The Supreme Court of India has ruled that vicarious criminal liability under Section 141 of the Negotiable Instruments Act, 1881 (NI Act) cannot be fastened on an individual merely by virtue of them holding an official designation or position in a society. In the judgment of M/S Mansi Finance (Chennai) Ltd. v. M. Lalitha and Others, a Division Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria partly allowed a criminal appeal against a Madras High Court order. The Supreme Court restored cheque dishonour proceedings against three office bearers whose active participation in the underlying transactions was substantiated by signed documents, while upholding the quashing of charges against an executive member who had no specific transactional role.
Background
The appellant, M/s Mansi Finance (Chennai) Ltd., a Chennai-based finance company, instituted a private complaint under Sections 138 and 141 of the NI Act through its Manager and Power of Attorney holder, A. Ramesh. The complaint was registered as S.T.C. No. 1980 of 2023 before the Court of the learned IV FTC Metropolitan Magistrate, George Town, Chennai.
The primary accused in the complaint is M/s Ravindra Bharathi Educational Society, registered under the Societies Registration Act, 1860. The second accused, M. Subramaniam, served as the President of the Society and was the sole signatory of the dishonoured cheque. The appellant arrayed Respondents Nos. 1 to 4 as Accused Nos. 3, 6, 8, and 9 respectively, based on their designations: M. Lalitha (Vice-President), M. Rekah (Treasurer), R. Babu Rao (Executive Member), and R. Murugan (Manager).
According to the complaint, between July 2, 2018, and July 27, 2018, the accused persons approached the appellant on behalf of the Society and borrowed an aggregate sum of Rs. 4,50,00,000/- in several tranches via cheques to develop an educational institution. In acknowledgment of these loans, promissory notes were executed on various dates by the President and certain office bearers, including Respondents Nos. 1 and 4. Subsequently, on July 31, 2018, a Memorandum of Understanding (MoU) carrying interest at 30% per annum was executed between the appellant and the Society, represented by its President and Vice-President.
To discharge the outstanding principal and interest, Cheque No. 003109 dated November 18, 2019, for Rs. 5,12,61,500/- was issued, signed by President M. Subramaniam. On November 19, 2019, the cheque was returned unpaid by IDBI Bank, Parrys Corner Branch, Chennai, with the endorsement “Account Blocked.” Despite a statutory demand notice dated December 12, 2019, being served on December 16, 2019, the accused did not make payment or reply.
The respondents filed Criminal Original Petition No. 10494 of 2024 under Section 482 of the Code of Criminal Procedure, 1973 (Cr.PC) before the High Court of Judicature at Madras. On June 28, 2024, the High Court quashed the proceedings against all four respondents, concluding that the complaint lacked specific allegations to satisfy the statutory threshold of vicarious liability under Section 141 of the NI Act. The appellant subsequently appealed this decision to the Supreme Court.
Arguments of Parties
The appellant argued that the High Court erred in quashing the complaint, pointing to specific averments that the respondents were in charge of and responsible for the day-to-day affairs and financial management of the Society. The appellant’s counsel asserted that Respondents Nos. 1 to 3 were members of the Managing Committee entrusted with managing funds, operating bank accounts, and approving withdrawals. Additionally, they argued that the MoU and promissory notes prima facie demonstrated active involvement, and the precise determination of their roles was a disputed question of fact to be decided during trial.
In response, the respondents contended that the High Court rightly exercised its jurisdiction under Section 482 of the Cr.PC. They submitted that the complaint lacked specific allegations showing how and in what manner they were responsible for the conduct of the Society’s affairs at the relevant time. They argued that the complaint contained only “omnibus allegations” and failed to strictly comply with Section 141 of the NI Act, reiterating that mere designation as an office bearer is insufficient to attract vicarious liability.
Court’s Analysis
The Supreme Court analyzed the statutory framework of Section 141 of the NI Act, emphasizing that it is a penal provision creating vicarious liability and must be strictly construed. To delineate the boundaries of this liability, the Court cited several key precedents:
- S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another (2005) 8 SCC 89: The Court cited the three-judge Bench ruling to establish that holding a corporate post does not create deemed liability:
“Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business.” - National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another (2010) 3 SCC 330: The Court noted that the complainant must plead specific facts:
“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.” - HDFC Bank Limited vs. State of Maharashtra and Another (2025) 9 SCC 653: The Court clarified that the complaint need not mechanically reproduce the exact language of Section 141 of the NI Act if the substance of the allegations, read as a whole, discloses the factual basis.
