Summons To Directors Justified If Complaint Avers That They Were In Charge And Responsible For Conduct Of Business Of Company

KEY TAKEAWAYS

• The Supreme Court has reiterated that a Magistrate's summons to the Directors of a Company issued on a complaint under Section 138 of the Negotiable Instruments Act is justified if the complaint contains the basic averment that they were in charge and responsible for the conduct of the company's business.
• The observations were made by a bench of Justices Abhay Rastogi and Abhay S Oka.

BACKGROUND

• The bench was dealing with an appeal against a High Court decision that refused to exercise powers under Section 482 of the Code of Criminal Procedure to quash summons issued to the directors of a company that was facing a complaint of cheque dishonour.
• The above judgement was of Ashutosh Ashok Parasrampuriya and another versus M/s Gharrkul Industries Pvt Ltd.
• According to the complaint, all of the appellant Company's Directors are accountable for its business, and all of the appellants are involved in the Company's business and are responsible for all of the Company's activities.
• Taking this into account, the High Court dismissed the Directors' petition under Section 482 CrPC.

COURT’S OBSERVATION

• The Supreme Court approved the decision made by the High Court.
• The Supreme Court stated that precedents have shown that the powers under Section 482 CrPC cannot be used to quash the summons against the Directors if the complaint contains the core allegations against them.
• Section 141 of the Negotiable Instruments Act puts vicarious liability on "every person 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"
• The Directors, on the other hand, have the right to argue during the trial that they were not in command of the firm and were not liable for its actions.
• The Court added that "this averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director".
• If this basic averment is missing, the Magistrate is legally justified in not issuing process - the court observed.

Do you think the directors of a company should be held responsible if they were not in charge of the business during the time of the mishappenings? Let us know in the comments below!