A) ABSTRACT / HEADNOTE

This case examines whether a complaint under Section 200 of the Code of Criminal Procedure, 1973 (CrPC) for offences punishable under the National Housing Bank Act, 1987, specifically Section 29A(i) read with Section 50, was rightly quashed by the High Court. The primary question revolved around the vicarious liability of company directors under Section 50 and its similarity to Section 141 of the Negotiable Instruments Act, 1881 (NI Act). The Supreme Court analyzed whether the complaint contained necessary averments implicating the accused directors as being responsible for the conduct of the company’s business.

The Supreme Court held that specific assertions regarding responsibility and conduct of business are mandatory for establishing vicarious liability under Section 50 of the 1987 Act, as interpreted in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. (2005) 8 SCC 89. In the absence of such averments, directors cannot be held liable. However, the Managing Director is inherently deemed responsible for the company’s conduct. The Court quashed the complaint against the directors but allowed proceedings against the company and its Managing Director.

Keywords:

National Housing Bank Act, vicarious liability, offence by companies, Section 50, quashing of complaint

B) CASE DETAILS

i) Judgement Cause Title:
National Housing Bank v. Bherudan Dugar Housing Finance Ltd. & Ors.

ii) Case Number:
Criminal Appeal Nos. 3176-3177 of 2024

iii) Judgement Date:
01 August 2024

iv) Court:
Supreme Court of India

v) Quorum:
Justice Abhay S. Oka and Justice Augustine George Masih

vi) Author:
Justice Abhay S. Oka

vii) Citation:
[2024] 8 S.C.R. 1; 2024 INSC 566

viii) Legal Provisions Involved:

• National Housing Bank Act, 1987: Sections 29A(i), 49(2A), 50
• Code of Criminal Procedure, 1973: Section 200
• Negotiable Instruments Act, 1881: Section 141

ix) Judgments overruled by the Case (if any):
None

x) Case is Related to which Law Subjects:
Corporate Law, Criminal Law, Financial Regulation

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This case arose from a complaint filed by the National Housing Bank under Section 200 CrPC for violations of Section 29A(i) of the National Housing Bank Act, 1987. The alleged offence involved directors and the Managing Director of the respondent company. The complaint claimed failure to comply with legal obligations concerning financial regulations. The High Court quashed the complaint on grounds of insufficient compliance with Section 50(1) of the 1987 Act, equating it to requirements under Section 141 of the NI Act. The Supreme Court deliberated on this interpretation and the necessity of explicit averments to implicate directors.

D) FACTS OF THE CASE

1. Nature of the Complaint:
   The appellant alleged that the respondent company, including its directors and Managing Director, violated Section 29A(i) of the National Housing Bank Act.

2. Accusations Against Respondents:

   • The first respondent was the company alleged to have committed the offence.
   • The second respondent, as Managing Director, was identified as being in charge of the company’s operations.
   • Other directors were alleged to have general responsibility for the company’s business.

3. High Court’s Decision:
   The High Court quashed the complaint, stating that it lacked necessary averments under Section 50(1) of the 1987 Act to establish liability of the directors.

E) LEGAL ISSUES RAISED

i) Whether the High Court erred in quashing the complaint against the company and its directors under Section 29A(i) read with Section 50 of the 1987 Act.

ii) Whether the averments in the complaint were sufficient to implicate the directors under Section 50(1).

F) PETITIONER / APPELLANT’S ARGUMENTS

1. The appellant argued that the complaint provided sufficient grounds to invoke liability against the company, its Managing Director, and directors under Section 50(1) of the 1987 Act.

2. It was contended that the second respondent, as the Managing Director, was inherently responsible for the company’s operations and thus liable.

3. The appellant drew parallels between Section 50(1) of the 1987 Act and Section 141 of the NI Act, emphasizing that the Managing Director’s liability is established without explicit averments.

4. It was submitted that the quashing of the complaint was premature and unjustified without trial.

G) RESPONDENT’S ARGUMENTS

1. The respondents claimed that the complaint failed to specify how each director was responsible for the conduct of the company’s business.

2. They emphasized the mandatory nature of Section 50(1), requiring explicit allegations regarding responsibility for corporate conduct.

3. The respondents cited S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., asserting that mere designation as directors does not establish vicarious liability.

4. The High Court’s decision to quash the complaint was defended as consistent with judicial precedent.

H) RELATED LEGAL PROVISIONS

1. Section 29A(i), National Housing Bank Act, 1987: Regulates corporate compliance with financial obligations.

2. Section 50, National Housing Bank Act, 1987: Establishes liability for corporate offences.

3. Section 141, Negotiable Instruments Act, 1881: Governs corporate liability in cheque dishonour cases.

4. Section 200, CrPC: Procedure for magistrates taking cognizance of private complaints.

I) JUDGEMENT

a. Ratio Decidendi:
Directors can be held liable under Section 50 only if specific averments of responsibility for corporate conduct are present in the complaint. The Managing Director’s liability, however, is inherent and does not require explicit mention.

b. Obiter Dicta:
Explicit averments enhance clarity and fairness in prosecution. The Court emphasized the need to distinguish roles within a corporation.

c. Guidelines:

1. Complaints under Section 50 must contain explicit assertions of responsibility for corporate conduct.
2. Managing Directors are inherently responsible for company operations under Section 50.

J) REFERENCES

a. Important Cases Referred:

1. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., (2005) 8 SCC 89

b. Important Statutes Referred:

1. National Housing Bank Act, 1987
2. Negotiable Instruments Act, 1881
3. Code of Criminal Procedure, 1973