21/03/2025

Thomas Mani S/o Thomas, Vs, G. Shankar - Similarly, in a case filed under Section 138 of N.I. Act, if conviction is passed, the appeal shall lie to the Sessions Court. Such being the fact, asking the complainant to file an appeal before this Court, in my considered view is not appropriate after enacting Section 372 of Cr.P.C. Thus, the order passed by the appellate Court in dismissing the appeal as not maintainable, cannot be sustained.

 HC Karnataka (2025.02.24) In Thomas Mani S/o Thomas, Vs, G. Shankar  [2025:KHC:8113, Criminal Revision Petition No. 851 of 2016] held that;

  • Similarly, in a case filed under Section 138 of N.I. Act, if conviction is passed, the appeal shall lie to the Sessions Court. Such being the fact, asking the complainant to file an appeal before this Court, in my considered view is not appropriate after enacting Section 372 of Cr.P.C. Thus, the order passed by the appellate Court in dismissing the appeal as not maintainable, cannot be sustained.


Excerpts of the Order;

This revision petition is filed by the petitioner being aggrieved by the judgment and order dated 04.05.2016 passed in Crl.A.No.166/2013 on the file of VIII Addl. District and Sessions Judge, Mysuru sitting at Hunsuru wherein the Appellate Court dismissed the appeal has not maintainable against the acquittal order dated 16.05.2013 passed in C.C. No. 106/2007 by the Trial Court.


# 2. The appellate Court while dismissing the appeal as not maintainable relying on the judgment of this Court passed by the Co-ordinate Bench in Crl.P.No.6074/2014 held that the

complainant under provisions of Section 142 of N.I. Act and victim under Section 2(wa) of Cr.P.C., are not one and the same. Therefore, held the said appeal was not maintainable.


# 3. In this context, it is relevant to refer Section 378 (1) and (4) which reads as under:

  • “378. Appeal in case of acquittal.—[(1) Save as otherwise provided in sub-section (2), and subject to the provisions of sub-sections (3) and (5),—

  • (a) the District Magistrate may, in any case, direct the Public Prosecutor to present an appeal to the Court of Session from an order of acquittal passed by a Magistrate in respect of a cognizable and non-bailable offence;

  • (b) the State Government may, in any case, direct the Public Prosecutor to present an appeal to the High Court from an original or appellate order of acquittal passed by any Court other than a High Court [not being an order under clause (a)] or an order of acquittal passed by the Court of Session in revision.]

  • (4) If such an order of acquittal is passed in any case instituted upon complaint and the High Court, on an application made to it by the complainant in this behalf, grants special leave to appeal from the order of acquittal, the complainant may present such an appeal to the High Court.”


# 4. The aforesaid provisions would indicate that the appeal in case of acquittal sub section (1) and (2) deals with directions must be given to the public prosecutor to file an appeal against acquittal. Sub Section (3) deals with no appeal to the High Court under sub section (1) or sub section (2) shall be entertained except with the leave of the High Court. Sub section (4) deals with, if such an order of acquittal is passed in any case, instituted upon the complaint and the High Court on an appeal made to it by the complainant in this behalf grants special leave to appeal order of acquittal, the complainant may present such appeal to the High Court.


# 5. The word, the complainant may present such appeal to the High Court would indicate that the complainant need not file an appeal against acquittal to the High Court directly where an appeal lies to the Sessions Court against order passed by the Trial Court or Magistrate.


# 6. Now, it is relevant to refer Section 2(wa) of Cr.P.C., which reads as under:

  • “2. Definitions.—In this Code, unless the context otherwise requires,— 

  • (wa) “victim” means a person who has suffered any loss or injury caused by reason of the act or omission for which the accused person has been charged and the expression “victim” includes his or her guardian or legal heir;]”


# 7. On reading of the aforesaid definition it makes it clear that the victim is a person who suffers loss or injury from the accused person.


