Criminal Liability of Directors of Company for Dishonour of Cheque under S.138 of Negotiable Instruments Act, 1881

Criminal Liability of Directors of Company for Dishonour of Cheque under S.138 of Negotiable Instruments Act, 1881 

Section 141 - Liability of Directors - "Corporate Criminal Liability" - Interference by High Court - In the present case, Cheque was issued in the month of September 2014 - Return memo was issued on 16 October 2014 - The petitioners [accused "A" ] who were Directors of the Accused Company "A7" were sought to be roped in the case under S.138 of NI Act only on the ground that since "A" had annexed numerous internal communications such as emails, it only translates to mean that "A" were at the helm of the affairs of the accused company -  It was undisputed that "A" were not a signatory to the subject cheque - The Annual Return of the accused company in the nature of Form No. MGT-7 has also been appended which materialises that "A" had failed to attend any Board Meeting/Committee Meeting during the financial year in which the transaction took place - Further, letters dated 22.07.2015 have also been appended by "A" which state that the A's office stood vacated in accordance with Section 167(1)(b) of the Companies Act, 2013 on account of "A" not having attended any meeting for a period of 12 months due to non-receipt of any notice/communication - "A" was sought to be implicated on the ground that "A" were responsible for the day-to-day affairs of the company - It has been alleged that since "A" have annexed numerous internal communications like emails, it only translates to mean that "A" was at the helm of the affairs of the accused company, and are responsible for the conduct of the business of the accused company - Accused Director "A" had filed petition under S.482 of Code of Criminal Procedure, 1973 for quashing the complaint -  Held, Court can quash complaints under the NI Act at the pretrial stage in the exercise of its inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 if such unimpeachable material is brought forth by the accused persons which indicates that they were not concerned with the issuance of the cheques or that no offence is made out from the admitted facts - While exercising the power under Section 482 of the Code, 1973 to quash a complaint at the pre-trial stage, it is pertinent for High Court to examine whether the factual defence is of such impeachable nature that the entire allegations made in the complaint is disproved - In accordance with Section 141 of the NI Act, in instances where the principal offender under Section 138 of the NI Act is a company, every person who at such time when the cheque was dishonoured, and no subsequent payment was made, was in charge of the business of the company, and was responsible for the conduct of business, is deemed to be guilty of the offence under Section 138 of the NI Act - A person cannot be arrayed as an accused person merely due to association with the accused company in capacity of a Director. Section 141 of the NI Act is a penal provision that aims to create vicarious liability on the accused - For this reason, the provisions ought to be strictly construed - Different persons may be responsible for the conduct of the company at the relevant time when each series of omission, necessary to constitute the offence under Section 138 read with Section 141 of the NI Act, is committed - Every person, regardless of whether they are in charge of the company during each series of act necessary to constitute the offence under Section 138 read with Section 141 of the NI Act or not, could be proceeded against if they are in charge of the affairs of the company even during one of the omissions’ that is necessary to constitute an offence under Section 138 read with Section 141 of the NI Act - Merely because a person is managing the affairs of the company per se does not tantamount to mean that he was in charge of the conduct of the business of the company or responsible for the company for the conduct of the business of the accused company - It must be shown that the director was not only in charge of but also responsible to the company for the conduct of the business of the company - Quashing of complaint against accused director "A" held to be justified. - Adarsh Saran v. Central Bank of India [2025] GCtR 1648 (Delhi)