138 N.I. Act | Absence of Averments Regarding Responsibility for Business Conduct Renders Complaint Unsustainable: Supreme Court Quashes Complaints

Supreme Court of India allowed a series of criminal appeals arising from summoning orders under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The Court ruled that the absence of specific averments in the complaints regarding the appellant's responsibility for the conduct of the company’s business made the complaints unsustainable. The decision emphasizes the statutory requirement for explicit averments to charge an individual associated with a company under Section 138 of the NI Act.

"To Compel Trial Without Foundational Requirements Is an Abuse of Court Process"
The Court held that proceeding with the summoning orders in the absence of mandatory averments would amount to an abuse of the court process. The High Court's refusal to quash the complaints under Section 482 of the CrPC was overturned, and the Supreme Court quashed the complaints and all related proceedings.

Supreme Court, comprising Justice C.T. Ravikumar and Justice Sanjay Karol, delivered its ruling in Ravi Dhingra v. State of NCT of Delhi & Anr.. The appeals challenged summoning orders issued under Section 138 of the Negotiable Instruments Act, 1881, and the High Court's refusal to quash the complaints under Section 482 of the Code of Criminal Procedure, 1973. The crux of the case was the lack of mandatory statutory averments in the complaints that the appellant, as the authorized signatory of the accused company, was responsible for the conduct of its business.

The Supreme Court quashed the complaints and the related proceedings, setting a significant precedent for cases under the NI Act involving company representatives.

The case arose from five complaints filed by M/s Pinnacle Capital Solution Pvt. Ltd., a Non-Banking Financial Company (NBFC), against M/s Silverstar Fashions Private Limited and its authorized signatory, the appellant Ravi Dhingra. The complaints were filed under Section 138 of the NI Act for the dishonor of cheques issued by the accused company.

The complaints were taken cognizance of by the Metropolitan Magistrate at Patiala House Courts, New Delhi. The appellant challenged the summoning orders and subsequent proceedings before the Delhi High Court under Section 482 CrPC, seeking their quashment on the ground that the complaints did not contain the mandatory averments required to hold him liable.

The High Court, however, dismissed the appellant's petitions, prompting the appeals before the Supreme Court.

Legal Issues at Hand
Whether the complaints under Section 138 of the NI Act were maintainable in the absence of specific averments that the appellant was in charge of and responsible for the conduct of the company's business?
Whether the High Court erred in refusing to quash the summoning orders under Section 482 of the CrPC despite the lack of foundational statutory requirements in the complaints?

The Supreme Court observed that it is a settled principle of law that for an individual associated with a company to be prosecuted under Section 138 of the NI Act, the complaint must specifically state that the individual was in charge of and responsible for the conduct of the company’s business.

Relying on previous decisions, including Ashok Shewakramani v. State of Andhra Pradesh (2019), the Court reiterated:

“To maintain a charge under Section 138 of the NI Act, there must be a specific averment against the person concerned that they were in charge of and responsible for the company concerned in the matter of the conduct of its business.”

The Court found that the complaints filed by the respondent lacked this mandatory averment. Despite the respondent’s counsel's arguments, the Court concluded that the absence of this statutory requirement rendered the complaints unsustainable.

The Court further held that compelling the appellant to stand trial in such circumstances would amount to an abuse of the process of the court. It emphasized that the statutory requirements under Section 138 of the NI Act are not procedural formalities but foundational elements necessary to sustain a complaint.

The Supreme Court criticized the High Court’s refusal to exercise its powers under Section 482 of the CrPC to quash the complaints. The Court noted:

“In the absence of statutory averments, compelling the appellant to stand trial would be an abuse of the process of law.”

The Supreme Court set aside the High Court's order and allowed the appeals, quashing the complaints and all related proceedings, including the summoning orders. The Court held that:

“The complaints being devoid of mandatory statutory averments to attract an offence under Section 138 of the NI Act are unsustainable.”

All proceedings before the Metropolitan Magistrate, New Delhi, in the complaint cases were also quashed.

This judgment reinforces the principle that statutory requirements under Section 138 of the NI Act must be strictly adhered to, especially in cases involving company representatives. The ruling ensures that individuals are not unnecessarily dragged into criminal proceedings without the foundational requirements being met.
 

Date of Decision: December 19, 2024