Holding

Section 141 liability attaches only when the complaint expressly aver that the accused were in charge of and responsible for the company's business at the time of the offence; mere directorship is insufficient.

Summary

The appellants were alleged to have issued two cheques on behalf of Karnataka News Net (Bangalore) Ltd. which were later dishonoured. A complaint under Section 138 of the Negotiable Instruments Act was filed, invoking Section 141 to hold the directors vicariously liable. The complaint, however, failed to specifically state that the accused directors were in charge of and responsible for the company's business at the time of the offence. The High Court dismissed the appellants' application to quash the criminal processes, but the Supreme Court held that such specific averments are a mandatory requirement of Section 141; mere directorship does not create liability. Consequently, the processes issued against the appellants were quashed and the appeal was allowed.

Issues considered

Whether the complaint petition under Section 138/141 of the Negotiable Instruments Act complied with the statutory requirement of specifically averring that the accused were in charge of and responsible for the conduct of the company's business.
Whether a person who is merely a director of a company can be held vicariously liable under Section 141 of the Negotiable Instruments Act.

Legislation cited

Code of Criminal Procedure, 1973s. 200, s. 482
Companies Act, 1956
Negotiable Instruments Act, 1881s. 138, s. 141

Subjects

Negotiable Instruments ActSection 138Section 141vicarious liabilitydirectorscompanycheque dishonourcriminal procedurecomplaint petitionquash of processes

Judgment

A SABITHA RAMAMURTHY AND ANR.
V.

R.B.S. CHANNABASA VARADHY A

SEPTEMBER 13. 2006

B [S.B. SINHA AND DALVEER BHANDARI, JJ.]

Negotiable Instruments Act, 1881-Sections 138 to 141-Dishonour of
cheque issued on behalf of company-Complaint petition uls.138 not stating
C that accused-directors were in charge of business of the company-liability
ofaccused-directors under S.141-Held: Merely being a director of a company
is not sufficient to make the accused liable under S.141-It is necessary to
specifically aver that at the time of commission of offence, accused were in
charge oj and responsible for the conduct of business of the company--
Liability-Vicarious liability.
D
The K Company had borrowed a sum of money from the respondent.
Towards payment of the said loan, the appellants issued two cheques to
the respondent on behalf of K Company which on presentation were
dishonoured for insufficiency of funds. Respondent filed cpmplaint petition
u/s. 138 of Negotiable Instruments Act, 1881. The processes were directed
E to be issued for commission of an offence u/s. 138 of the Act. Appellants
filed an application u/s. 482 CrPC praying for quashing of the processes
issued against them in the said proceedings. High Court dismissed the
application. Hence the present appeal.

Allowing the appeal, the Court
F
HELD: I.I. A bare perusal of the complaint petitions demonstrates
that the statutory requirements contained in Section 141 of the Negotiable
Instruments Act had not been complied with. Although it is not necessary
for the complainant to specifically reproduce the wordings of the section
G but what is required is a clear statement of fact so as to enable the court
to arrive at a prima facie opinion that the accused are vicariously liable.
Section 141 raises a legal fiction. By reason of the said 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,
H 126
SABITHA RAMAMURTHY 1·. R.B.S. CHANNABASAVARADHYA J27
. 1956 is concerned only if the requisite statements, which are required to A
be averred in the complaint petition, 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. 113-C-Fl

1.2. The averments made in the complaint petitions do not meet the B
said statutory requirements. The sworn statement made by the son of
Respondent also does not contl!in any statement that Appellants were in
charge of the business of the ·company. In a case where the court is
required to issue summons which would put the accused to some sort of
harassment, the court should ins!st strict compliance of the statutory C
requirements. In terms of Section 200 of the Code of Criminal procedure,
the complainant is bound to make statements on oath as to how the offence
has been committed and how the accused persons are responsible therefor.
In the event, ultimately, the prosecution is found to be frivolous or
otherwise mala fide, the court may direct registration of case against the
complainant for ma/a fide prosecution of the accused. The accused would D
also be entitled to file a suit for damages. 1130-F-H; 131-AI

2.1. 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. E.
Without this averment being made in a complaint, the requirements of
Section 141 cannot be said to be satisfied. 1132-C-D)

2.2. Merely being a director of a company is not sufficient to make
the person 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 F
the conduct of its business. The requirement of Section 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 deemed liability of a director in
such cases. 1132-D-FI
G
Monaben Ketanbhai Shah and Anr. v. State of Gujarat and Ors. (20041
7 SCC 15; Katta Sujatha (Smt) v. Fertilizers & Chemicals Travancore Ltd.
and Anr., 12002) 7 SCC 655; K.P.G. Nair v. Jindal Menthol India Ltd, 12001)
10 SCC 218 and S.MS. Pharmaceuticals Ltd v. Neeta Bhalla and Anr., [2005)
8 sec 89, relied on. H
128 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R.

