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National Housing Bank vs. Bherudan Dugar Housing Finance Ltd. and Ors. Etc.

Not available · 2024 INSC 566Decided 1 Aug 2024
Not available
Justice Abhay S. Oka · Justice Augustine George Masih

Background

The National Housing Bank filed a criminal complaint alleging that a housing finance company and its directors had violated Section 29A of the National Housing Bank Act, 1987. The complaint named the company as the first accused, its Managing Director as the second accused, and five other individuals as Directors (accused three to seven). The High Court quashed the entire complaint, holding that the requirements for prosecuting company officials under Section 50 of the 1987 Act are similar to those under Section 141 of the Negotiable Instruments Act, and that these requirements were not satisfied in the complaint. The Bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 50(1) of the 1987 Act, which fixes liability on persons "in charge of, and responsible to" the company for its business, is indeed similar to Section 141 of the NI Act. Relying on the earlier three-judge bench ruling in S.M.S. Pharmaceuticals v. Neeta Bhalla, the Court reiterated that merely being a director is not enough to attract criminal liability: the complaint must specifically allege that the accused was in charge of and responsible for the company's business at the relevant time. Since the complaint contained no such specific averments against the third to seventh accused (the ordinary directors), the quashing of the complaint against them was upheld. However, because the second accused was specifically described as the Managing Director, a position that inherently carries responsibility for the company's affairs, and the first accused was the company itself, the complaint against these two should not have been quashed. The appeal was therefore only partly allowed.

Lesson Learnt

A criminal complaint against a company's directors for offences attributable to the company must specifically state that each individual director was, at the relevant time, in charge of and responsible for the conduct of the company's business: a bare designation as "director" is not enough, though a Managing Director's role itself usually satisfies this requirement.

Official source (sci.gov.in)View Judgment (PDF)

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