# 8. In this context, it is also relevant to note Section 372 of Cr.P.C., which reads as under:

  • “372. No appeal to lie unless otherwise provided.—No appeal shall lie from any judgment or order of a Criminal Court except as provided for by this Code by any other law for the time being in force:

  • [Provided that the victim shall have a right to prefer an appeal against any order passed by the Court acquitting the accused or convicting for a lesser offence or imposing inadequate compensation, and such appeal shall lie to the Court to which an appeal ordinarily lies against the order of conviction of such Court.]


# 9. On reading of the aforesaid provisions, it makes it clear that the victim can file an appeal against the order of acquittal before the Appellate Court or Sessions Court. Nowhere in the above said provisions mentioned about a particular case. The complainant or the victim can file an appeal as against the order of acquittal passed by the Magistrate before the Court an

appeal ordinarily lies against the order of conviction of such Court.


# 10. The above said definition would indicate that if any orders of conviction passed by the Magistrate Court, an appeal shall lie before the Sessions Court or Appellate Court. Similarly, in a case filed under Section 138 of N.I. Act, if conviction is passed, the appeal shall lie to the Sessions Court. Such being the fact, asking the complainant to file an appeal before this

Court, in my considered view is not appropriate after enacting Section 372 of Cr.P.C. Thus, the order passed by the appellate Court in dismissing the appeal as not maintainable, cannot be sustained.


# 11. In the light of the observation made above, I proceed to pass the following:

:

ORDER:

i. The revision petition is allowed.

ii. The judgment and order dated 04.05.2016 passed in Crl.A.No.166/2013 by the learned VIII Addl. District and Sessions Judge, Mysuru sitting at Hunsuru is set aside and the matter is remanded to the Appellate Court for fresh consideration.

iii. The Trial Court is directed to issue notice to the respective parties and fix a date for their

appearance either personally or through their respective counsels.

iv. Having considered the time elapsed in approaching this Court and also considering the date of filing of the complaint, it is appropriate to request the Appellate Court dispose of the matter at the earliest not later than six months from the date of receipt of this order.


The Registry is directed to transmit the records to the Appellate Court forthwith for consideration.


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18/03/2025

Vishnoo Mittal Vs. M/s Shakti Trading Company - Hon'ble SCI quashed Section 138 proceedings in lower court as the cause of action arose after imposition of moratorium;

 SCI (2025.03.17) In Vishnoo Mittal Vs. M/s Shakti Trading Company [2025 INSC 346, Criminal Appeal No . . . of 2025 @ Special Leave Petition (CRL) NO.1104 OF 2022] quashed Section 138 proceedings in lower court as the cause of action arose after imposition of moratorium;

  • In other words, in that case, the cause of action under section 138 NI Act arose before the imposition of the moratorium and on these facts, this Court had held that section 14 of IBC bars or stays proceedings only against the corporate debtor and proceedings can be continued or initiated against the natural persons. The case at hand is totally different from P.Mohan Raj as the cause of action in the present case arose after the commencement of the insolvency process.

  • Clause (c) of the proviso to Section 138 of NI Act makes it clear that cause of action arises only when demand notice is served and payment is not made pursuant to such demand notice within the stipulated fifteen-day period.

It is manifest that to constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled: 

  •  (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account;

  • (ii) the cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;

  • (iii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier;

  • (iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;

  • (v) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

  • (vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice. Being cumulative, it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence under Section 138 of the Act.”

In other words, the cause of action arises only when the amount remains unpaid even after the expiry of fifteen days from the date of receipt of the demand notice.

Excerpts of the Order;

# 1. Leave granted.


# 2. The appellant before this court has challenged the order dated 21.12.2021 of the learned Single Judge of the Punjab and Haryana High Court by which the appellant’s petition under section 482 of Criminal Procedure Code, 1973 (‘CrPC’), seeking quashing of proceedings initiated under Section 138 of Negotiable Instruments Act, 1881 (‘NI Act’) against the appellant, has been dismissed. 