A CRIMINAL APPELLATE JURISDICTION : Civil Appeal No. 950 of
2006.

From the Judgment and Order dated 22.8.2005 of the High Court of
Karnataka at Bangalore in C.R.L.P. Nos. 3432-3433/2004.

B WITH

Crl. A.No. 951 /2006.

A.T.M. Ranga Ramanujam, Gouri Kamna Oas, Anu Gupta, Rajesh Singh
and Rani Jethmalani for the Appellants.
c
S.N. Bhat for the Respondent.

The Judgment of the Court was delivered by

S.B. SINHA, J : Leave granted in SLPs.
D
Two cheques dated 23.6.2001 and 30.6.2001 for a sum of Rs. 1,24,406
each were issued in favour of the Respondent allegedly on behalf of a company
known as Karnataka News Net (Bangalore) Ltd. The Appellants herein were
not directors of the said company at the material time. Two complaint petitions
were filed by the Respondent herein before the Addi. Chief Metropolitan
E Magistrate, Bangalore wherein Appellants were described as Accused Nos. 6
and 8. In the said complaint petitions, it was categorically stated that the
company which had been dealing with imparting of computer education in
rural areas represented by its Managing Director, Chairman,Vice-Chairman
and other Directors borrowed a sum of Rs. 2,25,000/- from the Respondent
F on an interest of 24% per annum. Towards payment of the said loan, the
accusc:d had issued two cheques on 23.6.2001 and 30.6.2001 for a sum of Rs.
1,24,406/- each which upon being presented were dishonoured as the company
did not have sufficient fund. In the complaint petition, it was averred:

"7) The complainant submits that the accused persons have failed to
clear the liability. The accused being Company and all the directors
are responsible for the clearance of liability under Section 141 of the
N.1. Act and the acts and deeds of the accused persons is punishable
under Section 138 of N.l. Act."

In support of the said complaint petition, one Ravidraradya, son of the
H
SABITHA RAMAMURTHY r. R.B.S. CHANNABASAVARADHYA [S.B. SINHA. J.] J29

complainant filed a sworn affidavit stating: A
" ... The accused No. 2 is the M.D. and others are Chairman and partners.
The accused-company towards repayment of the loan, issued a cheque
in favour of the complainant. The M.D. signed and issued the cheque
dated 23.6.2001 for Rs. 1,24,406/- on the account maintained by the
company. On presentation of the said cheque to the Bank for collection, B
the same was returned on 30.6.2001 as insufficient funds. Notice
dated 12.7.2001 was issued through Advocate to the accused was
served on 13.7.2001. The case was filed on 27.8.2001...."

Processes were directed to be issued on the said statement for alleged
commission of an offence under Section 138 of the Negotiable Instruments C
Act.

Appellants herein filed an application under Section 482 of the Code of
Criminal Procedure praying for quashing of the processes issued against
them in the said proceedings.
D
The High Court by reason of the impugned judgment dismissed the
said application stating:

"(3) The material on record primafacie disclose that these petitioners
were Directors on the date of the offence i.e. on 30.7.2003. The E
question as to whether these petitioners were involved in day to day
affairs of the business of the company is to be decided based on the
material on record collected during the course of trial."

Section 138 of the Negotiable Instruments Act provides that where a
cheque drawn by a person is returned by the bank unpaid on the grounds F
specified therein, the person who had drawn the said cheque shall be deemed
to have committed an offence thereunder. Section 139 provides for a
presumption in favour of a holder of a negotiable instrument. Section 141 of
the Act provides for offences by a company. Sub-section ( 1) of Section 141
reads as under:
G
"141. Offences by companies. - (I) If the person committing an offence

- 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
H
130 SUPRLMF COURT REPORTS 12006] SUPP. 6 S.C.R.

A be liable to be proceeded against and punished accordingly:

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.
B
Provided further that where a person is nominated as a Director of a
company by virtue of his holding an~ office or employment in the
Central Government or State Government or a financial corporation
owned or controlled by the Central Government or the State
Government, as the case may be, he shall not be liable for-prosecution
c under this Chapter."

