Vicarious liability
Section 141 of the Negotiable Instruments Act, 1881 provides that where a company commits an offence under Section 138, every person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business is also deemed guilty, along with the company. Directors and officers with whose consent or connivance the offence was committed, or whose neglect it is attributable to, are also liable.
What the complaint must say
In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005), the Supreme Court held that the complaint must specifically aver that the director was in charge of and responsible for the conduct of the company's business at the relevant time. Merely being a director is not enough. A managing director or joint managing director, and the signatory of the cheque, stand on a different footing because of their role.
The company must be an accused
In Aneeta Hada v. Godfather Travels and Tours (2012), a three-judge bench held that a director cannot be prosecuted under Section 141 unless the company itself is arraigned as an accused, subject to limited exceptions where the company cannot be proceeded against in law.
Non-executive and independent directors
In Pooja Ravinder Devidasani v. State of Maharashtra (2014), the Supreme Court held that a non-executive director, who is not involved in the day-to-day affairs of the company, cannot be held liable without specific averments showing their role in the conduct of its business. Independent and nominee directors are frequently discharged or have proceedings quashed on this basis.
Remedies for directors
- Application for discharge or for recall of the summoning order before the trial court
- Petition before the High Court to quash the complaint against a director where the necessary averments are missing
- Evidence that the director had resigned before the cheque was issued or dishonoured, such as Form DIR-12 filed with the Registrar of Companies
Frequently asked questions
Is a director who resigned liable?
A director who resigned before the cheque was issued, and whose resignation is proved, is ordinarily not liable. Where the resignation came after the cheque was issued, the position depends on the facts and the date of the offence.
About the author
Advocate Vivekanand
Founder & Principal Advocate, Vivekanand Law Firm · MA (English), MBA, LL.B., Author. Full profile
This article is general legal information, not legal advice. It does not create an advocate–client relationship. Legal provisions referred to should be verified for your specific situation and the date of the events concerned.