Manish Goyal v. S P Realtors

6. Although Mr. Goyal accepts the position that the petitioner was not, in fact, the signatory to the cheques, he submits that the petitioner’s name appeared as a director in the Company at the relevant time, and was therefore presumed to be involved in the Company’s affairs.

C. ANALYSIS

7. The principal issue which requires consideration is whether the petitioner, who was an Independent Director when the Company defaulted on its payment obligations, can be held vicariously liable under Section 141 of the NI Act for the dishonour of the Company’s cheques.

8. The present case thus turns on an interpretation of Section 141 of the NI Act, which is reproduced hereinbelow:

9. The principles governing vicarious liability under Section 141 of the NI Act have recently been reiterated by the Supreme Court in KS Mehta. In the said judgment, the Supreme Court has considered its earlier decisions[3], in order to trace and examine the interpretation of the said provision over the years, as follows:

17. In N.K. Wahi v. Shekhar Singh, this Court in para 8 observed:

18. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, this Court laid down that mere designation as a Director is not sufficient; specific role and responsibility must be established in the complaint.

19. In Pooja Ravinder Devidasani v. State of Maharashtra, this Court while taking into consideration that a non-executive Director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company's business at the relevant time. Mere Directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the day-to-day conduct of business can be held accountable.

20. In Ashok Shewakramani v. State of A.P., this Court held:

21. In Hitesh Verma v. Health Care at Home (India) (P) Ltd., this Court held: “3. As the appellant is not a signatory to the cheque, he is not liable under Section 138 of the 1881 Act. As it is only the signatory to the cheque is liable under Section 138, unless the case is brought within the four corners of Section 141 of the 1881 Act, no other person can be held liable. …

4. There are twin requirements under sub-section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. A Director who is in charge of the company and a Director who was responsible to the company for the conduct of the business, are two different aspects. The requirement of law is that both the ingredients of sub-section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of the commission of the offence, was in charge of the business of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the aid of sub-section (1) of Section 141 of the 1881 Act.” ”4 After analysing the provision, the Supreme Court observed that the accused persons had neither issued nor signed the cheques in question, and that their role in the company was purely non-executive, not extending to the financial decision-making or day-to-day affairs of the company. The Court further noted that the complaints did not contain specific allegations establishing a direct nexus between the accused persons and the financial transactions in question. In the absence of such foundational averments, the Supreme Court held that the requirements for fastening vicarious liability under Section 141 of the NI Act were not satisfied, and accordingly quashed the criminal proceedings against the accused persons.

10. Mr. Kher also relied upon a judgment of a coordinate Bench in Rahul Sood. In that case, on facts similar to the present matters, this Court considered the aforesaid judgments, including K.S. Mehta, and observed that the complaint did not contain any specific averments detailing the role of the accused in the conduct of the business of the company. It was further noted that the accused was neither a signatory to the dishonoured cheques nor involved in the financial decision-making of the company. Additionally, the accused had resigned from his position, which was duly notified through Forms DIR-11 and DIR-12, albeit after the issuance of the summoning orders. This Court thus held that the petitioner therein could not be vicariously liable under Section 141 of the NI Act, and set aside the summoning order.

11. The Supreme Court and this Court have thus consistently held that mere designation as a director is not sufficient to establish vicarious liability under section 141 of the NI Act. The complaint must contain specific averments as to the role of the director specifically at the time of the commission of the offence.

12. It is therefore necessary to examine the specific averments made against the petitioner in the complaints. For this purpose, the relevant extracts from the complaints are reproduced hereinbelow[5]: “5. Since the cheques mentioned, above were dishonoured, therefore the complainants have sent a notice dated 07.04.2017 to the accused Emphasis supplied. These paragraphs have been extracted from the complaint in CRL.M.C. 5769/2019. It may be noted that similar averments are also contained in the complaints filed in the other connected matters. persons calling upon them to make payment against the above mentioned dishonoured cheques within 15 days. The notice was duly served upon the accused persons between 08.04.2017 and 11.04.2017. The accused no.1 Company was served on 08.04.2017 itself therefore accused no. 2 to 4 also stand served on 08.04.2017 though they have been separately also served. xxx xxx xxx 7, Accused nos. 2, 3 and 4 are the Directors of accused no.l and are personally responsible for the day to day management and are in control of all the affairs of accused no.l company. Time and again, there have been interactions with the accused persons relating to the transaction in question. As such, they are liable to be tried and punished for the offence committed by accused no.l under section 138 of the Negotiable Instruments Act in their personal capacity as well.”

13. It is thus evident that the complaints do not contain any specific averments regarding the role of the petitioner, and instead merely make general and vague assertions that the petitioner, being a director of the Company, was “personally responsible for the day-to-day management of the Company”. The record further reflects that the petitioner was, in fact, serving as a non-executive Independent Director at the relevant time, as is evident from Form DIR-12. It is also an admitted position that the petitioner is not a signatory to the dishonoured cheques. Moreover, the petitioner had resigned from the position of Independent Director on 15.06.2017.

14. In view of the above, the petitioner cannot be held to be vicariously liable under Section 141 of the NI Act.

D. CONCLUSION

15. For the aforesaid reasons, the summoning orders dated 22.05.2017 in Complaint Case Nos. 4849/2017, 4850/2017 and 4852/2017, as well as summoning orders dated 01.07.2017 in Complaint Case Nos. 2814/2017, 2815/2017 and 2819/2017 are set aside qua the petitioner, and the criminal proceedings arising therefrom are quashed.

16. The petitions stand disposed of.

PRATEEK JALAN, J MARCH 25, 2026 SS/Ainesh/