• Hence, the Honorable HC deposed off the original petition in favor of the respondent and held that a Suit filed by a minor without a next friend need not be taken off from the file and the same can be fixed by filing a subsequent application.
• The impugned order was confirmed and the Learned Judge ordered for expedition of proceeding of original case and to dispose of it within 6 months from the present order.

Mere Registration Of Case Under Sections Of IPC Not A Ground For Refusal To Renew Arms License : Madhya Pradesh HC 

• The Hon’ble High Court of Madhya Pradesh, in the case of Pawan Kumar Jain V. State Of Madhya Pradesh & Ors. has adjudicated that an order by the competent authorities to refuse the renewal of Arms license in lieu of registration of criminal case is erroneous and invalid under the Arms Act, 1959.
• The present writ petition arose from the order of Commissioner (Jabalpur M.P.), whereby he rejected the appeal against the order of authorities to deny the renewal of the arm's license of the petitioner.
• The petitioner had never violated any conditions of his Arm’s license in the past and had applied for renewal license under Section 15 of the Arms Act, which was rejected by stating ground of the criminal record of the petitioner.
• The learned counsel for the petitioner affirmed that a criminal case had been registered against the petitioner in the appropriate police station under various sections of IPC but It is not the case that either in the said crime or in any other incident, the petitioner has misused the Arm possessed.
• Relying on Dharampal Ramnarayan Agrawal Vs. State of Madhya Pradesh & anr. and other leading case laws decided by the Honorable Court itself, he submits that mere registration of a criminal case should not be a ground to deny the renewal of the arm's license of the petitioner.
• Learned counsel for the petitioner also enlightened the fact that even in the said criminal case, which were the basis for refusal to renew the license, the petitioner has already been acquitted by the competent court.
• It was further contended that no reason has been recorded by the competent authorities as to why such cases against the petitioner can be a basis for such refusal.
• The learned counsel for the respondents was of the view that it is at the discretion of the Licensing Authority whether to renew the license or not and such a discretion should not be obstructed by the Court’s decision and hence the Writ should be dismissed.
• The Court, headed By Hon'ble Shri Justice Purushaindra Kumar Kaurav, allowed the petition in light of section 14 of the arms act, which lays down the grounds pursuant to which the authorities can refuse the renewal of license and mandates such reason to be recorded. The petition can thus be allowed for want of such a reason.
• In the light of the case laws cited by the counsel for the petitioner the Learned Judge held that it cannot be implied from the provisions of renewal of license under Arms Act that the renewal can be refused on grounds outside of section 14 of the act. Although, on conviction of petitioner under such offences the refusal could have been tenable. 
• Hence the impugned orders were set aside and the authorities were directed to reconsider the petitioner’s application for renewal of arms license in light of his acquittal from the criminal proceedings within three months from the present order.