Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881 and Role of Directors of Company

Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881 and Role of Directors of Company

Section 138 - Complaint against Independent Director - Non- Executive Director of Company - A was made an accused in a case of complaint under S.138 of N.I. Act which was challenged by A - Merely the mention of the name of A on the letter head as being the Head of the Group, does not ipso facto or ipso jure make him in-charge of and responsible for the affairs and business of the company at the time the offence was committed. A non-executive director may be the custodian of governance of the Company but are not involved in the day-to-day affairs of running its business and only monitor executive activities of the Company. - Yashovardhan Birla v. Cecil Webber Engineering Ltd [2023] GCtR 2512 (Delhi)

Section 141 - Phraseology of Section - "It is evident that the phraseology used in Section 141 of the Act of being in charge and responsible to the Company for the conduct of the business of Company is a reference to an “executive activity” which imports an element of running day-to-day affairs of the Company and would not be extended to a role which is essentially supervisory, policy oriented, of oversight or regulatory i.e. non-executive in character."- Yashovardhan Birla v. Cecil Webber Engineering Ltd [2023] GCtR 2512 (Delhi)

Section 138 - Complaints against Companies - Complaints against Large Conglomerates - "It is common knowledge that very large business conglomerates spawn and sustain hundreds of companies under them which may be ultimately held by a particular business family or a group of investors, but officers and professionals are appointed to run the day-to-day affairs of such companies. The whole purpose of having a Managing Director and executive directors appointed for a company is to ensure that all executive decisions are resident with that Managing Director and his / her team of executive directors. A number of non-executive Directors or Directors who are not executive Directors are present on the Board of the Companies for their expert independent advice or oversight of the functioning of the company. Even the role of ‘Chairman’/ ‘Chairperson’ is not typically of an executive nature since the Chairperson presides over the general meetings or of the functioning of the company and guides its business policies and need not interfere in the day-to-day affairs of the company. Chairperson of large business conglomerates are in fact even further removed from the minutiae of everyday operations of the company and distant from the micro-management which is required to be done by the executive directors and officers of the company."- Yashovardhan Birla v. Cecil Webber Engineering Ltd [2023] GCtR 2512 (Delhi)

Section 141 - Vicarious liability - "Creeping up an escalating liability to Chairpersons of large conglomerates/companies for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Negotiable Instruments Act."- Yashovardhan Birla v. Cecil Webber Engineering Ltd [2023] GCtR 2512 (Delhi)

Section 138 - Powers of High Court to quash the proceedings - "High Courts have the power to quash proceedings under section 138 NI Act qua those accused who do not fall within the rubric of vicarious liability as now defined and refined by various decisions of the Hon’ble Supreme Court."- Yashovardhan Birla v. Cecil Webber Engineering Ltd [2023] GCtR 2512 (Delhi)