K.S. MEHTAversusM/S MORGAN SECURITIES AND CREDITS PVT. LTD.

                   [2025] 4 S.C.R. 1 : 2025 INSC 315

                         K.S. Mehta
                               v.
           M/s Morgan Securities and Credits Pvt. Ltd.
                    (Criminal Appeal No. 1105 of 2025)
                                04 March 2025
       [B.V. Nagarathna and Satish Chandra Sharma,* JJ.]


                           Issue for Consideration
       Whether the High Court was justified in dismissing the petitions
       filed under Section 482 CrPC for quashing of criminal proceedings.

                                  Headnotes†
       Code of Criminal Procedure, 1973 — Whether the High Court
       is justified in dismissing the petitions sought for the quashing
       of criminal proceedings initiated against the Appellant(s)
       under Section 138 read with Section 141 of the Negotiable
       Instruments Act, 1881 — Correctness:
       Held: The dispute stems from an Inter-Corporate Deposit (“ICD”)
       agreement executed between the accused company and the
       Respondent – Notedly, the Appellants were the Director of
       the company but neither attended the board meeting wherein
       the said transaction was approved, nor were they signatories
       to the agreement or any related financial instruments — The
       Appellant(s) directorship was non-executive and limited to
       corporate governance oversight in compliance with SEBI
       regulations — Subsequently, both the appellants resigned from
       the Company — It is a trite principle that non-executive and
       independent director(s) cannot be held liable under Section 138
       read with Section 141 of the NI Act unless specific allegations
       demonstrate their direct involvement in affairs of the company at
       the relevant time — The Appellant(s) neither issued nor signed the
       dishonored cheques nor had any role in their execution – There
       is no material on record to suggest that they were responsible for
       the issuance of the cheques in question — The mere fact that
       Appellant(s) attended board meetings does not suffice to impose
       financial liability on the Appellant(s), as such attendance does
       not automatically translate into control over financial operations –

* Author
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     Thus, the Appellant(s) cannot be held vicariously liable under
     Section 141 of the NI Act – Therefore, criminal proceedings
     against the Appellant(s) are quashed. [4, 10, 17, 18, 19]

                                 List of Acts
     Penal Code, 1860; Code of Criminal Procedure, 1973.

                              List of Keywords
     Director’s liability under Section 141 of NI Act; Vicarious Liability;
     Non-Executive Director’s liability.

                             Case Arising From
     CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
     1105 of 2025
     From the Judgment and Order dated 28.11.2023 of the High Court
     of Delhi at New Delhi in CRLMC No. 1643 of 2019
     With
     Criminal Appeal Nos. 1106 and 1107 of 2025

                         Appearances for Parties
     Advs. for the Appellant:
     Siddharth Aggarwal, Vishwajit Singh, Sr. Advs., Suman Jyoti
     Khaitan, Vikas Kumar, Ayush Shrivastava, Ayush Kapur, Vihaan
     Kumar, Pankaj Singh, Ms. Praanshoo Goyal, Ms. Ridhima Singh.
     Advs. for the Respondent:
     Vikramjeet Banerjee, A.S.G., Mukesh Kumar Maroria, Annirudh
     Sharma Ii, B K Satija, Ms. Diksha Rai, Ms. Sakshi Kakkar,
     Ms. Satvika Thakur, Simran Mehta, Ms. Aruna Gupta, Ajay Pal Singh.

                Judgment / Order of the Supreme Court

                                    Judgment

     Satish Chandra Sharma, J.

1.   Leave granted.
2.   The present appeals arise from the common Impugned Judgment
     and Order dated 28.11.2023, passed by the High Court of Delhi at
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         K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd.


     New Delhi (the “High Court”), whereby the High Court dismissed the
     petitions filed under Section 482 of the Code of Criminal Procedure,
     1973 (the “CrPC”). The petitions sought the quashing of criminal
     proceedings initiated against the Appellant(s) under Section 138 read
     with Section 141 of the Negotiable Instruments Act, 1881 (the “NI Act”).

