No Universal Rule That Company’s Director Is In Charge Of Its Everyday Affairs: Supreme Court Explains Principles On Section 141 NI Act

The Supreme Court has explained certain principles regarding Section 141 of the Negotiable Instruments Act, 1881 (NI Act).

The Court was dealing with a Criminal Appeal filed by the HDFC Bank Limited against the Judgment of the Bombay High Court.

The two-Judge Bench comprising Justice Manoj Misra and Justice K.V. Viswanathan took note of the following principles –

(i) “Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable”.

(ii) “There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub-committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending upon the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs”.

(iii) “Mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in Section 141, which extends the liability to officers of the company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that satisfies those requirements. Not every person connected with a company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured”.

(iv) “What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the Company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company 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 under the provision”.

(v) “Therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which make a person liable”.

Senior Advocate Arvind Nayar represented the Appellant while AOR Aaditya Aniruddha Pande represented the Respondents.

Brief Facts

The Respondent along with her daughter and a man were directors of a company. According to the Complaint filed by the Appellant, the accused no. 1 -company along with Respondent (accused no. 2) and other two directors approached the Appellant/Complainant for grant of credit facility in the form of Revolving Loan Facility as Inventory Funding for the working capital requirements. It was alleged that the loan amounts were extended and on account of the failure of the accused to repay the outstanding dues, the account of the company was classified as a Non-Performing Asset (NPA) in accordance with the guidelines issued by the Reserve Bank of India (RBI). It was further alleged that a cheque issued by the accused for a sum of Rs. 6,02,04,217/- on deposit was dishonored for the reason “account blocked”.

Thereafter, a legal notice was issued to all the accused, however, the said notice was returned back as ‘unclaimed’. The Appellant thus prosecuted the company and the three directors and prayed for appropriate punishment of imprisonment as well as direction to pay fine up to double the amount of the dishonored cheque. Subsequently, the Trial Court issued process to the Respondents in the Complaint. Consequently, the High Court quashed the criminal proceedings under Section 138 NI Act on the ground that there were no sufficient averments in the Appellant’s Complaint to invoke the vicarious liability against the accused. Being aggrieved, the Appellant approached the Apex Court.

Reasoning

The Supreme Court in view of the above facts, observed, “… the administrative role of each director would be within the special knowledge of the company or the director of the firm and it is for them to establish that they were not in charge of the affairs of the company. In view of this, the contention of the learned counsel for the respondent No.2 that the specific role attributed to the directors should be set out in the complaint does not merit acceptance.”

The Court noted that the averments in the Complaint against the Respondent-accused fulfill the requirement of Section 141(1) of the NI Act, and this is not a case where trial against her can be aborted by quashment of proceedings.

The Court further said that the High Court was completely unjustified in quashing the proceedings against her.

Accordingly, the Apex Court allowed the Appeal, set aside the High Court’s Judgment, and restored the Trial Court’s Order.

Cause Title- HDFC Bank Limited v. State of Maharashtra and Anr. (Neutral Citation: 2025 INSC 759)

Appearance:

Appellant: Senior Advocate Arvind Nayar, AOR Palash Singhai, Advocates Asav Rajan, Akash Saxena, Devang Shrotiya, Kashsih Chadha, and Akshay Joshi.

Respondents: AORs Aaditya Aniruddha Pande, Ravindra Sadanand Chingale, Advocates Omkar Deshpande, Shrirang B. Varma, Siddharth Dharmadhikari, Karansingh Rajput, Ravindra Chingale, Sumbul Ausaf, Rakesh Kumar, and Parimal Wagh.

Click here to read/download the Judgment