No immunity to Company Executive Director from NI Act Proceedings Merely Because non mentioning of name in ROC: Telangana HC [Read Order]

The Telangana High Court has held that no immunity to the company executive director from Negotiable Instruments Act, 1881 proceedings merely because non the mentioning of name in the Register of Company. The petition was filed to call for the records and quash the proceedings against the petitioner. Ms. K. Annapurna Reddy, counsel for the petitioner, Mr. K. Rama Rao, counsel representing, Mr. V. R. Avula, counsel for respondent No.1 and Mr. Vizarath Ali, Assistant Public Prosecutor appearing for the respondent state. The respondent No.1 is the Company registered under the Indian Companies Act, 1956 and doing business in the name and style of M/s. Gangadhar Oil Refinery India Limited, deals in manufacturing mineral oils, liquid paraffin, petroleum jelly, rubber process oils, industrial and automotive lubricants, transformer oils and supply of Indonesian Steam Coal and South African steam coal. The Company was registered under the Indian Companies Act, 1956 and doing business in the name and style of M/s. Bheema Cements Limited. Accused Nos.4, 5, 6, 7, 8 and 9 are the Chairman, Managing Director, Whole-time Director, Director, Director and Executive Director of the said Company respectively. Accused No.3 is one of the customers of respondent No.1 Company and for the sake of business, the Company used to purchase Indonesian steam coal and South African steam coal on credit from respondent No.1 by placing purchase orders. The respondent No.1 Company used to supply the same from Visakhapatnam Port and Gangavaram Port to the plant of accused No.3 company at Ramapuram, Mellacheruvu Mandal, Nalgonda District, Andhra Pradesh. For the said supplies accused No.3 used to make part payments off and on by way of a letter of credit/RTGS/PDC and maintaining the running account with the client since 2011. Respondent No.1 company submitted that after adjusting all the amounts paid by the accused as per the ledger maintained by respondent No.1, an amount of Rs.4,08,75,201/- is due as of 30.10.2013. On presentation, the said cheques were dishonoured with an endorsement “Insufficient Funds” vide cheque return Memos dated 01.11.2013. After intimation about the same, accused have made part payment of Rs.33,00,000/- and as per instructions given by the accused, respondent No.1 presented the said cheques for collection on 17.01.2014 through its Banker HDFC Bank Limited, cheques deposited in HDFC Bank, Jagadamba Branch, Visakhapatnam, but again, the said cheques were returned with an endorsement “Account freezed/Blocked” vide cheque return memo dated 18.01.2014 and the said intimation was received by respondent No.1 from their Bankers on 10.02.2014. It was alleged that the accused have committed the offence punishable under Sections.138 and 142 of the Negotiable Instruments Act, 1881 and accused Nos.1, 2, 4 to 9 are jointly and severally liable for the acts done by the accused No.3 Company and prayed to award the compensation of double the amount of cheque. It was submitted that the petitioner is not responsible for the activities of the company such as issuance of cheques to creditors. Though the petitioner entered into the rolls of the Company as Executive Director, none of the ROC records show the petitioner as Executive Director. The petitioner is neither a signatory to the cheque nor responsible for the day-to-day activities of accused No.3. As such counsel submitted that the petitioner cannot be made liable for the cheque amount as alleged in the complaint. It was stated that the petitioner is the Director of the accused No.3 Company and had been at the active helm of affairs of the company for the reason that the purchase orders raised on behalf of accused No.3 were duly signed by the petitioner. Therefore, the petitioner is jointly and severally liable for the acts of the accused No.3 Company. Section 291 of the Companies Act, 1956 provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers and to do all such acts and things, as the Company is authorised to exercise and do. A Company though a legal entity can act only through its Board of Directors. A Single-judge bench of Justice E V Venugopal observed that “the settled position of law is that a Managing Director is prima facie in charge of and responsible for the company’s business and affairs and can be prosecuted for offences by the Company. But insofar as other Directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the company’s business.” “If at all the petitioner is not liable as Executor Director, he has to aver and prove his case before the trial Court. The real truth would be elicited only upon completion of a full-fledged trial. But the petitioner, instead of facing trial, filed the Criminal Petition at a premature stage seeking to quash the impugned proceedings.”, the court held while dismissing the appeal. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates