Summary
Cheque-dishonour complaints were quashed against an independent non-executive director who had neither signed the cheques nor been involved in the company's financial affairs. The complaints contained no specific averment of how he was in charge of and responsible for the conduct of the company's business, and mere directorship does not attract vicarious liability under Section 141 of the Negotiable Instruments Act.
Issues
- Whether an independent non-executive director who did not sign the dishonoured cheques can be prosecuted under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 without specific averments of his role.
- Whether the High Court was right to leave the director's role to be examined at trial and decline to quash the complaints under Section 482 CrPC.
Provisions considered
- Section 141, Negotiable Instruments Act, 1881Vicarious liability attaches only to persons who, at the time of the offence, were in charge of and responsible to the company for the conduct of its business. Being a strict penal provision, it requires specific averments of the director's role, and mere designation as director does not suffice. (¶¶ 15, 15.1, 15.2, 15.3, 15.4, 19, 20)
- Section 138, Negotiable Instruments Act, 1881The complaints concerned cheques issued by the company in repayment of loans and dishonoured for insufficient funds. The appellant was not a signatory to them. (¶¶ 5, 6, 7, 16)
- Section 482, Code of Criminal Procedure, 1973The High Court's dismissal of the quashing petitions was set aside and the complaints against the appellant were quashed. (¶¶ 2, 10, 21)
Held
- Mere designation as a director does not establish liability under Section 138 read with Section 141. The complaint must specifically aver how and in what manner the director was in charge of and responsible for the conduct of the company's business at the relevant time; vicarious liability must be pleaded and proved, not inferred (National Small Industries Corporation v. Harmeet Singh Paintal, N.K. Wahi v. Shekhar Singh and S.M.S. Pharmaceuticals v. Neeta Bhalla relied on). (¶¶ 15, 15.1, 15.2, 15.3)
- Non-executive directors play a governance role and are not involved in day-to-day operations or finances. They cannot be held liable under Section 138 without specific material showing active involvement in the company's business at the relevant time (Pooja Ravinder Devidasani v. State of Maharashtra). (¶¶ 15.4, 19)
- The appellant was an independent non-executive director with no financial responsibilities or day-to-day role, did not sign the cheques, and resigned on 03.05.2017 with due notice to the Registrar of Companies. The complaints contained no specific averments of his responsibility for the dishonoured cheques, so he could not be held vicariously liable. (¶¶ 16, 17, 18, 20)
Result
Appeals allowed; High Court's judgment dated 06.08.2019 set aside; Complaint Nos. 66/SS, 645/SS, 697/SS and 1595/SS of 2017 quashed against the appellant; no order as to costs.