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TMI Blog2025 (3) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 dayto- day conduct of business can be held accountable.
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 decisionmaking or operational management - 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.
Conclusion - Non-executive directors cannot be held liable under Section 138 read with Section 141 of the NI Act without specific allegations of their direct involvement in the company's affairs.
Appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y'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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 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 alwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decisionmaking or operational management. 18. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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