New Delhi, August 1: The Supreme Court has ruled that complaints against company directors for offences committed by the company under the National Housing Bank Act, 1987, must include specific allegations that the directors were responsible for the company’s business at the time of the offence. This decision was made by a bench consisting of Justice Abhay Oka and Justice Augustine George Masih. They quashed a complaint under Section 200 of the CrPC. This is against directors of a company for alleged violations of Section 29A of the National Housing Bank Act.
Court observation
The Court noted, “There were no assertions made that the second to seventh accused, at the time of the commission of the offence. Were in charge of, and responsible to the first accused company for the conduct of its business. Unless assertions, as required by sub-Section (1) of Section 50, are made, vicarious liability of the Directors of the first accused company is not attracted.”
The Court further stated, “In the absence of the averments as contemplated by sub-section (1) of Section 50 of the 1984 Act in the complaint, the Trial Court could not have taken cognizance of the offence against the third to seventh accused, who are allegedly the directors of the first accused company.”
Company defense
In this case, the first accused is a company, the second accused is its Managing Director. The other five accused are its Directors. The complaint led to the Magistrate taking cognizance of the alleged offences under Section 29A(i) read with Secti on 50. Punishable under Section 49(2A) of the 1987 Act, which prescribes a minimum sentence of one year, extendable to five years.
Section 29A(i) stipulates that no housing finance institution, which is a company. They shall commence or carry on the business of housing finance without obtaining a certificate of registration. Having the net owned fund of ten crore rupees or such other higher amount as specified by the Reserve Bank.
High Court Rule
The High Court had quashed the complaint entirely, citing non-compliance with Section 50(1) (offences by company) of the 1987 Act. This is similar to Section 141 of the Negotiable Instruments Act, 1881 (NI Act). The complainant challenged this order in the present appeal.
The appellant’s counsel argued that the complaint demonstrated a violation of Section 29A(i) of the 1987 Act. They emphasised that the second accused, the Managing Director, was in charge of and responsible for the company’s business. The appellant asserted that there were sufficient allegations to implicate the other accused as well.
Counsel for the accused supported the High Court’s judgement. They argued that the complaint lacked the necessary allegations required by Section 50(1) of the 1987 Act.
Section 50 of the 1987 Act stipulates that every person in charge of and responsible to the company. Even at the time the offence was committed is deemed guilty. The Court noted that Section 50(1) of the 1987 Act is similar to Section 141 of the NI Act.
Paragraph 9 of the complaint described the company’s structure and the roles of the accused. Stating that all were responsible for managing the company’s business. However, the Court found that the complaint did not specifically assert that the third to seventh accused were responsible for the company’s business conduct at the time of the alleged offence.
Conclusion
The Court referenced a previous ruling in SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., which held that specific allegations are necessary to establish a director’s responsibility under Section 141 of the NI Act. Simply being a director is insufficient; the complaint must explicitly state the director’s involvement in the company’s business at the relevant time.
In this case, the Supreme Court determined that the second accused, as Managing Director, was deemed responsible for the company’s business. The Court found no justification for quashing the complaint against the first accused company and the second accused.
Therefore, the Supreme Court modified the impugned order, quashing the complaint against the third to seventh accused. The Court directed that the complaint proceed according to law against the first accused company and the second accused.
