SC Says Independent Directors Not Liable in Cheque Bounce Cases
IANS 02 August 2022
The Supreme Court (SC) on Monday said a company's director—not in charge or responsible for the conduct of the business at the relevant time—can't be held liable for dishonour of cheques, under the provisions of the Negotiable Instruments (NI) Act.
A bench of justices Indira Banerjee and JK Maheshwari said: "The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act."
It said a director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions.
Citing a top court judgement, the bench said the liability under Section 138/141 of the NI Act arises from being in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed, and not on the basis of merely holding a designation or office in a company.
"It would be a travesty of justice to drag Directors, who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc. into criminal proceedings under the NI Act, only because of their designation," added the bench.
It noted that a non-executive director is not involved in the day-to-day affairs of the company or in the running of its business and such director is in no way responsible for the day-to-day running of the accused company.
It said liability under Section 138 and 141 of the NI Act depends on the role one plays in the affairs of a company and not on designation or status alone.
The top court allowed the appeal by Sunita Palita and others, represented by senior advocate Sidharth Luthra, challenging the Calcutta High Court order, which refused to quash a complaint filed against them for dishonour of cheque related to payment of Rs1.71 crore to complainant, Panchami Stone Quarry.
Mr Luthra argued that Section 141 of the NI Act, being a penal provision creating vicarious liability, must be strictly construed. "Mere statement in the complaint that the appellants were in charge of and responsible to the accused company, for the conduct of the business of the accused company without any specific role attributed to the appellants, was not sufficient for proceeding against the appellants under Section 141 of the said Act," he said.
Mr Luthra added that his clients are independent, non-executive directors of the accused company and in no way responsible for its day-to-day affairs.
The top court set aside the high court order saying it adopted a hyper technical approach in rejecting the application under Section 482 of the CrPC, on a cursory reading of the formalistic pleadings in the complaint, endorsing the contents of Section 141 of the NI Act, without any particulars.
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Kamal Garg
2 months ago
Why not amend the law with clear cut guidelines that independent directors will not be responsible for cheque dishonour cases.
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