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

In a judgment pronounced on October 11, the Supreme Court reiterated the principles relating to liability of a director of a company for the dishonour of a cheque issued by the company.

Referring to Section 141(a) of the Negotiable Instruments Act 1881, the Court said, "only that 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 alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished."

A bench comprising Justices CT Ravikumar and PV Sanjay Kumar was hearing an appeal seeking to quash the complaint under Section 138 of the NI Act against a person, who was named as an accused on the sole ground that he was a partner of the partnership firm which issued the cheque. The appeal was filed after the Punjab and Haryana High Court refused to quash the complaint in exercise of powers under Section 482 CrPC.

The Supreme Court noted that the only averment in the complaint regarding the liability of the appellant was that he was a partner of the firm. "The accused No.2 to 6 being the partners are responsible for the day to day conduct and business of the accused No. 1."-  this was the relevant averment in the complaint.

The Court held that this averment alone is not sufficient to mulct criminal liability on the appellant. Referring to S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan 2022 LiveLaw (SC) 772, the Court observed that it is the primary responsibility of the complainant to make specific averments in the complaint, so as to make the accused vicariously liable.

"It is not averred anywhere in the complaint that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed. What is stated in the complaint is only that the accused Nos. 2 to 6 being the partners are responsible for the day-to-day conduct and business of the company. It is also relevant to note that an overall reading of the complaint would not disclose any clear and specific role of the appellant." the Court observed. It also took note of the fact that the appellant had replied to the notice sent by the complainant informing that he had retired from the firm two years before the cheque was issued.

The judgment authored by Justice Ravikumar also referred to the recent judgment in Ashok Shewakramani V. State Of Andhra Pradesh 2023 LiveLaw (SC) 622 which held that that "merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company."

"The upshot of the aforesaid discussion is that the averments in the complaint filed by the respondent are not sufficient to satisfy the mandatory requirements under Section 141(1) of the NI Act. Since the averments in the complaint are insufficient to attract the provisions under Section 141(1) of the NI Act, to create vicarious liability upon the appellant, he is entitled to succeed in this appeal," the Court said allowing the appeal.

Case Title : Siby Thomas v. Somany Ceramics Ltd.

Citation : 2023 LiveLaw (SC) 869

Click here to read the judgment