2025 (3) TMI 254 - SCH - Indian Laws

Dishonour of Cheque - appellant (director of company) is a signatory to the cheque or not - HELD THAT - 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 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. 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 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. Conclusion - The appellant who was not a signatory to the cheque and did not meet the requirements under Section 141(1) of the 1881 Act could not be held liable under Section 138. Appeal allowed.

Summary

The Supreme Court of India considered several criminal appeals arising from complaints filed under Section 138 of the Negotiable Instruments Act, 1881. The key issue before the Court was whether the appellant, who was accused no.3 in the complaints, could be held liable under Section 138 even though he was not a signatory to the cheque in question.The Court analyzed Section 141 of the 1881 Act, which deals with offenses by companies. The provision states that if an offense under Section 138 is committed by a company, every person who, at the time of the offense, was in charge of and responsible for the conduct of the company's business can be deemed guilty of the offense. However, the provision also includes safeguards, such as the person not being liable if they can prove lack of knowledge or due diligence to prevent the offense.The Court emphasized that for vicarious liability to apply under Section 141(1), two requirements must be met: the person must have been in charge of the company and responsible for its business conduct at the time of the offense. The Court noted that there was no assertion in the complaints that the appellant met these criteria. Therefore, the Court concluded that the appellant could not be prosecuted under Section 141(1) of the 1881 Act.As a result, the Court set aside the impugned orders and quashed the order taking cognizance of the complaints against the appellant. The Court clarified that its decision did not prejudge the merits of the complaints, leaving all issues to be decided by the Trial Court. The Appeals were allowed on these grounds.In summary, the Supreme Court held that the appellant, who was not a signatory to the cheque and did not meet the requirements under Section 141(1) of the 1881 Act, could not be held liable under Section 138. The Court's decision focused on the specific legal provisions and the lack of evidence in the complaints to establish the appellant's vicarious liability.