Lalit Mohan Mehta And Others vs State Of Punjab And Another

Headnote AI-drafted · Reviewed and approved

The petitioners, who were Non-Executive Independent Directors of M/s Housing Development and Infrastructure Limited (HDIL), sought quashing of summoning orders passed by the Judicial Magistrate Ist Class, Ludhiana under Section 138 of the Negotiable Instruments Act, 1881. The complaints arose from dishonour of cheques issued by HDIL to the complainant Vivek Gupta pursuant to a settlement agreement for refund of flat booking amounts, the cheques having been signed by the Managing Director of HDIL.

The petitioners contended that as Non-Executive Independent Directors not involved in the day-to-day affairs of the company, they could not be held vicariously liable for dishonour of cheques under Section 138/141 of the NI Act, particularly since they had not signed the disputed cheques and had resigned before the cheques were presented for encashment. Reliance was placed on SMS Pharmaceuticals Ltd v. Neeta Bhalla, Girdhari Lal Gupta v. D.H. Mehta, and Chintalapati Srinivasa Raju v. SEBI to urge that vicarious liability under the NI Act can only attach to persons who were in charge of and responsible for the conduct of the business of the company.

The High Court of Punjab and Haryana at Chandigarh disposed of all eighteen connected petitions by a common order, examining the common question of law as to the liability of Non-Executive Independent Directors of a company for offences under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881.

Catchwords: Negotiable Instruments Act · dishonour of cheque · Section 138 · Section 141 · vicarious liability · Non-Executive Independent Directors · company · quashing of summoning order · Section 482 CrPC · in-charge of business · day-to-day affairs · HDIL