Holding

A director is liable under Section 141 only if the complaint specifically averts that he was in charge of and responsible for the conduct of the company's business at the time of the offence; mere directorship does not attract liability.

Summary

The appellant filed a complaint under Sections 138 and 141 of the Negotiable Instruments Act against Mis Western India Industries Ltd. and several of its directors, alleging joint liability for dishonoured cheques. The respondents contended they were not directors at the relevant time and that the complaint lacked specific allegations required under Section 141. The High Court, invoking Section 482 of the CrPC, quashed the proceedings, finding no evidence that the directors were in charge of or responsible for the company's business. The Supreme Court held that liability under Section 141 attaches only when a complaint expressly alleges that the director was in charge of and responsible for the conduct of the business at the time of the offence; mere directorship is insufficient. Consequently, the appeals were dismissed and the High Court’s order upheld.

Issues considered

Whether a complaint under Section 141 of the Negotiable Instruments Act can be sustained against directors without specific allegation of their being in charge of the company's business.
Whether mere directorship confers liability under Section 141.
Whether the High Court was justified in quashing the proceedings under Section 482 of the CrPC.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138Section 141Director liabilityCompany offenceCriminal Procedure CodeSection 482Cheque dishonourVicarious liabilityQuashing of proceedings

Judgment

N.K. WAHi A
v.
SHEKHAR SINGH AND ORS.

MARCH 9, 2007

[DR.ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.] B

Negotiable Instruments Act, 1881-ss. 138 and 141-Dishonour of
cheque-Issued by a Company- Complaint-Against the company and also
its Directors-No specific allegation against the Directors-Quashing of C
proceedings by High Court-On appeal, held:. Proceedings rightly quashed-
To launch prosecution against the Directors, there must be specific allegation
against them- Merely being Director of a Company would not attract
applicability of s. 141-Code of Criminal Procedure, 1973-s. 482.

Appellant filed a complaint under Sections 138 and 141 of Negotiable D
Instruments Act, 1881 against a Company and its Directors-respondents. It
took the plea that the respondents were jointly and severely liable being the
Directors of the Company. Respondents filed application for dropping the
proceedings on the grounds that they were not Directors of the Company at
the relevant time and that there was no specific allegation against them in
terms of Section 141. The application was dismissed. Respondents then filed E
application under Section 482 Cr.P.C. for quashing the proceedings. High
Court quashed the proceedings. Hence the present appeals.

Dismissing the appeals, the Court

HELD: I. Section 141 (l) of Negotiable Instruments Act, 1881 clearly
F
shows that so far as the companies are concerned if any offence is committed
by it then every person who is a Director or employee of the company is not
liable. Only such person would be held liable if at the time when offence is
committed he was in charge and was responsible to the company for the
conduct of the business of the company as well as the company. Merely being G
a Director of the company in the absence of above factors will not make him
liable. (Para 8) (886-C-D]

2. 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
883 II
884 SUPREME COURT REPORTS (2007] 3 S.C.R.

A transaction. There should be clear and unambiguous allegation as to how
the Directors are incharge and responsible for the conduct of the business of
the company. 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
B net result would be that complaint would not be entertainable.
[Para 9) [886-E)

S.M.S. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., [20051 8 SCC
89; Sabitha Ramamurthy and Anr. v. R.B.S. Channabasavaradhya and Anr.,
(2006) 9 SCALE 212 and Saroj Kumar Poddar v. State NCT ofDelhi and Anr.,
C JT (2007) 2 SC 233, relied on.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal Nos. 83-85
of2004.

From the Judgment and Order dated 7.8.2002 of the High Court of Delhi
at New Delhi in Criminal Misc. (Main) Nos. 787/2001 & 789/2001 & Crl. R. No.
D 41512002.

Rajeev Sharam for the Appellant.

Ashok Bhan, Varona Bhandari, Gugnani, D.S. Mabra, Jayshree Wad,
Ashish Wad, Neeraj Kumar, Chirag Dave for J.S. Wad & Co. B.L. Wali,
E Shankar Divate for the Respondents.

The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. I.Challenge in this appeal is to the order
passed by a learned Single Judge of the Delhi High Court, allowing the three
applications filed by the respondents for quashing the order passed by the
F learned Metropolitan Magistrate, New Delhi, on 25th November, 2000.

