Appellants: Bhardwaj Thuiruvenkata Venkatavraghavan
Vs
Respondent: Ashok Arora &Raja Arora
IN THE HIGH COURT OF DELHI
JUDGE: Mukta Gupta J
Complaints as noted above were filed by two respondents (separately) Raja Arora and Ashok
Arora against M/s. Vasan Health Care Private Limited and its Directors alleging that the
complainants were the joint owners of the various built up properties which were leased out
to Vasan Health Care. The terms of the lease deed between the complainant and the accused
persons inter alia fixed monthly rents and a security deposit. The accused in the complaint i.e.
Vasan Health Care and its Directors issued cheques towards part-payment of the monthly
rents. However, when the cheques were presented, the same were dishonoured for the reason
‘payment stopped by drawer’. On the assurance of the accused persons, the cheques were
represented, however they were again returned unpaid with remarks ‘payment stopped by
drawer’. Legal demand notices were issued to which replies were sent. Since despite expiry
of the period of 15 days after the receipt of notice, the amount was not paid, the respondents
filed the complaints as noted above.
In the reply affidavits filed, the respondent does not dispute that the petitioner is the non-
executive nominee independent director. Contention of learned counsel for the respondent is
that the petitioner is the Director of Sequoia India Investment Holding which finances Vasan
Health Care, hence is a nominee director of Vasan Health Care. Since he is responsible for
the finances of the company he is vicariously liable.
The two-fold contentions of learned counsel for the petitioner are that the petitioner is the
independent non-executive nominee director and thus cannot be fastened with the vicarious
liability to pay the dues of the company, and that the petitioner resigned from the company on
18th November 2015 before the cause of action accrued i.e., payment was mot made despite
service of legal demand notice. Hence the complaints and the impugned order summoning
him are liable to be quashed qua the petitioner.
- Under Section 141: It is only those persons who were in charge of and responsible for the
conduct of business of the company at the time of commission of an offence, who will be
liable for criminal action follows from this that if a director of a company who was not in
charge of and was not responsible for the conduct of the business of the company at the
relevant time, will not be liable under the provision. Therefore, only persons who can be
said to be connected with the commission of a crime at the relevant time have been
subjected to action.
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- 27. The position under Section 141 of the Negotiable Instruments Act, 1881 can be
summarized thus: if an averment is made that the accused was the Managing Director or
Joint Managing Director at the relevant time. In the case of a director or an officer of the
company who signed the cheque on behalf of the company, there is no need to make a
specific averment that he was in charge of and was responsible to the company, for the
conduct of the business of the company or make any specific allegation about consent,
connivance or negligence.
The Petitioner, Bhardwaj Thiruvenkata Venkatavaraghavan was appointed as an Independent
Non-executive nominee director on 18th December 2009 as per Form 32 filed by the
Company before the Registrar of Companies (ROC). He ceased to be a director of the Vasan
Heath Care with effect from 18th November 2015 as per the Form DIR-12
- The Reserve Bank of India vide its Master Circular No RBI/2012-13/43 dated 2nd July,
2012 the Circular read as under: Need for Ensuring Accuracy RBI/Credit Information
Companies disseminate information on non-suit filed and suit filed accounts respectively,
as reported to them by the banks/FIs and responsibility for reporting correct information
and also accuracy of facts and figures rests with the concerned banks and financial
institutions. Therefore, banks and financial institutions should take immediate steps to
update their records and ensure that the names of current directors are reported.
- The categories of Directors under the Companies Act and the Listing Agreement
prescribed by SEBI as: Managing Director is a Director who has substantial powers of
management of the affairs of the company subject to the superintendence, control and
direction of the Board in question.
- Classification under the Li sting Agreement: In contrast, a non-executive Director is
a Director who is neither a Whole-time Director nor a Managing Director.
- Nominee Director has been defined under the Explanation to subsection (7) of Section
149 as: "nominee director" means a director nominated by any financial institution in
pursuance of the provisions of any law for the time being in force or of any agreement, or
appointed by any Government, or any other person to represent its interests."
As has been noted above, the Petitioner was appointed as an independent non-executive
nominee director in 2009 and he subsequently resigned from the company in the year 2015.
Merely because the petitioner is the Director of Sequoia India Investment Holding which
finances Vasan Health Care and by virtue thereof is a nominee independent director of Vasan
Health Care, he cannot be held to be responsible for the day-to-day affairs of Vasan Health
Care. Even otherwise the contentions now raised during the course of arguments and in the
reply, affidavits are not part of the complaints. In the complaints it is merely stated that the
directors of the company and have been actively participating in day day-to-day affairs of the
company and take all the decisions for the company. Admittedly, the petitioner is not the
Managing Director of Vasan Health Care nor the signatory to the cheque. He is also not the
person responsible for day-to-day functioning of Vasan Health Care. No vicarious liability
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can be fastened on the petitioner in the absence of specific role being attributed to the
petitioner.
In view of the legal position noted above, the petitions are allowed. The impugned orders to
the extent issuing summons to the petitioner in the Complaint are quashed.