- Ashok Shewakramani and Others vs. State of Andhra Pradesh and Another (2023) 8 SCC 473: The Court observed that a complaint containing only a bald reproduction of the statutory formula without establishing a factual nexus cannot be sustained.
- S.P. Mani and Mohan Dairy vs. Dr. Snehalatha Elangovan (2023) 10 SCC 685: The Court emphasized that complaints should be read in a practical and purposive manner, avoiding a hyper-technical approach at the threshold stage.
Applying these principles, the Supreme Court drew a sharp legal distinction between the position of Respondent No. 3 (R. Babu Rao) and the other three respondents.
For Respondent Nos. 1 (M. Lalitha), 2 (M. Rekah), and 4 (R. Murugan), the Court observed that their liability did not rest on “mere designation” but on their active participation in the transactions that formed the basis of the debt:
“The present case, insofar as respondent Nos. 1 (M. Lalitha – Vice President), 2 (M. Rekah – Treasurer) and 4 (R. Murugan – Manager) are concerned, stands on a materially different footing. The complaint refers to antecedent borrowings, execution of promissory notes and the MoU acknowledging the liability and stipulating the terms of repayment. These antecedent transactions constitute the substratum of the legally enforceable debt against which the cheque in question came to be issued.”
The Court further detailed their involvement:
“The material placed on record prima facie indicates that respondent Nos. 1, 2 and 4 were themselves signatories to some of the antecedent financial documents forming part of the transaction. The MoU bears the signature of respondent no. 1. The dishonoured cheque itself bears the signature of respondent No. 2. The promissory notes and allied payment documents disclose participation of respondent Nos. 1, 2 and 4. These are not matters of mere designation but constitute prima facie material linking them to the underlying transaction.”
Conversely, regarding Respondent No. 3 (R. Babu Rao), who was an Executive Member of the Society, the Court found that the allegations against him were entirely dependent on his official status, without any accompanying transaction-specific evidence:
“Except for the general assertion in the complaint that he was an office bearer of the Society and was responsible for its affairs, no specific role is attributed to him in the transaction in question. Significantly, no promissory note, cheque, MoU or allied financial document bears his signature or otherwise indicates his participation.”
Rejecting the appellant’s argument that Respondent No. 3 should be held liable because of his membership in the Managing Committee, the Bench held:
“The law governing Section 141 of the NI Act is clear that there is no deemed liability merely by virtue of holding an office or position in the company or society… His designation alone, therefore, would not be sufficient to attract liability under Section 141 of the NI Act.”
Lastly, addressing the role of courts under Section 482 of the Cr.PC, the Bench held that the truthfulness of the allegations is a matter of trial:
“At the stage of quashing, the Court does not adjudicate upon the truthfulness of the allegations nor does it embark upon appreciation of evidence. Whether respondent nos.1, 2 and 4 were in fact in-charge of and responsible for the conduct of the affairs of the Society is ultimately a matter of evidence to be established at trial…”
Decision
The Supreme Court partly allowed the appeal, setting aside the Madras High Court’s final order dated June 28, 2024, to the extent that it had quashed proceedings against Respondents Nos. 1 (M. Lalitha), 2 (M. Rekah), and 4 (R. Murugan). The Supreme Court upheld the quashing of proceedings against Respondent No. 3 (R. Babu Rao).
As a result, the complaint in S.T.C. No. 1980 of 2023 was restored against Respondents Nos. 1, 2, and 4 before the Court of the learned IV FTC Metropolitan Magistrate, George Town, Chennai. The Supreme Court clarified that all contentions of the parties are left open for the Trial Court and that its observations do not constitute an expression on the merits of the allegations.
Case Details
- Case Title: M/S Mansi Finance (Chennai) Ltd. v. M. Lalitha and Others
- Case No.: Criminal Appeal No. 2849 of 2026 (Arising out of S.L.P. (Criminal) No. 13907 of 2024)
- Bench: Justice Prashant Kumar Mishra, Justice N.V. Anjaria
- Date: May 26, 2026
