Liability of Non-Executive Directors under Negotiable Instruments Act for cheque dishonour

Simply because a person is a Director of a Company, does not make him liable under the N.I. Act. To fasten vicarious liability under Section 141 of the Act on a person, at the material time, that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business.

The Hon’ble Delhi High Court in the matter of Sunita Palta & Ors. vs. M/s. Kit Marketing Pvt. Ltd., CRL.M.C. 1410 of 2018 considered the complaint filed against the company along with 7 other accused directors including non-executive directors.

The defendant contented that the vicarious liability of a person arises in terms of Section 141 of the Negotiable Instrument Act. As it was held in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla reported as (2005) 8 SCC 89, “while analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are ‘every person’. These are general words and take every person connected with a company within their sweep.”

However, the petitioner contended that the issue relating to vicarious liability of a Non-executive Director came up before the Supreme Court in the matter of Pooja Ravinder Devidasani vs. State of Maharashtra and Anr. reported as 2014(14) SCALE, and it was held that “Non-executive Director is no doubt a custodian of the governance of the Company but does not involve in the day-today affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business. Simply because a person is a Director of a Company, does not make him liable under the N.I. Act. Every person connected with the Company will not fall into the ambit of the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence under Section 141 of the N.I. Act.”

In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.

The petitioners are neither the Managing Directors nor the Authorized Signatories of the accused company. A perusal of the complaint filed under Section 138 r/w Sections 141/142 of NI Act filed by the complainant shows that except for the general allegation stating that the petitioners were responsible for control and management and day to day affairs of the accused company, no specific role has been attributed to the petitioners. To fasten the criminal liability under The Negotiable Instruments Act, 1881, the above generalised averment without any specific details as to how and in what manner, the petitioners were responsible for the control and management of affairs of the company, is not enough and accordingly the impugned order with respect to summoning the present petitioners for the offence under Section 138 of NI Act, is thus quashed.