Directors and other persons responsible for the conduct of business are not liable if no offense is attributed to the company: Delhi High Court

The Delhi High Court observed that if no wrongdoing is imputed to the company, it is only the natural corollary that its directors and others responsible for the conduct of its affairs cannot be held liable.

Observing that the Company being named as accused must be found guilty of an offence, Judge Asha Menon added:

“Subsequently, through the legal fiction created by Section 141 of the NI Act, directors and others responsible for the conduct of its business also become vicariously liable.”

“Thus, the corporation bears the primary liability and a person sought to be vicariously liable for an offense where the principal accused is a corporation, should have a role to play in relation to the offending act. Section 141 of the NI Act only applies where the offense under Section 138 of the NI Act is committed by a company.”

The Court denied a motion filed by the plaintiff to set aside the orders dated August 28, 2015 and October 23, 2017, issued by the trial court and the court of appeal, respectively, dismissing his complaint record.

The petitioner had filed a complaint under s. 138 of the Negotiable Instruments Act, 1881 against the respondent company. The complaint stated that the retail space owned by the claimant had been leased under the terms and conditions incorporated into the registered rental agreement dated February 23, 2010.

This was executed between the Claimant (owner) and the Respondent’s company, through its Managing Director, ie the Respondent. In March-April 2013, the Respondent allegedly issued five company-wide checks duly signed by him as Managing Director to discharge the company’s obligation to pay rent totaling Rs. 16,95,000. These bounced back. Subsequently, the complaint was filed.

It was therefore argued by the petitioner that the court of first instance dismissed the complaint observing that since the company had not been implicated as a defendant, the liability of the respondent as its managing director could not be brought under article 141 of the NI law.

“A reading of the complaint filed as Exhibit P-1 would show that in this case the company was not implicated, let alone a bad company, as was the case in UP Pollution Control Board (supra) This makes a substantial difference to the factual situation in this case,” observed the Court.

The Court was of the opinion that there was no pleading to suggest that the company had committed an offence.

Observing that when no offense is attributable to the Company, the Court declared that it was not possible to engage the responsibility of the general manager by the determinative provisions of article 141 of the NI law.

“Only modifications of simple technical infirmities can be admitted, but not the filing of a new complaint with improved conclusions, by way of amendment. Thus, following these same judgments invoked by the applicant’s learned lawyer, this Court does not consider it appropriate to grant such authorization to amend the complaint“, added the Court at the outset.

Consequently, the plea was dismissed.


Citation: 2022 LiveLaw (Del) 424

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