A bare perusal of the complaint petitions demonstrates that the statutory
requirements contained in Section 141 of the Negotiable Instruments Act had
not been complied with. It may be true that it is not necessary for the
complainant to specifically reproduce the wordings of the section but what
D is requir~d is a clear statement of fact so as to enable the court to arrive at
a prima facie opinion that the accused are vicariously liable. Section 141
raises a legal fiction. By reason of the said 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
E 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, 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. Not
only the averments made in paragraph 7 of the complaint petitions do not
F meet the said statutory requirements, the sworn statement of the witness
made by the son of Respondent herein, does not contain any statement that
Appellants were in charge of the business of the company. In a case where
the court is required to issue summons which would put the accused to some
sort of harassment, the court should insist strict compliance of the statutory
G requirements. In terms of Settion 200 of the Code of Criminal procedure, the
complainant is bound to make statements on oath as to how the offence has
been committed and how the accused persons are responsible therefor. In the
event, ultimately, the prosecution is found to be frivolous or otherwise ma/a
fide, the court may direct registration of case against the complainant for
-
mala fide prosecution of the accused. The accused would also be entitled to
H
SABITHA RAMAMURTHY 1·. R.BS. CHANNABASA VARADHYA [S.B. SINHA, J.] 131

file a suit for damages. The relevant provisions of the Code of Criminal A
Procedure are required to be construed from the aforementioned point of
view.

This Court in AI011abe11 Ketanbhai Shah and .411r. v. Stale of Gujarat
and Ors., (2004] 7 SCC 15 held as under:
B
"From the above, it is evident that in the complaint there are no
averments against the appellants except stating in the title that they
are partners of the firm. Learned counsel for the respondent
complainants contended that a copy of the partnership deed was also
filed which would show that the appellants were active in the business.
No such document was filed with the complaint or made part thereof. C
The filing of the partnership deed later is of no consequence for
determining the point in issue. Section 141 does not make all partners
liable for the offence. The criminal liability. has been fastened on
those who, at the time of the commission of the offence, were in
charge of and were responsible to the firm for the conduct of the D
business of the firm. These may be sleeping partners who are not
required to take any part in the business of the firm; they may be
ladies and others who may not know anything about the business of
the firm. The primary responsibility is on the complainant to make
necessary averments in the complaint so as to make the accused
vicariously liable. For fastening the criminal liability, there is no E
presumption that every partner knows about the transaction. The
obligation of the appellants to prove that at the time the offence was
committed they were not in charge of and were not responsible to the
firm for the conduct of the business of the firm, would arise only
when first the complainant makes necessary averments in the complaint p
and establishes that fact. The present case is of total absence ofrequisite
avennents in the complaint."

Yet again in Kalla Sujatha (Smt) v. Fertilizers & Chemicals Travancore
ltd. and Anr... (2002] 7 SCC 655 it was held:
G
" ... However, one thing is clear that the appellant was in no way
involved in any of the transactions referred to in the complaint and
it was not stated that she was in charge of the business and was
responsible for the conduct of the business of the firm in terms of
Section 141 of the Act nor was there any other allegation made
against the appellant that she had connived with any other partner in H
132 SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R.

A the matter of issue of cheque ... "

[See also K. P. G. Nair v. Jindal Menthol India Ltd., [200 I] I0 SCC
218]

The question has been set at rest by a Three-Judge Bench of this Court "-·
B in S.AIS. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr., [2005] 8 SCC 89
wherein the law has been laid down in the following terms:

"In view of the above discussion, our answers to the questions posed
in the reference are as under:

c (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 in a complaint, the requirements of Section 141 cannot be said
D to be satisfied.

(b) The answer to the question posed in sub-para (b) has to be in the
negative. Merely being a director of a company is not sufficient to
make the person liable under Section 141 of the Act. A director in a
company cannot be deemed to be in charge of and responsible to the
E company for the conduct of its business. The requirement of Section
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
deemed liability of a director in such cases."
F As the law laid down in the aforementioned decisions are clearly attracted
in the instant case, we are of the opinion that the impugned judgments cannot
be sustained which are set aside accordingly and the processes issued by the
court of the Addi. Chief Metropolitan Magistrate, Bangalore against Appellants
herein are quashed. The appeals are, thus, allowed.

D.G. Appeals allowed.