In a crucial judgment, the Supreme Court of India, comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan, has clarified the distinction between a “Director in charge of the company” and a “Director responsible to the company for the conduct of its business” under Section 141 of the Negotiable Instruments Act, 1881 (NI Act). The Court ruled that vicarious liability for dishonor of a cheque cannot be imposed on a director merely because of their position unless specific allegations show their active role in the company’s affairs.
The ruling was delivered in Hitesh Verma vs. M/s Health Care at Home India Pvt. Ltd. (Criminal Appeal No. 462 of 2025 & connected matters), where the Court quashed criminal proceedings against a non-signatory director, emphasizing that general allegations without specific averments are insufficient for prosecution.
Legal Issues Considered by the Supreme Court
The judgment addressed the following key legal issues:
1. Whether a non-signatory director can be held liable under Section 138 of the NI Act?
– Section 138 imposes liability for dishonor of cheques, but the Court examined whether a director who did not sign the cheque could still be prosecuted.
2. What are the requirements for imposing vicarious liability under Section 141 of the NI Act?
– The Court analyzed the twin conditions under Section 141:
– The accused must have been in charge of the company at the time of the offense.
– The accused must have been responsible for the conduct of the company’s business.
– The ruling clarified that both conditions must be satisfied, and general statements in the complaint are not enough.
3. What is the distinction between a “Director in charge” and a “Director responsible to the company”?
– The Court examined whether a person can be held liable solely based on their designation as a director or whether specific involvement in the company’s business must be shown.
4. Can criminal liability under Section 141 be presumed, or must the complainant prove the accused’s role?
– The Court clarified that criminal liability cannot be presumed automatically, and the burden is on the complainant to show the accused’s specific role in the transaction leading to the dishonor of the cheque.
Observations and Findings of the Supreme Court
1. Mere Designation as Director Does Not Imply Liability
The Court made it clear that a director cannot be made vicariously liable under Section 141 merely because of their designation.
“Mere bald assertions that a director was in charge, without details, do not fulfill the legal requirement for vicarious liability under Section 141.”
The Court ruled that the complaint must specifically allege that the director had a role in the conduct of the business at the relevant time.
2. Distinction Between ‘Director in Charge’ and ‘Director Responsible to the Company’
One of the most critical observations was the clear distinction between a “Director in charge of the company” and a “Director responsible to the company for the conduct of its business”.
The Court held:
“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 conditions must be met for prosecution under Section 141.”
This means that a director may be in charge of a company in a general sense, but unless they are specifically responsible for its business operations, they cannot be prosecuted.
3. No Presumption of Guilt – Burden on Complainant to Prove Specific Role
The Court reiterated that criminal liability under Section 141 is not automatic. Instead, it placed the burden on the complainant to show that the accused director was actively involved in the business at the time of the offense.
“Prosecution under Section 141 requires something more than just a general statement that a person is a director. The complainant must specify the role played by the accused in the transaction leading to the dishonor of the cheque.”
Since no such specific allegations were made against Hitesh Verma, the Supreme Court ruled that the complaints against him were not maintainable.
4. The Role of the Signatory to the Cheque is Crucial
The Court reaffirmed its earlier rulings that only the person who has signed the dishonored cheque can be held liable under Section 138 of the NI Act, unless specific exceptions under Section 141 apply.
“Section 138 fastens liability only on the drawer of the cheque. A person who is not a signatory to the cheque cannot be made liable unless specific allegations are made under Section 141 showing their role in the company’s affairs.”
Since Hitesh Verma was not a signatory to the dishonored cheque, the Court ruled that the complaints against him could not be sustained.
5. Twin Requirements Under Section 141 Must Be Satisfied
The Court emphasized that two conditions under Section 141 must be fulfilled for prosecution:
The accused must have been in charge of the company at the time of the offense.
The accused must have been responsible for the conduct of the company’s business.
If either of these conditions is not present in the complaint, the prosecution cannot be sustained.
“A complaint that does not specify how the director was involved in the conduct of the company’s business is liable to be quashed.”
Decision of the Supreme Court
The Supreme Court set aside the criminal proceedings against Hitesh Verma, ruling that:
The complaint did not contain specific allegations showing that he was responsible for the company’s business.
He was not the signatory to the dishonored cheque, and therefore, no direct liability under Section 138 could arise.
Section 141 requires specific pleadings of responsibility, which were missing in the complaint.
Thus, the complaints against him were quashed, and the appeals were allowed.
