S. 141 NI Act | Non-Executive & Independent Company Directors Not Liable For Cheque's Dishonour Unless Their Direct Involvement Shown : Supreme Court

The Supreme Court reiterated that non-executive and independent directors of a company cannot be held vicariously liable for the company's obligations under the Negotiable Instruments Act, 1881 (NI Act), unless their direct involvement in the company's financial transactions is established.

The Court held that merely holding the position of the non-executive and independent director of the company would not make them liable for the company's default unless their active involvement is proved. It added that only directors responsible for the day-to-day affairs and business operations of the company can be made liable for the company's default.

“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.”, the court observed.

The bench comprising Justices BV Nagarathna and SC Sharma provided relief to the Appellants, who were non-executive directors of the company, quashing a criminal proceeding against them registered under Section 138 read with Section 141 of the NI Act.

The Court noted that the Appellant(s) neither issued nor signed the dishonored 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 decision making or operational management.”, the court noted.

Additionally, the Court rejected the Respondent's argument that since the Appellant participated in the annual board meeting, they couldn't be absolved from their vicarious liability under Section 141 of the NI Act for the default that occurred. Instead, the Court said that merely attending the board meetings "does not suffice to impose financial liability on the Appellant(s), as such attendance does not automatically translate into control over financial operations."

Reference was also made to several precedents, including Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330, and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89. These rulings emphasize that vicarious liability must be interpreted strictly, specific allegations in the complaint are required to establish a director's role in the company's business, and mere attendance at board meetings does not equate to control over financial operations.

In terms of the aforesaid, the Court allowed the appeal and quashed the pending criminal proceedings against the appellant-non-executive director of the company.

Case Title: K. S. MEHTA VERSUS M/S MORGAN SECURITIES AND CREDITS PVT. LTD.

Citation : 2025 LiveLaw (SC) 286

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Appearances:

For Petitioner(s) :Mr. Siddharth Aggarwal, Sr. Adv. Mr. Suman Jyoti Khaitan, AOR Mr. Vikas Kumar, Adv. Mr. Ayush Shrivastava, Adv. Mr. Ayush Kapur, Adv. Mr. Vihaan Kumar, Adv. Mr. Vishwajit Singh, Sr. Adv. Mr. Pankaj Singh, Adv. Ms. Praanshoo Goyal, Adv. Ms. Ridhima Singh, AOR

For Respondent(s) :Mr. Vikramjeet Banerjee, A.S.G. Mr. Mukesh Kumar Maroria, AOR Mr. Annirudh Sharma Ii, Adv. Mr. B K Satija, Adv. - Ms. Diksha Rai, Adv. Ms. Sakshi Kakkar, Adv. Ms. Satvika Thakur, Adv. Mr. Simran Mehta, Adv. Ms. Aruna Gupta, AOR Mr. Ajay Pal Singh, Adv.

Also Read: S.141 NI Act - Only That Person Who Was Responsible For Conduct Of Company's Affairs At The Time Of Cheque Dishonour Is Liable: Supreme Court