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Synopsis

The Supreme Court has said unless specific assertions are made in the complaint, vicarious liability against the directors of a company can't be attracted against the directors for the offences under the National Housing Bank Act, 1987.

It has partly thus allowed an appeal by the National Housing Bank against a Madras High Court's order, which quashed a complaint case against a finance company and its managing director for violating provisions of the National Housing Bank Act, 1987.

A bench of Justices Abhay S Oka and Augustine George Masih, however, directed the complaint case filed against five directors of the respondent Bherudan Dugar Housing Finance Ltd in the court of the Judicial Magistrate, Egmore at Chennai would stand quashed, holding vicarious liability was not attracted in view of absence of assertions against them.

The complaint would proceed according to the law against the first accused, company and second accused, its managing director, the court ordered. 

High Court here had proceeded to quash the complaint in its entirety. It held that the requirements of sub-Section (1) of Section 50 of the National Housing Bank Act, 1987 are similar to the requirements incorporated in Section 141 of the Negotiable Instruments Act, 1881, which were not complied with by the complainant.

Appellant National Housing Bank argued that on a plain reading of the complaint, a violation of the provisions in Section 29A (i) of the 1987 Act was made out. Therefore, there was no reason to quash the complaint. 

The bank's counsel said the second accused was the Managing Director of the first respondent and, therefore, he was in charge of and was responsible to the first respondent company for the conduct of the company's business. He submitted that there were sufficient averments for implicating the other accused. 

The counsel for the respondents supported the High Court's judgment, contending averments as required by sub-Section (1) of Section 50 of the 1987 Act have not been incorporated in the complaint. 

According to Section 50 (1), where an offence has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

The court noted there was no dispute that sub-Section (1) of Section 50 is pari materia with Section 141 of the NI Act.

Referring to the complaint, the bench found that 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 bench said.

Hence, the court said, in the absence of the averments as contemplated by sub-section (1) of Section 50 of the Act in the complaint, the Trial Court could not have taken cognisance of the offence against the third to seventh accused, who are allegedly the directors of the first accused company. 

However, the second accused being the Managing Director, would be in charge of the company and responsible to the company for its business, it noted.

"Therefore, there was no justification for quashing the complaint against the second accused. The first respondent is a company. No reasons have been assigned to quash the complaint against the first accused," the bench said.