Bench of Justices Abhay S. Oka and Ujjal Bhuyan

Introduction:

The Supreme Court clarified the interpretation of Section 141 of the Negotiable Instruments Act, stating that a director who is "in charge of" a company and one who is "responsible to" the company for its business operations are distinct legal aspects. The Court emphasized that both conditions must be present in a complaint to hold someone liable under this section.

Section 141 of the Negotiable Instruments Act, 1881: Deals with the liability of directors for dishonour of cheques by companies.

Facts:

In this case, a complaint for dishonour of a cheque was filed against a company and its directors, including the appellant, Hitesh Verma. The appellant, not being a signatory of the cheques, approached the High Court seeking to quash the complaint, arguing that he was not responsible for the company's day-to-day operations. The High Court dismissed his appeal and imposed a cost of ₹20,000, leading to the present appeal.

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Issues:

1. Whether a director who is neither in charge of nor responsible for the company's business can be held vicariously liable under Section 141 of the Negotiable Instruments Act for dishonour of a cheque.
2. Whether the complaint in this case fulfilled the necessary legal requirements under Section 141 of the NI Act to prosecute the appellant.

Contentions of the Respondent:

The respondent contended that the appellant, being a director of the company, should be held liable for the dishonour of the cheque under Section 141 of the NI Act, despite not being the signatory of the cheque, due to the vicarious liability provision for directors. The respondent argued that the appellant had some managerial role, even if not a signatory.

Contentions of the Appellant:

The appellant argued that he was not involved in the day-to-day affairs of the company and was not a signatory of the cheques. He contended that the complaint did not state that he was in charge of or responsible for the business of the company at the time the offence occurred.

Court's Analysis:

The Court emphasized that under Section 141 of the Negotiable Instruments Act, a director can only be held liable if they were "in charge of" and "responsible to" the company for the conduct of its business at the time the offence was committed. The Court found that the complaint lacked allegations regarding the appellant’s role in charge of the business of the company. Without these allegations, the appellant could not be prosecuted under Section 141.

Conclusion:

The Supreme Court allowed the appeal and quashed the proceedings against the appellant. The Court clarified that for vicarious liability under Section 141 of the NI Act, both conditions being in charge of and responsible for the business must be established in the complaint. The merits of the case regarding other accused persons remained open for the Trial Court to decide.