Supreme Court held that A director cannot be held liable for the dishonour of a cheque unless precise allegations demonstrate his direct involvement in the company's affairs.
The Supreme Court bench comprising Justices B.R. Gavai and Sandeep Mehta observed that to establish the director's liability for the company's offences under Section 141 of the Act, there must be precise allegations against the director demonstrating their direct involvement and responsibility in the management of the company's affairs.
The liability of a director of a company under Section 141 of the Negotiable Instruments Act, 1881 arises only if the director was in charge of and responsible for the conduct of the company's business at the time of the offence. Mere directorship, without active involvement in the company's affairs, does not lead to liability.
The Apex Court has established that a person cannot be held liable unless, at the relevant time, they were both in charge of and responsible for the company's business operations. The Court emphasized the need for specific averments to establish a director's liability, which must show how the director was responsible for the company's conduct. The Court's decision was based on the principles laid down in earlier cases, including the need for a strict interpretation of penal statutes in determining vicarious liability.
The Supreme Court granted leave to appeal against the Madras High Court's judgment, which had rejected a plea to quash criminal complaints under the Negotiable Instruments Act, of 1881. The complaints were filed against M/s. Fibtel Telecom Solutions and its directors, including Susela Padmavathy Amma, the appellant. The background involved Fibtel Telecom Solutions failing to pay charges to M/s. Bharti Airtel Limited, leading to the issuance of dishonoured post-dated cheques.
The appellant, a director of Fibtel Telecom Solutions, argued that she was not actively involved in the company's day-to-day operations and was not a signatory to the cheques. Thus, she contended that the High Court erred in not quashing the complaints against her. The respondent argued that the High Court rightly dismissed the plea, as the grounds raised by the appellant were defences that could be argued during the trial.
The Supreme Court, referring to the principle in State of Haryana v. Brij Lal Mittal, REED 1998 SC 04001, held that a director's liability for offences committed by a company arises only if the person was in charge of and responsible for the company's conduct at the material time. Mere directorship does not automatically make a person liable.
In light of these principles, the Court found the complaints against the appellant insufficient to establish her liability under Section 141. The Court allowed the appeals, quashing the High Court's judgment and setting aside the proceedings against the appellant under Section 138 read with Section 142 of the N.I. Act.
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