NI Act | In Cheque Case Against Company, Persons Can't Be Made Accused Only Because They're Managing Company's Business : Supreme Court

The Supreme Court recently held that under Section 141 of the Negotiable Instruments Act, 1881, a person will become vicariously liable when a company is accused of the offence under Section 138 (Dishonour of cheque for insufficiency of funds ) of the Act, only if such a person was "in charge of" and was "responsible to the company for the conduct of the business of the company" at the time the offence was committed.

A division bench of Justice Abhay S Oka and Justice Sanjay Karol observed that just because a person is managing a company and is involved in its day-to-day affairs, he does not automatically come under the ambit of Section 141 of the NI Act. The requirement under sub-section 1 of Section 141 of the Act is ‘something different and higher’ the Apex Court held:

“Every person who is sought to be roped in by virtue of sub-section 1 of Section 141 NI Act must be a 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. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of the business of the company. For example, in a given case, a manager of a company may be managing the business of the company. Only on the ground that he is managing the business of the company, he cannot be roped in based on sub-section 1 of Section 141 of the NI Act”

Under Section 141 of the Act, every person who was in charge of, and was responsible to the Company for the conduct of business of the company at the time the offence was committed, will be guilty of the offence under Section 138 of the NI Act along with the Company.

“Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub-section 1 of Section 141 are satisfied.” The Court observed.

For reference, Section 141 (1) of the Negotiable Instruments Act reads as follows:

141. Offences by companies.- (1) 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 deeded to be guilty of the offence and shall be liable to be proceeded against and punished accordingly

The Apex Court held that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" under the said section, need to be read conjunctively:

“On a plain reading, it is apparent that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" cannot be read disjunctively and the same ought be read conjunctively in view of use of the word "and" in between.”

In the matter at hand, the Top Court was considering appeals by directors of a company, who were accused in a complaint filed under Section 138 of the NI Act. The High Court had dismissed their petitions under Section 482 of the Code of Criminal Procedure, 1973 for quashing of the complaints against the appellants filed by the same complainant.

The contention of the complainant (second respondent in the appeal) was that the appellants were liable for transactions of the company and were fully aware of the issuance of the cheques and dishonour of the cheques. Relying on S.P. Mani and Mohan Diary Versus Dr Snehalatha Elangovan 2022 LiveLaw (SC) 772 the complainant also contended that the appellants failed to reply to the statutory notice. However, the Apex Court held that the requirements under Section 141 had not been met: 

“…even if we decide to take a broad and liberal view of the pleadings in the complaint, we are unable to draw a conclusion that compliance with the requirements of sub-Section 1 of Section 141 N.I. Act was made by the second respondent. The most important averment which is required by sub-Section (1) of Section 141 of the NI Act is that the directors were in charge of, and were responsible for the conduct of the company. The appellants are neither the signatories to the cheques nor are whole-time directors. The decision in the case of “S.P. Mani and Mohan Diary Versus Dr. Snehalatha Elangovan” will have no application as in the present case, the statutory notice was admittedly not served to the accused. Obviously, the High Court has not adverted to aforesaid two glaring deficiencies in the complaint.”

The Apex Court while allowing the appeals held that just because the appellants were involved in the day-to-day affairs of the company, sub-section 1 of Section 141 of the NI Act would not be attracted. In this context, the Court emphasized on the distinction between being in charge of the Company and being responsible for the conduct of business of the Company:

“The allegation that they are in charge of the company is neither here nor there and by no stretch of the imagination, on the basis of such averment, one cannot conclude that the allegation of the second respondent is that the appellants were also responsible to the company for the conduct of the business. Only by saying that a person was in charge of the company at the time when the offence was committed is not sufficient to attract sub-section 1 of Section 141 of the NI Act.”

Case Title: Ashok Shewakramani V. State Of Andhra Pradesh, Criminal Appeal No.879 Of 2023

Citation: 2023 LiveLaw (SC) 622;2023 INSC 692

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