2. Background facts in nutshell are as under:

3. Appellant presented a criminal complaint under Section 138 read with
Section 141 of the Negotiable Instruments Act, 1881 (in short the 'Act') in the
G Court of Metropolitan Magistrate, New Delhi. It was pleaded that Mis
Western India Industries Ltd. is a limited company and the respondents and
some others were the Directors/persons responsible for carrying on the
business of the company and the liability of these persons is joint and
several. It was stated that certain cheques had been issued by the company
H which were dishonored on being presented. After giving the necessary
N.K. WAHlv. SHEKHARSINGH [PASAYAT.J.) 885
notice the complaint was filed. The respondents filed an application for A
dropping the proceedings stating that they were not Directors of the company
and further there was no allegation against them in terms of Section 141 of
the Act and as such they should not have been made parties. Learned
Metropolitan Magistrate dismissed the application holding that whether the
applicants in the aforesaid petitions were Directors at the relevant point of B
time or not is to be decided on evidence.

4. It was further held that the company is a juristic person and works
-~
through persons responsible for carrying out its activities and, therefore, they
have been rightly impleaded as parties. Respondents filed applications invoking
Section 482 of the Code of Criminal Procedure, 1973 (in short the 'Code'). The C
High Court held that the preliminary evidence does not establish that the
respondents were either incharge or were responsible to the companies for
the conduct of business. In the absence of any such evidence or assertion,
it was held that the learned Metropolitan Magistrate was not justified in
issuing summons to the respondents.
D
5. In support of the appeals, learned counsel for the appellant submitted
that there was clear material to show that respondents were either Directo_rs
or persons incharge of the business of the company. The High Court found
that preliminary evidence had been recorded and subsequent evidence was
forthcoming. The appellant who appeared at that time only stated that E
accused 2 to 12 are Directors and responsible for the company and as such
liable by the acts of the company. The High Court held that there was no
clear averment or evidence to show that the respondents were incharge or
responsible to the company for the conduct of the business as well as the
company. Accordingly the proceedings were quashed so far as the respondents
are concerned. F

6. The respondents on the other hand supported the order of the High
Court.

7. Chapter XVII has been incorporated under the Act with effect from G
1.4.1989. In certain contingencies referred to under Section 138 of the Act
on the cheques being dishonored a new offence as such had been created.
But to take care of the offences purported to have been committed provisions
of sub-section (I) to Section 14 i of the Act come into play. It reads as under:-

"141 - Offence by companies - (I) If the person committing an offence H
886 SUPREME COURT REPORTS [2007] 3 S.C.R.

A under section 138 is a company, every person who, at the time the
offence was committed, was in charge of, and was responsible to, the
company for the conduct of the business of the company, as well as
the company, shall be deemed to be guilty of the offence and shall
be liable to be proceeded against and punished accordingly.

B Provided that nothing contained in this sub-section shall render
any person liable to punishment if he proves that the offence was
committed without his knowledge, or that he had exercised all due
diligence to prevent the commission of such offence." f.

8. This provision clearly shows that so far as the companies are
C concerned if any offence is committed by it then every person who is a
Director or employee of the company is not liable. Only such person would
be held liable if at the time when offence is committed he was in charge and
was responsible to the company for the conduct of the business of the
company as well as the company. Merely being a Director of the company
D in the absence of above factors will not make him liable.

9. To launch a prosecution, therefore, against the alleged Directors there
must be a specific allegation in the complaint as to the part played by them
in the transaction. There should be clear and unambiguous allegation as to
how the Directors are incharge and responsible for the conduct of the business
E 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.

F I0. Section 138 of the Act reads as under:-

"/ 38. Dishonour of cheque for insufficiency, etc., of funds in the
account-

Where any cheque drawn by a person on an account maintained
G by him with a banker for payment of any amount of money to another
persons from out of that account for the discharge, in whole or in part,
of any debt or other liability, is returned by the bank unpaid, either
because of the amount of money standing to the credit of that account
is insufficient to honour the cheque or that it exceeds the amount
arranged to be paid from that account by an arrangement made with
H
N.K. WAHlv. SHEKllARSINGH[PASAYAT.J.] 887

... that bank, such person shall be deemed to have committed an offence A
and shall, without prejudice to any other provisions of this Act, be
punished with imprisonment for a term which may be extended to two
years, or with fine which may extend to twice the amount of the
cheque, or with both."

11. In order to bring application of Section 138 the complaint must B
show:

•
,;..
I. That Cheque was issued;
2. The same was presented;
3. It was dishonored on presentation; c
4. A notice in terms of the provisions was served on the person
sought to be made liable;
5. Despite service of notice, neither any payment was made nor
other obligations, if any, were complied with within fifteen days
from the date of receipt of the notice. D

>r 12. Section 141 of the Act in terms postulates constructive liability of
the Directors of the company or other persons responsible for its conduct or
the business of the company.

