Statutory role that Company Secretary performs does not include ‘conducting the business of the Company’ of the kind envisaged in Sec 141 of NI Act for such an individual to be made vicariously liable: Delhi High Court quashes cheque bounce case 
Justice Manoj Kumar Ohri [30-04-2024]

Read Order: RASHMI GOYAL v. M/S MAHALAXMI FABRICS [DEL HC- CRL.M.C. 2126/2023]

LE Correspondent

New Delhi, May 3, 2024: The Delhi High Court has quashed a cheque bounce case against a Company Secretary in the absence of adequate averments against the petitioner alleging her involvement in the conduct of the business of the Company beyond her statutory role, in relation to the transaction pursuant to which the cheque in question was issued.

The Single-Judge Bench of Justice Manoj Kumar Ohri was considering a petition filed under Section 482 Cr.P.C., seeking quashing of criminal complaints instituted under Section 138 read with Section 141 of the Negotiable Instruments Act (NI Act) as well as the summoning order passed in all these criminal complaints.

In this case, petitioner alongwith certain other individuals (arrayed as accused Nos.2 to 6/accused persons in the said complaints) approached the respondent, on behalf of the accused company/City Life Retails Pvt. Ltd., requesting the respondent Company to supply jeans to the accused company as per its requirement. At the same time, an assurance was given that payments under the bills would be made without delay. On the said assurance, respondent supplied the goods from time to time and raised bills qua each transaction, which were duly received and acknowledged by the accused persons.

Subsequently, in order to discharge their liability under the bills raised, certain cheques of varied amount (subject cheques) were issued during July-September, 2019. Upon presentation, the subject cheques were dishonoured and consequently, distinct demand notices qua each of the subject cheques were issued. Upon failure to repay the amount, the present criminal complaints came to be filed.

The petitioner was sought to be made vicariously liable for the offence under Section 138 NI Act, by describing her as a Director of the accused company and that it was upon her assurance that the goods were provided. Further, she had also assured that the subject cheques would be duly encashed. 

It was the case of the petitioner that she had been appointed as a Company Secretary in the accused company. It was submitted that she was neither the authorized signatory of the accused company nor had she signed the subject cheques. 

Referring to the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Bench opined, “Company Secretary is a “key managerial personnel” who performs secretarial functions on behalf of the Company to ensure that the secretarial compliances are made by the Company. The statutory role that a Company Secretary performs does not include “conducting the business of the Company” of the kind envisaged in Section 141, for such an individual to be made vicariously liable.”

Reiterating that the word ‘in-charge of a business’ has been interpreted to mean a person having overall control of the day-to-day business of the company, the Bench stated that nowhere in the said complaints, the respondent averred that the petitioner was in-charge of, and responsible for the conduct of the business of the company. 

Reference was also made to Girdhari Lal Gupta v. B.H. Mehta,[LQ/SC/1971/142]. The Bench further held that in the ordinary course of business, it cannot be said that the petitioner, who was acting as a Company Secretary, would be in-charge of the day-to-day affairs of the company, as required in terms of Section 141(1). Thus, the petitioner couldn't be vicariously liable in terms of Section 141(1).

Insofar as Section 141(2) was concerned, for the petitioner to be made liable in terms of the said provision, the Bench observed it needs to be shown that there was consent, connivance or neglect on her part, in the issuance as well as the dishonour of the subject cheques. Herein, the petitioner (arrayed as accused No.6 in the subject complaints) had been impleaded based upon sweeping allegations and bald averments, stating therein that based upon the assurances provided by the accused persons, respondent supplied the goods as well as accepted the subject cheques in discharge of the liability. Even if the said averments were akin at their face value, they did not appear to be adequate inasmuch as these averments did not particularly address/show the consent/connivance/neglect on the part of the petitioner in issuance or dishonour of the cheque.

Considering the fact that the petitioner was employed as a Company Secretary in the accused company as well as the position of law w.r.t Section 141 NI Act, the Bench said, “...it can be observed that the subject complaints are bereft of the adequate averments against the petitioner alleging the Petitioner’s involvement in the conduct of the business of the Company beyond her statutory role as a Company Secretary, more particularly, in relation to the transaction pursuant to which cheque in question was issued. Neither, is there any averment that the offence has been committed with the consent or connivance of is attributable to any neglect on the part of the Petitioner, so as to potentially make her liable under Subsection (2) of Section 141.”

It was further asserted that in the absence of appropriate and adequate averments against the petitioner, and the fact that Petitioner’s impleadment could only be in her capacity as a Company Secretary, the continuation of proceedings against the petitioners would be nothing but an abuse of the process of law.

Thus, allowing the petition, the Bench quashed the criminal complaints filed under Section 138 read with Section 141 NI Act qua the petitioner. As a necessary sequitur, the summoning orders issued in the said criminal complaints were also set aside.