Supreme Court held that the directors cannot be held vicariously liable without specific allegations of their responsibility for the company's business.
The Supreme Court Two-Judge Bench comprising Justice Abhay Oka and Justice Augustine George Masih recently addressed a case involving a complaint filed under Section 200 of the Code of Criminal Procedure, 1973, alleging violations under Section 29A of the National Housing Bank Act, 1987. The Supreme Court Bench observed that a complaint cannot be maintained against directors of a company for vicarious liability without specific averments detailing their responsibility for the company's business at the time of the offence, as required under Section 50 of the National Housing Bank Act, 1987; however, the complaint against the Managing Director was upheld.
In a recent judgment, the Supreme Court addressed a case involving a complaint filed under Section 200 of the Code of Criminal Procedure, 1973, alleging violations under Section 29A of the National Housing Bank Act, 1987. The complaint, which was initially taken cognizance of by the Magistrate, was subsequently quashed in its entirety by the High Court. The High Court’s decision was based on the assertion that the complaint did not meet the requirements similar to those in Section 141 of the Negotiable Instruments Act, 1881.
The appellant argued that the complaint sufficiently detailed a violation of Section 29A and that the second accused, identified as the Managing Director, was adequately implicated for the company's conduct. The appellant contended that the complaint included enough averments to implicate all accused parties.
Conversely, the accused's counsel supported the High Court’s judgment, claiming that the complaint lacked the necessary averments as required under Section 50 of the 1987 Act, which parallels Section 141 of the NI Act. This section mandates that specific allegations be made against those responsible for the company’s business to hold them vicariously liable.
The Supreme Court reviewed Section 50 of the 1987 Act and found that the complaint did not include necessary averments regarding the roles of the third to seventh accused, who were directors but not specifically stated as responsible for the company’s business at the time of the offence. Thus, the Court concluded that the High Court was correct in quashing the complaint against these directors. However, it found no justification for dismissing the complaint against the Managing Director, who was deemed responsible for the company's conduct.
In conclusion, the Supreme Court modified the High Court’s order, quashing the complaint only against the third to seventh accused while allowing the complaint to proceed against the first and second accused. The appeals were partly allowed based on these terms.
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