# 3. Admittedly, the appellant was the director of M/s Xalta Food and Beverages Private Limited (hereinafter ‘corporate debtor’). There was a contract between the corporate debtor and the Respondent- M/s Shakti Trading Company where the respondent was to function as a super stockist of the corporate debtor. As a consequence of the business relationship between the two companies, the appellant, in his capacity as director of the corporate debtor, had drawn eleven cheques in favour of the respondent of varying amounts, the total amount being Rs.11,17,326/- (approximately). These cheques were dishonoured on 07.07.2018. A legal notice under Section 138 of the NI Act was issued to the appellant by the respondent as the cheque amounts were not furnished to the respondent by the bank. Consequently, in September 2018, a complaint was filed before the appropriate Court by the respondent against the appellant for offences under Section 138 of NI Act. Meanwhile, on 25.07.2018, insolvency proceedings against the corporate debtor, of which the appellant was the director, commenced and a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereafter ‘IBC’) was imposed. On the same day i.e. 25.07.2018, the interim resolution professional (hereinafter ‘IRP’) was appointed in regard to the corporate debtor.


# 4. Meanwhile, vide order dated 07.09.2018, the Court had issued summons to the appellant in the proceedings initiated by the respondent against the appellant under section 138 of the NI Act. Aggrieved, the appellant approached the High Court under section 482 of CrPC challenging the summoning order and further, prayed for the quashing of the section 138 NI Act case against him in view of the moratorium issued under Section 14 of the IBC. By the impugned order dated 21.12.2021, the High Court, all the same, dismissed the appellant’s petition and declined to quash the complaint against him. Now, the appellant is before us.


# 5. We have heard both sides and perused the material on record.


# 6. The case of the appellant is that the corporate debtor is presently facing insolvency proceedings before the National Company Law Tribunal (NCLT) and a moratorium order was issued on 25.07.2018 under Section 14 of the IBC. The relevant portion of Section 14 of the IBC reads as under:

  • “14. Moratorium.

  • (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

  • (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

  • (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

  • (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in  respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

  • (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor…”


# 7. Relying upon the above provision, the appellant submits that since the moratorium order was imposed on 25.07.2018 and was in operation, therefore, the proceedings under section 138 of the NI Act could not have been initiated against the appellant. He would further argue that although the cheques were drawn and dishonoured prior to the above date i.e., 25.07.2018, however, the notice under Section 138 of the NI Act was given on 06.08.2018 i.e., post 25.07.2018. Hence, the cause of action for the offence under Section 138 of the NI Act would commence after a period of 15 days calculated from 06.08.2018 and it would be 21.08.2018, but by this time moratorium had already been imposed on 25.07.2018. The submission of the appellant was, however, not accepted by the High Court. The High Court, while dismissing the appellant’s petition, relied upon the judgment of this Court in P. Mohan Raj v. M/S Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258 where it was held that the immunity granted by the moratorium order issued under Section 14 of the IBC can only be obtained by a Corporate Debtor and not by a natural person such as the present appellant, who was the Director of the Corporate Debtor. In para 102 of the said judgement, this Court had noted:

  • “… for the period of moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.”


However, in our opinion, the High Court erred in relying on P.Mohan Raj since the facts of that case were completely different and the present case is thus distinguishable from it.


# 8. In P.Mohan Raj, certain cheques drawn by the appellants therein were dishonoured on 03.03.2017 and 28.04.2017. Thereafter, demand notices dated 31.03.2017 and 05.05.2017 were issued by the complainant. The moratorium was imposed on 06.06.2017, which is clearly after the lapse of 15 days from the date of demand notices. In other words, in that case, the cause of action under section 138 NI Act arose before the imposition of the moratorium and on these facts, this Court had held that section 14 of IBC bars or stays proceedings only against the corporate debtor and proceedings can be continued or initiated against the natural persons. The case at hand is totally different from P.Mohan Raj as the cause of action in the present case arose after the commencement of the insolvency process.


# 9. The return of the cheques dishonoured simpliciter does not create an offence under section 138 NI Act, which reads as under: 

  • 138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: 

  • Provided that nothing contained in this section shall apply unless—

  • (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

  • (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and 

  • (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

  • Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.”


