[Cheque bounce cases] When can company Directors be summoned? Supreme Court explains

The Supreme Court on Friday had the opportunity to explain the circumstances in which Directors of a company can be summoned or held vicariously liable for cases initiated under Section 138 of the Negotiable Instruments Act (NI Act) i.e. cheque bounce cases. (Ashutosh Ashok Parasrampuriya and anr v. M/s Gharrkul Industries Pvt. Ltd. and ors).Merely being the Director of the company that has issued the bounced cheque is not sufficient to make the person liable, the Court reiterated, relying on the three-Judge Bench ruling in SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Another..Rather, the person sought to be made liable should have been in charge of and responsible for the conduct of the company's business at the relevant point of time..The Court, in the present case, went on to explain that in order for the process to be initiated against a company director "it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company.".The Court added that such an averment assumes importance because it is "the basic and essential averment which persuades the Magistrate to issue process against the Director." .If this basic averment is missing, the Magistrate would be legally justified in not issuing process, the Bench of Justices Ajay Rastogi and Abhay S Oka explained..The Court further ruled that it may not be open to the High Court to interfere with an order of summons issued in such a case to the Directors unless it comes across "some unimpeachable incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court.".The apex court, however, added that even if such basic averment is there in the complaint, the court concerned may later come to a conclusion that no case is made out against the accused Director for various reasons..The top court was dealing with an appeal filed against a 2014 High Court order which had dismissed petitions challenging a 2012 trial court order summoning the Directors of a company in a cheque bouncing case..The appellant-Directors were not signatories to the cheques and the appellants also contended that they were non-executive Directors. .The Supreme Court, however, observed that on a reading the complaint, "it is clear that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business.".As such, the Court overruled the appellants' arguments and concluded that there was no error on the part of the High Court in declining to interfere with the summons. .It would be open to the appellant-Directors to justify their claims in trial, the top Court added. .The Court, therefore, dismissed the appeal. .Given that the trial court proceedings dated back to 2012 and since it had been put on hold by a 2014 interim order of the Supreme Court, the Bench also directed the trial court to complete the trial expeditiously. .[Read Judgment]