Section 141 of Negotiable Instruments Act, 1881 and Extent of Liability of Directors of Companies for Cheque Dishonour

Section 141 of Negotiable Instruments Act, 1881 and Extent of Liability of Directors of Companies for Cheque Dishonour - Offences by Companies - Role of Directors of Company - Liability of Director of Company - Interface of Companies Act, 2013 and NI Act, 1881 - Independent Director of Company and Liability under S.141 of NI Act - Non Executive Director of Company and Liability for cheque Dishonour under NI Act, 1881 - Acquittal / Discharge of accused for offence under S.138 of NI Act, 1881 - "Day to day involvement" of Director of Company

In case of Kusum Garg v. Duni Chand Garg [2025] GCtR 1631 (Delhi) it was held that  Section 141 of Negotiable Instruments Act, 1881 read with Explanation, makes it abundantly clear that when an offence is committed by a Company or a Firm, every member who is responsible and in charge of the affairs of the Company/Firm, is guilty of the offence committed under Section 138 of NI Act. In this case, the cheque got dishonoured and return memo was issued in the month of April 2015.

Here, reference may be made to Section 2(47) of the Companies Act, 2013 which states that an “Independent Director” means an independent Director referred to in sub-section (6) of Section 149.

Section 149(6) of Companies Act, 2013 defines Independent Director. 

Section 149(6) of Companies Act, 2013 thus, defines that an "Independent Director" is a Director who is not a Managing Director, Whole-Time Director, or Nominee Director, and who meets specific criteria related to integrity, expertise, who has / had no pecuniary relationship, other than remuneration as such Director, and independence from the Company‟s promoters and Management. An Independent Director does not hold any security or interest in the Company or its subsidiary or associate company.

Furthermore, Section 149 (12) of the Companies Act, 2013 provides a protective framework for Independent Directors and Non-Executive Directors (not being promoter or key managerial personnel), by limiting their liability. It holds them accountable only for acts of omission or commission by the Company that occurred with their knowledge gained through Board processes and with their consent, connivance, or due to their failure to act diligently.

Thus, it is clear that Non-Executive Directors, including Independent Directors, are typically not involved in the day-to-day operations of the Company, which further limits the scope of their potential liability.

In view of Section 141 of NI Act and Section 149 of Companies Act, 2013, a person who is an independent director of accused company could have been held vicariously liable only if it was shown that she was in charge of and was responsible for the conduct of the business of the Company at the time of commission of Offence. However, when nowhere in the Complaint is there even a single word to explain such person's day to day involvement which assumes significance as she is an Independent Director, who by definition not hold any security or interest in the Company, then such a person has to be discharged of offence under S.138 of NI Act, 1881.