Clause (c) of the proviso to Section 138 of NI Act makes it clear that cause of action arises only when demand notice is served and payment is not made pursuant to such demand notice within the stipulated fifteen-day period. This Court in Jugesh Sehgal v. Shamsher Singh Gogi (2009) 14 SCC 683 has explained the ingredients of Section 138 of NI Act offence as follows:

  • 13. It is manifest that to constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled: 

  •  (i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account;

  • (ii) the cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;

  • (iii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier;

  • (iv) that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;

  • (v) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

  • (vi) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice. Being cumulative, it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence under Section 138 of the Act.


In other words, the cause of action arises only when the amount remains unpaid even after the expiry of fifteen days from the date of receipt of the demand notice.


# 10. There is another aspect to this matter. In the present case, on 25.07.2018, the moratorium was imposed and management of the corporate debtor was taken over by the interim resolution professional as per section 17 of the IBC. Here, we would also like to reproduce extracts from section 17 of the IBC which are as follows:

  • 17. Management of affairs of corporate debtor by interim resolution professional.- (1) From the date of appointment of the interim resolution professional,—

  • (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;

  • (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;

  • (c) ……………

  • (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional…”


# 11. The bare reading of the above provision shows that the appellant did not have the capacity to fulfil the demand raised by the respondent by way of the notice issued under clause (c) of the proviso to Section 138 NI Act. When the notice was issued to the appellant, he was not in charge of the corporate debtor as he was suspended from his position as the director of the corporate debtor as soon as IRP was appointed on 25.07.2018. Therefore, the

powers vested with the board of directors were to be exercised by the IRP in accordance with the provisions of IBC. All the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the appellant to repay the amount in light of section 17 of the IBC. Additionally, we have been informed on behalf of the appellant that, after the imposition of the moratorium, the IRP had made a public announcement inviting the claims from the creditors of the Corporate Debtor and the respondent has filed a claim with the IRP.


# 12. Keeping in mind the above observations and distinguishing facts and circumstances of this case from that of P. Mohan Raj, we are of the considered view that the High Court ought to have quashed the case against the appellant by exercising its power under section 482 of the CrPC.


# 13. Therefore, we allow this appeal by setting aside the impugned order dated 21.12.2021 and quash the summoning order dated 07.09.2018. Further, we hereby quash the complaint case no.15580/2018, pending before the Chief Judicial Magistrate Court, Chandigarh, filed by the respondent against the appellant.


# 14. Pending application(s), if any, stand(s) disposed of.

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12/03/2025

K. S. Mehta Vs. M/s Morgan Securities and Credits Pvt. Ltd. - The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

 SCI (2025.03.04) in K. S. Mehta Vs. M/s Morgan Securities and Credits Pvt. Ltd. [2025 INSC 315, Criminal Appeal No. . . Of 2025 [Arising out of SLP (Criminal) No. 10143 of 2024]] held that;

  • The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

  • The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

  • To launch a prosecution, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear.

  • There are twin requirements under sub-Section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company.

  • The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of the commission of the offence, was in charge of the business of the company.

Excerpts of the Order;

# 1. Leave granted.


# 2. The present appeals arise from the common Impugned Judgment and Order dated 28.11.2023, passed by the High Court of Delhi at New Delhi (the “High Court”), whereby the High Court dismissed the petitions filed under Section 482 of the Code of Criminal Procedure, 1973 (the “CrPC”). The petitions sought the quashing of criminal proceedings initiated against the Appellant(s) under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (the “NI Act”). 


BACKGROUND

# 3. The Appellant(s) K.S. Mehta, and Basant Kumar Goswami, were appointed as directors of M/s Blue Coast Hotels & Resorts Ltd. (Accused No. 1/Company) at different times. K.S. Mehta was appointed as an additional director on 29.06.2001, while Basant Kumar Goswami was appointed as a director on 16.04.1998. Appellant(s) were designated as non-executive director in compliance with clause 49 of the Listing Agreement prescribed by the Securities and Exchange Board of India (the “SEBI”). Their role was confined to governance oversight  without any executive authority or financial decision-making power in the company.