13. The only averment made so far as the respondents are concerned, E
reads as under:

"Preliminary evidence had been recorded and at that time also no
specific evidence on assertion was forthcoming. Shri Wahi who
appeared at that time only stated that accused 2 to 12 are directors F
and responsible officers of the company. They are liable for the acts
of the company. In other words, there was no averrnent or evidence
that the present petitioners were incharge of or responsible to the
company for the conduct of the business of the company as well as
the company.

The accused Nos. 2 to 12 are the Directors/persons responsible
G
for carrying out the business of the company and the liability of the
accused persons in the present complaint is joint and several".

14. In S.M.S. Pharmaceuticals ltd. v. Neeta Bhalla and Anr., [2005) 8
sec 89, it was, inter-alia, held as follows:- H
888 SUPREME COURT REPORTS [2007] 3 S.C.R.

A "18. To sum up, there is almost unanimous judicial opinion that ·+ ....
necessary averments ought to be contained in a complaint before a '
person can be subjected to criminal process. A liability under Section
I4 I of the Act is sought to be fastened vicariously on a person
connected with a company, the principal accused being the company
itself. It is a departure from the rule in criminal law against vicarious
B liability. A clear case should be spelled out in the complaint against
the person sought to be made liable. Section 14Jofthe Act contains
the requirements for making a person liable under the said provision. j

That the respondent falls within the parameters of Section I41 has to -./...

be spelled out. A complaint has to be examined by the Magistrate in
c the first instance on the basis of averments contained therein. If the
Magistrate is satisfied that there are averments which bring the case
within Section 141, he would issue the process. We have seen that
merely being described as a director in a company is not sufficient to
satisfy the requirement of Section 141. Even a non-director can be
liable under Section 141 of tpe Act. The averments in the complaint
D would also serve the purpose that the person sought to be made liable
.would know what is the case which is alleged against him. This will
enable him to meet the case at the trial.

19. In view of the above discussion, our answers to the questions
posed in the reference are as under:
E
(a) It is necessary to specifically aver in a complaint under Section 141
that at the time the offence was committed, the person accused was
in charge of, and responsible for the conduct of business of the
company. This averment is an essential requirement of Section 141
and has to be made in a complaint. Without this averment being made
F in a complaint, the requirements of Section 141 cannot be said to be
satisfied.

(b) The answer to the question posed in sub-para (b) t.as to be in .the
negative. Merely being a director of a company is not suffident to
make the person liable under Section 141 of the Act. A director in a
G company cannot be deemed to be in charge of and responsible to the -
company for the conduct of its business. The requirement of Section --.l
141 is that 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
H deemed liability of a director in such cases.
N.K. WAl-llv. Sl-IEKl-IARSINGl-l(PASAYAT,J.) 889
-I (c) The answer to Question (c) has to be in the affirmative. The A
question notes that the managing director or joint managing director
would be admittedly in charge of the company and responsible to the
company for the conduct of its business. When that is so, holders of
such positions in a company become liable under Section 141 of the
Act. By virtue of the office they hold as managing director or joint B
managing director, these persons are in charge of and responsible for
the conduct of business of the company. Therefore, they get covered
under Section 141. So far as the signatory of a cheque which is
dishonoured is concerned, he is clearly responsible for the incriminating
act and will be covered under sub-section (2) of Section 141".

15. The matter was again considered in Sabitha Ramamurthy and Anr.
c
v. R.B.S. Channabasavaradhya and Anr., [2006] 9 SCALE 212, and Saroj
Kumar Poddar v. State (NCT of Delhi) and Anr., JT (2007) 2 SC 233. It was,
inter-alia, held as follows:

" .... Section 141 raises a legal fiction. By reason of the said D
provision, a person although is not personally liable for commission
of such an offence would be vicariously liable therefor. Such vicarious
liability can be inferred so far as a company registered or incorporated
under the Companies Act, 1956 is concerned only if the requisite
statements, which are required to be averred in the complaint petition, E
are made so as to make the accused therein vicariously liable for the
offence committed by the company. Before a person can be made
vicariously liable, strict compliance of the statutory requirements would
be insisted .... ".

16. In view of the legal position set out above, the inevitable result is F
->-· that the appeals are without merit, deserve dismissal, which we direct.

K.K.T. Appeals dismissed.