P.A. Verghese and others vs Maa Communications Pvt. Ltd. on 6 February 1997 (ILR 1997 KAR 1747)

Estimated Reading Time: 4 minutes

INTRODUCTION

The Companies Act, 2013, section 166 has laid down the duties and role of directors in unequivocal terms. A Director is part of a collective body of Directors together called the Board, which is responsible for the overall performance of the company and includes superintendence, control, and direction of the affairs of the company. The directors can be held liable as “officers” of the company. The word “officer” has been defined to include, inter-alia, directors of the company. The Act contains the concept of an ‘officer who is in default’ to affix liability on such persons in respect of any contravention of the provisions of the said Act by the company.

FACTS OF THE CASE

The brief facts of the case are that the complainant undertook to advertise the products manufactured by the respondent against which the complainant raised invoices from time to time. Accused No. 1 made certain payments towards the said supplies made by the complainant. The payment was still pending and the accused failed and neglected to pay the complainant despite repeated demands and reminders. Accused No. 1 issued three cheques towards payment of the sum due. When these cheques were presented for encashment, the cheques were dishonored by the bankers of the accused with an endorsement “not arranged for.” Thereafter, the complainant issued notice upon the accused therein to pay the amount covered under the aforesaid cheques. The accused neither sent any reply nor settled the account. The complainant complained about the offense punishable under Sections 138 and 141 of the Negotiable Instruments Act. The learned Magistrate after recording the sworn statement directed to issue process to the accused persons. The said order is questioned by Antony Vergues who is said to be the Director by preferring Criminal Petition.

ISSUES OF THE CASE

  1. Whether the person who filed the complaint was properly represented by the company?
  2. Whether all the directors of the accused company were responsible as they were in charge of the company affairs?

ANALYSIS

The first contention raised was whether the case was filed by a person who is said to be the power of attorney holder of the complainant-company. This argument was repelled by submitting that it is a settled law that anybody who is knowing the affairs of the company can file the complaint before the Court against the accused persons. The person who filed the complaint is the P.A. holder and working as Accounts Officer in the complainant-Company, he is aware of all the transactions of the company. Therefore the complaint is maintainable.

The P.A. holder can file the complaint about the offense under Section 138 of the Negotiable Instruments Act and reliance was placed upon the Madras High Court judgment in Mohonlal Khemchand And Ors. vs Pawan Kumar Mohanka And Ors. Even though section 138 and section 141 of the N.I. Act is silent about the persons who are eligible to file a complaint under the said Act but, as the Company has rightly authorized him by power of attorney, and he is aware of all the transactions of the company and the complainant was duly authorized by the said company to make a complaint and letter of authorization was also annexed to the complaint, the first contention of the petitioners that the complainant was not properly represented, is liable to be rejected.

Also Read  BALKRISHAN GUPTA v SWADESHI POLYTEX LTD.

It was further contended that other accused persons were responsible as they were in charge of the company affairs. This argument is also unsustainable. The complainant got issued a legal notice to the accused Company. Though the notice was served promptly, the accused persons did not send any reply either denying or admitting their liability or specifying the person who was in charge and responsible for the affairs of the Company. Under that circumstance, there was no other alternative but to make all the Directors as the accused persons. It is also clear that one Antony Vergues signed the cheques in question but others are the Directors of the Company including the Signatory. Therefore the complainant to avoid any further complications made all the Directors as accused. However, it is open to the accused persons to make it clear before the Court below by filing a memo or application fixing the responsibility on any of the accused persons.

JUDGEMENT

Section 138 and section 141 of the Negotiable Instruments Act is silent regarding the eligibility of the person who can file the complaint on behalf of the company. In this case, the person who filed the complaint is fully aware of all the transactions of the business and the company has rightly authorized him by power of attorney and letter of authorization was also annexed to the complaint. Therefore, the person filing the complaint has the right to do so and the complaint is maintainable. 

CONCLUSION

A director of the company is one of the most crucial roles in a company, and the formation of a suitable board of directors can ultimately determine the business’s performance. This case describes the role of directors in some ways. A company being an artificial person, it is through the directors the company operates and performs its function. Any liability arising due to the directors’ fault, the directors will be responsible to the extent of their act.  Also, the company has the right to authorize any officer to act on behalf of the company whether to file a case, defend any suit, and enter into any agreements. Directors are agents of a Company in transactions and agreements they enter into on behalf of the Company, though they are not agents for individual shareholders or members. He occupies the position of a trustee, though he is not a trustee in the strict sense in respect of the Company’s properties and funds.

Hey there!

come here often?

Login To Come In