     BACKGROUND
3.   The Appellant(s) K.S. Mehta, and Basant Kumar Goswami, were
     appointed as directors of M/s Blue Coast Hotels & Resorts Ltd.
     (Accused No. 1/Company) at different times. K.S. Mehta was
     appointed as an additional director on 29.06.2001, while Basant
     Kumar Goswami was appointed as a director on 16.04.1998.
     Appellant(s) were designated as non-executive director in compliance
     with clause 49 of the Listing Agreement prescribed by the Securities
     and Exchange Board of India (the “SEBI”). Their role was confined
     to governance oversight without any executive authority or financial
     decision-making power in the company.
4.   The dispute stems from an Inter-Corporate Deposit (“ICD”) agreement
     dated 09.09.2002, executed between the accused company and the
     Respondent to avail a financial facility of ₹5,00,00,000 (Rupees Five
     Crores) against certain securities for a period of 180 days. Notedly,
     the Appellant(s) were neither in attendance at the board meeting
     held on 09.09.2002, wherein the said transaction was approved,
     nor were they signatories to the agreement or any related financial
     instruments.
5.   The liability towards repayment of the ICD culminated in the issuance
     of the following post-dated cheques:
     •      Cheque No. 842628 dated 28.02.2005 for ₹50,00,000/-.
     •      Cheque No. 842629 dated 30.03.2005 for ₹50,00,000/-.
     Upon presentation, both cheques were dishonored due to insufficient
     funds. Following the dishonor, the Respondent issued legal notices
     demanding payment, but no remedial action was taken by the
     company. Consequently, criminal proceedings were initiated against
     all directors, including the Appellant(s).
6.   Moreover, the executed ICD agreement contained an arbitration
     clause to be invoked in case of any dispute between the parties.
     The Appellant(s) were unaware of such clause(s) or the terms of the
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     agreement at the time of execution and only came to know of them
     later. A memorandum of settlement was executed on 27.05.2003
     between the Respondent and the accused company, Accused
     No. 2, Accused No. 6, and Morepen Laboratories Ltd., to resolve
     financial disputes. Pertinently, the Appellant(s) were not a party to
     this settlement.
7.   The Appellant/K.S. Mehta resigned from the company on 10.11.2012,
     whereas Appellant/Basant Kumar Goswami continued as non-
     executive director until 2014. Notwithstanding, the Registrar of
     Companies (“ROC”) records and Corporate Governance Reports
     (“CGR(s)”) submitted to the stock exchange confirmed their
     non-executive status and indicated that they did not draw any
     remuneration apart from a nominal meeting fee. Notedly, neither
     Appellant ever submitted Form 25(C), which is mandatory for
     executive and managing director drawing remuneration, further
     substantiating their lack of involvement in financial affairs of the
     company.
8.   The following complaints under Section 138 NI Act were filed against
     the Appellant(s) before the Court of Additional Chief Metropolitan
     Magistrate, New Delhi:
     1.   Complaint No. 15857 of 2017, filed on 10.11.2005, qua Cheque
          No. 842629.
     2.   Complaint No. 15858 of 2017, filed on 25.10.2005, qua Cheque
          No. 842628.
9.   The High Court dismissed the Appellant(s)’ petition under Section
     482 CrPC bearing Crl.M.C. No(s). 1643, 1645 and 1345 of 2019
     seeking quashing of the proceedings pending before the Court of
     Additional Chief Metropolitan Magistrate, New Delhi.

     SUBMISSION BY THE PARTIES
10. The learned counsel for the Appellant(s) submitted that they had no
    role in the company’s financial transactions and were not vested with
    any responsibility in as much as its financial affairs were concerned.
    Learned counsel contended that the Appellant(s) were not a
    signatory to any of the dishonored cheque(s) and did not authorize
    their issuance. The Appellant(s) directorship was non-executive and
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       K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd.


