Research and Articles

The Hon’ble Supreme Court of India (“Court”) has, by its order dated April 15, 2009¹, reiterated that when the person committing an offence of dishonour of cheque under Section 138² of the Negotiable Instruments Act, 1881 (“the Act”) is a company, merely being a director of the accused company is not sufficient to make a person liable for the said offence under Section 141 of the Act. To prosecute a director or an officer of the accused company under Section 141³ of the Act, it is necessary for the complainant to make specific averments against the said director or officer, as the case may be, and show the court as to how such person was involved in the transaction and responsible for the conduct of the business of the accused company.

The Appellant was the General Manager (“Appellant”) of J.K.Utility Division of J. K. Synthetics Ltd (“Company”). The Respondent No. 2, who was the original complainant (“Complainant”), was in the transportation business and had transported coal under an order for which, transportation charges of Rs. 9,45,000/- were paid by four cheques that were given to the Appellant by the finance manager of the Company.

The Complainant filed a complaint under the provisions of the Act. In the complaint, the Complainant stated that the order for transportation was placed by the Appellant, the material was received by the Appellant and the cheques were given to him by the Appellant and the absconding co-accused.

The Appellant contended that he was not in charge and responsible for the conduct of the business of the Company and therefore, ought not to have been held guilty by the lower courts. Moreover, the cheques were not signed by him. He did not even receive the requisite notice provided for under Section 138 (b)² of the Act. It was contended that there was no evidence to show that the Appellant was in charge and responsible for the conduct of the business of the Company and no specific role was attributed to him in the complaint.

The Court, relying upon its earlier decisions⁴, noted that only such person would be held liable, if at the time when such offence was committed, he was in charge and was responsible to the Company for the conduct of the business of the Company. Merely being a director would not be sufficient and to launch a prosecution against an alleged director/officer, there needed to a specific allegation in the complaint as to the part played by such director/officer in the transaction and how the said director/officer were in charge and responsible for the conduct of the business of the Company.

The Court noted that the liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with the principal accused being the company, which is a departure in from the rule of vicarious liability in criminal law. The Court upheld that a clear case should be spelt out in the complaint against the person sought to be made liable vicariously. There should be clear and unambiguous allegation as to the role of the directors in the offence and their responsibility and charge in the conduct of the business of the principal accused company. This would enable a person to know the alleged case against him and would enable him to meet the case at trial.

The Court held that merely being a director of a company is not sufficient to make such a director liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. Interestingly, the Court held that the Managing Director or the Joint Managing Director would get covered under the provisions of Section 141 of the Act by virtue of the office they held and a signatory of the dishonoured cheque would be clearly responsible for the incriminating act and be covered under the provisions of Section 141(2) of the Act.

- Sahil Kanuga & Shafaq Uraizee-Sapre