# 4. The dispute stems from an Inter-Corporate Deposit (“ICD”) agreement dated 09.09.2002, executed between the accused company and the Respondent to avail a financial facility of ₹5,00,00,000 (Rupees Five Crores) against certain securities for a period of 180 days. Notedly, the Appellant(s) were neither in attendance at the board meeting held on 09.09.2002, wherein the said transaction was approved, nor were they signatories to the agreement or any related financial instruments.


# 5. The liability towards repayment of the ICD culminated in the issuance of the following post-dated cheques:

  • • Cheque No. 842628 dated 28.02.2005 for ₹50,00,000/-.

  • • Cheque No. 842629 dated 30.03.2005 for ₹50,00,000/-.

Upon presentation, both cheques were dishonored due to insufficient funds. Following the dishonor, the Respondent issued legal notices demanding payment, but no remedial action was taken by the company. Consequently, criminal proceedings were initiated against all directors, including the Appellant(s).


# 6. Moreover, the executed ICD agreement contained an arbitration clause to be invoked in case of any dispute between the parties. The Appellant(s) were unaware of such clause(s) or the terms of the agreement at the time of execution and only came to know of them later. A memorandum of settlement was executed on 27.05.2003 between the Respondent and the accused company, Accused No. 2, Accused No. 6, and Morepen Laboratories Ltd., to resolve financial disputes. Pertinently, the Appellant(s) were not a party to this settlement.


# 7. The Appellant/K.S. Mehta resigned from the company on 10.11.2012, whereas Appellant/Basant Kumar Goswami continued as non-executive director until 2014. Notwithstanding, the Registrar of Companies (“ROC”) records and Corporate Governance Reports (“CGR(s)”) submitted to the stock exchange confirmed their non-executive status and indicated that they did not draw any remuneration apart from a nominal meeting fee. Notedly, neither Appellant ever submitted Form 25(C), which is mandatory for executive and managing director drawing remuneration, further substantiating their lack of involvement in financial affairs of the company.


# 8. The following complaints under Section 138 NI Act were filed against the Appellant(s) before the Court of Additional Chief Metropolitan Magistrate, New Delhi:

  • 1. Complaint No. 15857 of 2017, filed on 10.11.2005, qua Cheque No. 842629.

  • 2. Complaint No. 15858 of 2017, filed on 25.10.2005, qua Cheque No. 842628.


# 9. The High Court dismissed the Appellant(s)’ petition under Section 482 CrPC bearing Crl.M.C. No(s). 1643, 1645 and 1345 of 2019 seeking quashing of the proceedings pending before the Court of Additional Chief Metropolitan Magistrate, New Delhi.


SUBMISSION BY THE PARTIES

# 10. The learned counsel for the Appellant(s) submitted that they had no role in the company’s financial transactions and were not vested with any responsibility in as much as its financial affairs were concerned. Learned counsel contended that the Appellant(s) were not a signatory to any of the dishonored cheque(s) and  not authorize their issuance. The Appellant(s) directorship was non-executive and limited to corporate governance oversight in compliance with SEBI regulations. 


# 11. The learned counsel for the Appellant(s) submitted that their non-executive status negates any basis for vicarious liability under Section 141 of the NI Act. The learned counsel further relied upon the CGR(s) and ROC record(s), which consistently reflected the Appellant(s) non-executive roles, reinforcing their lack of involvement in operational or financial matters. In the absence of any specific allegations linking them to the issuance or dishonor of the cheques, it was contended that the proceedings initiated against them were legally untenable.


# 12. The learned counsel for the Appellant relied on judicial precedents including Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited & Anr., 2025 SCC Online SC 321; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89; and Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1 to substantiate that mere designation as a director does not create vicarious liability under Section 141 NI Act. There must be specific allegations of active participation in the conduct of business at the relevant time.