     limited to corporate governance oversight in compliance with SEBI
     regulations.
11. The learned counsel for the Appellant(s) submitted that their non-
    executive status negates any basis for vicarious liability under Section
    141 of the NI Act. The learned counsel further relied upon the CGR(s)
    and ROC record(s), which consistently reflected the Appellant(s) non-
    executive roles, reinforcing their lack of involvement in operational or
    financial matters. In the absence of any specific allegations linking
    them to the issuance or dishonor of the cheques, it was contended
    that the proceedings initiated against them were legally untenable.
12. The learned counsel for the Appellant relied on judicial precedents
    including Kamalkishor Shrigopal Taparia v. India Ener-Gen Private
    Limited & Anr., 2025 SCC Online SC 321; S.M.S. Pharmaceuticals
    Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89; and Pooja Ravinder
    Devidasani v. State of Maharashtra & Anr. (2014) 16 SCC 1 to
    substantiate that mere designation as a director does not create
    vicarious liability under Section 141 NI Act. There must be specific
    allegations of active participation in the conduct of business at the
    relevant time.
13. On the contrary, the learned counsel for the Respondent contended
    that the Appellant(s) name appeared as a director in the company at
    the relevant time, and was presumed to be involved in the company’s
    affairs.
14. The learned counsel for the Respondent contended that the mere
    resignation of the Appellant(s) does not automatically absolve a
    director from liability under Section 141 NI Act and that the onus
    lies upon them to establish their non-involvement in the company’s
    financial transactions. The learned counsel placed reliance on
    Ashutosh Ashok Parasrampuriya & Anr. v. Gharrkul Industries
    Pvt. Ltd. & Ors. (2023) 14 SCC 770, to contend that the question of
    the Appellant(s) status as an independent and non-executive director
    is a matter that should be determined during trial rather than at the
    quashing stage.
15. The learned counsel for the Respondent also emphasized on the
    Appellant(s) attendance at board meetings, asserting that it indicated
    knowledge of financial dealings, including the issuance of cheques
    towards repayment of the ICD.
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     ANALYSIS AND FINDINGS
16. This Court has consistently held that non-executive and independent
    director(s) cannot be held liable under Section 138 read with Section
    141 of the NI Act unless specific allegations demonstrate their direct
    involvement in affairs of the company at the relevant time.
     16.1. This Court in National Small Industries Corpn. Ltd. v.
           Harmeet Singh Paintal & Anr. (2010) 3 SCC 330 observed:
               “13. Section 141 is a penal provision creating
               vicarious liability, and which, as per settled law, must
               be strictly construed. It is therefore, not sufficient to
               make a bald cursory statement in a complaint that
               the Director (arrayed as an accused) is in charge of
               and responsible to the company for the conduct of
               the business of the company without anything more
               as to the role of the Director. But the complaint should
               spell out as to how and in what manner Respondent
               1 was in charge of or was responsible to the accused
               Company for the conduct of its business. This is in
               consonance with strict interpretation of penal statutes,
               especially, where such statutes create vicarious
               liability.
               22. Therefore, this Court has distinguished the case
               of persons who are incharge of and responsible for
               the conduct of the business of the company at the
               time of the offence and the persons who are merely
               holding the post in a company and are not in charge
               of and responsible for the conduct of the business of
               the company. Further, in order to fasten the vicarious
               liability in accordance with Section 141, the averment
               as to the role of the Directors concerned should be
               specific. The description should be clear and there
               should be some unambiguous allegations as to how
               the Directors concerned were alleged to be in charge
               of and were responsible for the conduct and affairs
               of the company.
               39. From the above discussion, the following
               principles emerge: (i) The primary responsibility is
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       K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd.


                on the complainant to make specific averments as
                are required under the law in the complaint so as to
                make the accused vicariously liable. For fastening the
                criminal liability, there is no presumption that every
                Director knows about the transaction. (ii) Section 141
                does not make all the Directors liable for the offence.
                The criminal liability can be fastened only on those
                who, at the time of the commission of the offence,
                were in charge of and were responsible for the
                conduct of the business of the company. (iii) Vicarious
                liability can be inferred against a company registered
                or incorporated under the Companies Act, 1956 only
                if the requisite statements, which are required to
                be averred in the complaint/petition, are made so
                as to make the accused therein vicariously liable
                for offence committed by the company along with
                averments in the petition containing that the accused
                were in charge of and responsible for the business
                of the company and by virtue of their position they
                are liable to be proceeded with. (iv) Vicarious liability
                on the part of a person must be pleaded and proved
                and not inferred. (v) If the accused is a Managing
                Director or a Joint Managing Director then it is not
                necessary to make specific averment in the complaint
                and by virtue of their position they are liable to be
                proceeded with. (vi) If the accused is a Director or
                an officer of a company who signed the cheques on
                behalf of the company then also it is not necessary
                to make specific averment in the complaint. (vii) The
                person sought to be made liable should be in charge
                of and responsible for the conduct of the business
                of the company at the relevant time. This has to be
                averred as a fact as there is no deemed liability of
                a Director in such cases.”
     16.2. In N. K. Wahi v. Shekhar Singh & Ors. (2007) 9 SCC 481
           this Court in Para 8 observed:
                “To launch a prosecution, against the alleged Directors
                there must be a specific allegation in the complaint as
                to the part played by them in the transaction. There
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               should be clear and unambiguous allegation as to
               how the Directors are in-charge and responsible for
               the conduct of the business of the company. The
               description should be clear. It is true that precise
               words from the provisions of the Act need not be
               reproduced and the court can always come to a
               conclusion in facts of each case. But still, in the
               absence of any averment or specific evidence the
               net result would be that complaint would not be
               entertainable.”
     16.3. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr.
           (2005) 8 SCC 89, this Court laid down that mere designation
           as a director is not sufficient; specific role and responsibility
           must be established in the complaint.
     16.4. In Pooja Ravinder Devidasani v. State of Maharashtra &
           Anr. (2014) 16 SCC 1, this Court while taking into consideration
           that a non-executive director plays a governance role, they are
           not involved in the daily operations or financial management of
           the company, held that to attract liability under Section 141 of
           the NI Act, the accused must have been actively in charge of
           the company’s business at the relevant time. Mere directorship
           does not create automatic liability under the Act. The law has
           consistently held that only those who are responsible for the
           day-to-day conduct of business can be held accountable.
     16.5. In Ashok Shewakramani & Ors. v. State of Andhra Pradesh
           & Anr. (2023) 8 SCC 473, this Court held:
               “8. After having considered the submissions, we are
               of the view that there is non-compliance on the part
               of the second Respondent with the requirements of
               Sub-section (1) of Section 141 of the NI Act. We may
               note here that we are dealing with the Appellants who
               have been alleged to be the Directors of the Accused
               No. 1 company. We are not dealing with the cases
               of a Managing Director or a whole- time Director.
               The Appellants Have not signed the cheques. In the
               facts of these three cases, the cheques have been
               signed by the Managing Director and not by any of
               the Appellants.”
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       K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd.


