Mansimran Kaur

Bengaluru, June 3, 2022:  While observing that the petitioners were in-charge of the affairs of the Company and their names were mentioned in agreement for loan, which was borrowed with their approval, the Karnataka High Court has dismissed the present criminal petition instituted by the petitioners seeking quashing of the criminal proceedings on the ground that they had no role or knowledge about the offences alleged against them under Section 138 of the Negotiable Instruments Act.  

The Single Bench of Justice M. Nagaprasanna declined to exercise the jurisdiction under Section 482 of Cr.P.C. in order to quash the proceedings in a criminal complaint for the offences punishable under the Negotiable Instruments Act, 1881 by observing that the accused person were involved in day to day affairs of the company and participated in the alleged offences. 

Facts for perusal of the present petition were such that the petitioners, who claimed to be the non-executive Directors of M/s. Shikhar Microfinance Limited Company, were also arraigned as the second and the sixth accused in a case registered by the respondent/ complainant.  The first accused in the said complaint was a non-banking financial Company. The third, fourth and the fifth accused on behalf of the first accused approached the respondent for a loan of Rs 2 crore. The respondent accepted the request and in pursuance of the same, some cheques were exchanged between the fourth accused, fifth accused and the respondent. However, the cheques got dishonored, and on account of the same, the complainant registered a complaint by invoking Section 200 of the Cr.P.C. against the petitioners. 

The Court took cognizance of the case punishable under Section 138 of the Act. With respect to the same, the petitioners/ accused persons approached this Court by way of present writ petition. 

Referring to the agreement entered into by the respondent and the company and specifically paying attention to the clause “Representation and Warranties”, the Court noted that the signatories to the agreement were not the petitioners, as it was entered between fourth, fifth accused and the respondent and the cheques were issued in favour of the respondent.   However, the Court also referred to minutes of the 65th meeting of Board of Directors wherein the petitioner was shown as the Chairman and the second petitioner was shown as the independent director who used to participate in the meetings of the company as directors. It was also observed that the petitioners were nowhere described as Non-Executive Independent Directors. 

The Bench also asserted, “It is no doubt settled principle of law that if the accused in a proceeding under Section 138 of the Act who are not signatories to the instrument are hauled into those proceedings and if they are Non- executive Independent Directors, who have no role to play in any affairs of the Company, they cannot be prosecuted.” However, in the instant case, the phrase “non executive”, “independent director” was not shown to exist in any of the documents appended by the petitioners, added the Bench. Reliance was also placed on the judgment of the Apex Court in Asutosh Ashok Parasrampuriya vs. Gharrkul Industries Limited and Others.

In light of the aforesaid observations, the Court opined that the averments made in the complaint vividly depicted that the petitioners were the in-charge of the affairs of the company, they were the brain and soul of the company and at the time they borrowed the loan, the agreement explicitly stated that with their permission the said loan was borrowed. Thus, keeping in view the above findings, the Court refused to exercise its jurisdiction under Section 482 of Cr.P.C. in favor of the petitioners. Hence, the criminal petition was dismissed on account of being meritless. 

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