In a decision, the Supreme Court of India has underscored the necessity of specific allegations in complaints to establish the vicarious liability of company directors under the National Housing Bank Act, 1987 (the ‘1987 Act’). This ruling came in the case of National Housing Bank v. Bherudan Dugar Housing Finance Ltd. & Ors., where the apex court partially quashed a complaint against several directors of the accused company.
Background of the Case
The National Housing Bank (NHB) filed a complaint under Section 200 of the Code of Criminal Procedure, 1973, alleging that Bherudan Dugar Housing Finance Ltd. and its directors violated Section 29A of the 1987 Act. The complaint was initially quashed by the High Court, which found that the NHB failed to meet the requirements of Section 50 of the 1987 Act, similar to Section 141 of the Negotiable Instruments Act, 1881.
Legal Issues Involved
The central issue in the case was the interpretation of Section 50 of the 1987 Act, which deals with offenses committed by companies and the vicarious liability of their officers. The NHB argued that the complaint sufficiently alleged that the directors were responsible for the conduct of the company’s business, while the respondents contended that the necessary averments were missing.
Court’s Decision
The Supreme Court bench, comprising Justice Abhay S. Oka and Justice Augustine George Masih, delivered a split verdict. The court upheld the High Court’s decision to quash the complaint against the third to seventh accused, who were directors of Bherudan Dugar Housing Finance Ltd. However, it allowed the complaint to proceed against the company and its Managing Director, the second accused.
Justice Abhay S. Oka, writing for the bench, emphasized the need for specific averments in the complaint to establish vicarious liability under Section 50 of the 1987 Act. The judgment cited the Supreme Court’s earlier decision in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., which clarified that merely being a director does not automatically make one liable under Section 141 of the NI Act.
Key Observations
The court observed:
“It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement and has to be made in a complaint.”
The court found that the NHB’s complaint lacked the necessary assertions to implicate the third to seventh accused, as it did not specifically state that they were in charge of and responsible for the company’s business at the time of the alleged offence.
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Case Details
– Criminal Appeals: Nos. 3176-3177 of 2024
– Special Leave Petition (Crl.): Nos. 452-53 of 2018
– Bench: Justice Abhay S. Oka and Justice Augustine George Masih
– Appellant: National Housing Bank
– Respondents: Bherudan Dugar Housing Finance Ltd. and others
– Lawyers: The appellant was represented by senior counsel, while the respondents’ counsel supported the High Court’s judgment.