# 13. On the contrary, the learned counsel for the Respondent contended that the Appellant(s) name appeared as a director in the company at the relevant time, and was presumed to be involved in the company’s affairs.


# 14. The learned counsel for the Respondent contended that the mere resignation of the Appellant(s) does not automatically absolve a director from liability under Section 141 NI Act and that the onus lies upon them to establish their non-involvement in the company’s financial transactions. The learned counsel placed reliance on Ashutosh Ashok Parasrampuriya & Anr. v. Gharrkul Industries Pvt. Ltd. & Ors., (2023) 14 SCC 770, to contend that the question of the Appellant(s) status as an independent and non-executive director is a matter that should be determined during trial rather than at the quashing stage.


# 15. The learned counsel for the Respondent also emphasized on the Appellant(s) attendance at board meetings, asserting that it indicated knowledge of financial dealings, including the issuance of cheques towards repayment of the ICD.


ANALYSIS AND FINDINGS

# 16. 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. 


16.1. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal & Anr., (2010) 3 SCC 330 observed:

  • “13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability.

  • 22. Therefore, this Court has distinguished the case of persons who are incharge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company.

  • 39. From the above discussion, the following principles emerge: 

  • (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction

  • (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. 

  • (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. 

  • (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. 

  • (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. 

  • (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. 

  • (vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.


16.2. In N. K. Wahi v. Shekhar Singh & Ors., (2007) 9 SCC 481this Court in Para 8 observed:

  • To launch a prosecution, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable.”


16.3. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89, this Court laid down that mere designation as a director is not sufficient; specific role and responsibility must be established in the complaint.


16.4. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, this Court while taking into consideration that a non-executive director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company’s business at the relevant time. Mere directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the day to- day conduct of bus ness can be held accountable. 


16.5 In Ashok Shewakramani & Ors. v. State of Andhra Pradesh & Anr., (2023) 8 SCC 473, this Court held: 

  • “8. After having considered the submissions, we are of the view that there is non-compliance on the part of the second Respondent with the requirements of Sub-section (1) of Section 141 of the NI Act. We may note here that we are dealing with the Appellants who have been alleged to be the Directors of the Accused No. 1 company. We are not dealing with the  cases of a Managing Director or a whole- time Director. The Appellants Have not signed the cheques. In the facts of these three cases, the cheques have been signed by the Managing Director and not by any of the Appellants.”


16.6. In Hitesh Verma v. M/s Health Care At Home India Pvt. Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held:

  • “4. As the appellant is not a signatory to the cheque, he is not liable under Section 138 of the 1881 Act. “As it is only the signatory to the cheque who is liable under Section 138, unless the case is brought within the four corners of Section 141 of the 1881 Act, no other person can be held liable….”

  • 5. There are twin requirements under sub-Section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. A Director who is in charge of the company and a Director who was responsible to the company for the conduct of the business, are two different aspects. The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of the commission of the offence, was in charge of the business of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the aid of sub-Section (1) of Section 141 of the 1881 Act.”


# 17. Upon perusal of the record and submissions of the parties, it is evident that the Appellant(s) neither issued nor signed the dishonoured 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 decisionmaking or operational management.


# 18. The complaint lacks specific averments that establish a direct nexus between the Appellant(s) and the financial transactions in question or demonstrate their involvement in the company’s financial affairs. Additionally, the CGR(s) and ROC ecords unequivocally confirm their non-executive status, underscoring their limited role in governance without any executive decision-making authority. The mere fact that Appellant(s) attended 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. 


CONCLUSION

# 19. Given the lack of specific allegations and in view of the aforesaid observations, the Appellant(s) cannot be held vicariously liable under Section 141 of the NI Act.


# 20. Accordingly, the Impugned Judgment and Order dated 28.11.2023 of the High Court is set aside, and the criminal proceedings against the Appellant(s) in Complaint No(s). 15858 and 15857 of 2017 pending before the Court of Additional Chief Metropolitan Magistrate, New Delhi are hereby quashed.


# 21. The appeals are allowed. No order as to costs.

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