01 August 2024 Criminal Appeals & Suspension of Sentence >> Criminal Law   |   Negotiable Instruments Act >> Criminal Law  

In a notable decision, the High Court has addressed the intricacies of corporate liability under the National Housing Bank Act, 1987, by scrutinizing the compliance requirements for prosecuting company officials. The case of National Housing Bank v/s Bherudan Dugar Housing Finance Ltd. & Others centers on a complaint alleging violations of regulatory provisions by a company and its directors. The High Court's ruling clarifies the necessity of specific averments in complaints to establish the liability of corporate officers, setting an important precedent for future cases involving corporate offences. This article delves into the details of the judgment, highlighting the court’s interpretation of the statutory requirements and its implications for corporate accountability.

Background:

The complaint in question was filed by the appellant against a company and its directors, accusing them of breaching provisions of Section 29A of the National Housing Bank Act, 1987. This section deals with regulatory compliance, and its violation is punishable under Section 49(2A) of the Act, which mandates a minimum sentence of one year, extending up to five years. The High Court's judgment was based on the argument that the complaint did not meet the requirements specified in Section 50 of the 1987 Act, which deals with offences committed by companies. Section 50 is considered to be similar in its requirements to Section 141 of the Negotiable Instruments Act, 1881.

Legal Framework:

Section 50 of the National Housing Bank Act, 1987, outlines the liabilities of company directors in cases where a company is found to have committed an offence. Sub-section (1) of this section stipulates that a person who was in charge of and responsible for the company's business at the time of the offence is deemed guilty, unless they can prove they exercised due diligence or had no knowledge of the offence.

Key Points of the Complaint:

The appellant's complaint asserted that the second accused, described as the Managing Director of the company, was responsible for the company's business conduct. The other five accused were identified as directors, but the complaint lacked specific averments that these directors were in charge of the company's business at the time of the alleged violation.

High Court's Decision:

The High Court determined that the complaint did not sufficiently comply with the requirements of Section 50. It noted that, similar to Section 141 of the Negotiable Instruments Act, a specific averment was necessary in the complaint to hold directors accountable. The court found that the complaint failed to explicitly state that the accused directors were in charge of and responsible for the company’s business at the relevant time. Therefore, it concluded that the complaint against the third to seventh accused (the directors) did not meet the statutory requirements.

Judgment and Appeal:

The court's decision was twofold: it quashed the complaint against the directors (third to seventh accused) but allowed the case to proceed against the first accused (the company) and the second accused (the Managing Director). The ruling highlighted that while directors could not be held liable without specific averments of responsibility, the Managing Director, due to their role, was deemed responsible and thus the complaint against them was justified.

Conclusion:

The High Court’s judgment underscores the necessity for specific averments in complaints to hold company directors accountable under corporate liability provisions. The ruling clarifies that merely being a director is insufficient for establishing liability; rather, it must be demonstrated that the individual was responsible for the conduct of the company’s business at the time of the offence. This case provides a critical precedent for future corporate accountability cases under the National Housing Bank Act and similar statutes. In summary, the appeals were partially allowed, modifying the impugned order to dismiss the complaint against the non-managing directors while permitting proceedings against the company and the Managing Director to continue.

  National Housing Bank Act, 1987    Negotiable Instruments Act, 1881    COMPANIES ACT, 2013