NI Act | Director Not Responsible For Day-To-Day Affairs Of Company Can't Be Held Liable For Cheque Dishonour: Supreme Court

The Supreme Court on Friday (March 15) observed that the Director of the company not responsible for its day-to-day affairs cannot be held liable for dishonor of cheque under the Negotiable Instruments Act,1882.

Reversing the High Court's order which had refused to quash the pending proceedings under Section 138 N.I. Act against the accused/director of the company, the Bench comprising Justices B.R. Gavai and Sandeep Mehta observed that for making the director of the company to be liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.

“It could thus be seen that this Court had held that simply because a person is a director of the company, it does not necessarily mean that he fulfils the twin requirements of Section 34(1) of the said Act so as to make him liable. It has been held that a person cannot be made liable unless, at the material time, he was in-charge of and was also responsible to the company for the conduct of its business.”, the Judgment authored by Justice B.R. Gavai said.

In a nutshell, the court held that the director of the company could not be held liable for the dishonor of the cheque if the complainant failed to prove the involvement of the director in the day-to-day affairs of the company. 

“It was, therefore, necessary, to aver as to how the director of the company was in charge of day-to-day affairs of the company or responsible to the affairs of the company.”, the court clarified.

In the instant case, the complainant/respondent registered a complaint under Section 138 N.I. Act against the Appellant on the note that she was holding the position of the Director of the Company. However, the complainant hadn't made an averment to prove how the appellant/Director is held responsible for managing the day-to-day affairs of the company.

On perusing the complaint, the Supreme Court stated that merely because an Appellant is a director of a company, it is not necessary that she is aware of the day-to-day functioning of the company. Further, the court found that the averments made were not sufficient to invoke the provisions of Section 141 of the N.I. Act against the appellant as the complainant failed to show as to how and in what manner the Director was responsible for the conduct of the business of the Company when the cheque was dishonored.

“It can thus be clearly seen that there is no averment to the effect that the present appellant is in-charge of and responsible for the day-to-day affairs of the Company.”, the court said.

Based on the above premise, the court quashed the pending proceedings against the accused.

Counsels For Petitioner(s) Mr. Manoj V George, Adv. Ms. Shilpa Liza George, AOR Mr. Km Vignesh Ram, Adv. Mr. Nasib Masih, Adv. Ms. Akshita Agrawal, Adv. Ms. Chaahat Khanna, Adv.

Counsels For Respondent(s) Mr. Lakshmeesh S. Kamath, AOR Ms. Samriti Ahuja, Adv. Mr. Karan Singh Dalal, Adv.

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

Case Title: SUSELA PADMAVATHY AMMA VS. M/S. BHARTI AIRTEL LIMITED

Citation : 2024 LiveLaw (SC) 237

Click Here To Read/Download The Judgment