     16.6. In Hitesh Verma v. M/s Health Care At Home India Pvt.
           Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held:
                “4. As the appellant is not a signatory to the cheque,
                he is not liable under Section 138 of the 1881 Act.
                “As it is only the signatory to the cheque who is liable
                under Section 138, unless the case is brought within
                the four corners of Section 141 of the 1881 Act, no
                other person can be held liable….”
                5. There are twin requirements under sub-Section (1)
                of Section 141 of the 1881 Act. In the complaint, it
                must be alleged that the person, who is sought to be
                held liable by virtue of vicarious liability, at the time
                when the offence was committed, was in charge of,
                and was responsible to the company for the conduct
                of the business of the company. A Director who is
                in charge of the company and a Director who was
                responsible to the company for the conduct of the
                business, are two different aspects. The requirement
                of law is that both the ingredients of sub-Section (1)
                of Section 141 of the 1881 Act must be incorporated
                in the complaint. Admittedly, there is no assertion
                in the complaints that the appellant, at the time of
                the commission of the offence, was in charge of
                the business of the company. Therefore, on a plain
                reading of the complaints, the appellant cannot be
                prosecuted with the aid of sub-Section (1) of Section
                141 of the 1881 Act.”
17. Upon perusal of the record and submissions of the parties, it is
    evident that the Appellant(s) neither issued nor signed the dishonoured
    cheques, nor had any role in their execution. There is no material
    on record to suggest that they were responsible for the issuance of
    the cheques in question. Their involvement in the company’s affairs
    was purely non-executive, confined to governance oversight, and did
    not extend to financial decision-making or operational management.
18. The complaint lacks specific averments that establish a direct nexus
    between the Appellant(s) and the financial transactions in question
    or demonstrate their involvement in the company’s financial affairs.
    Additionally, the CGR(s) and ROC records unequivocally confirm their
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      non-executive status, underscoring their limited role in governance
      without any executive decision-making authority. The mere fact that
      Appellant(s) attended board meetings does not suffice to impose
      financial liability on the Appellant(s), as such attendance does not
      automatically translate into control over financial operations.

      CONCLUSION
19. Given the lack of specific allegations and in view of the aforesaid
    observations, the Appellant(s) cannot be held vicariously liable under
    Section 141 of the NI Act.
20. Accordingly, the Impugned Judgment and Order dated 28.11.2023 of
    the High Court is set aside, and the criminal proceedings against the
    Appellant(s) in Complaint No(s). 15858 and 15857 of 2017 pending
    before the Court of Additional Chief Metropolitan Magistrate, New
    Delhi are hereby quashed.
21. The appeals are allowed. No order as to costs.

      Result of the case: Appeals allowed.



      †
          Headnotes prepared by: Gaurav Upadhyay, Hony. Associate Editor
                                  (Verified by: Abhinav Mukherjee, Sr. Adv.)