Clarifying liability under Section 141 of Negotiable Instruments Act: Directors' roles determine culpability

SMS Pharmaceuticals Ltd. Versus Neeta Bhalla

SMS Pharmaceuticals Ltd. Versus Neeta Bhalla - [2005] 63 SCL 93 (SC), 2005 (8) SCC 89, 2005 AIR 3512, 2005 (7) SCALE 397, JT (2005) 8 SC 450 Issues Involved:
1. Requirements for averments in a complaint under Section 141 of the Negotiable Instruments Act, 1881.
2. Liability of a director of a company under Section 141.
3. Liability of the Managing Director, Joint Managing Director, and signatory of a dishonoured cheque under Section 141.

Detailed Analysis:

Issue 1: Requirements for Averments in a Complaint under Section 141

The court examined whether it is necessary to specifically state in the complaint that the accused was in charge of, and responsible for, the conduct of the business of the company. The court concluded that it is essential to make this specific averment in a complaint. The provisions of Sections 138 and 141 of the Negotiable Instruments Act were analyzed, noting that Section 141 extends criminal liability to every person who was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court emphasized that the complaint must disclose necessary facts to make a person liable, ensuring that individuals who had nothing to do with the matter are not roped in. This averment is crucial for the Magistrate to issue process under Sections 200 to 204 of the Code of Criminal Procedure.

Issue 2: Liability of a Director of a Company under Section 141

The court addressed whether a director of a company can be deemed to be in charge of, and responsible for, the conduct of the business of the company, thereby being guilty of the offence under Section 141. The court held that merely being a director is not sufficient to make a person liable under Section 141. The role and functions assigned to directors as per the Memorandum and Articles of Association of the company determine their liability. A director must be in charge of and responsible for the conduct of the business of the company at the relevant time. The court noted that a director who is not involved in the day-to-day affairs of the company cannot be fastened with criminal liability under Section 141.

Issue 3: Liability of the Managing Director, Joint Managing Director, and Signatory of a Dishonoured Cheque under Section 141

The court examined whether specific averments are necessary for the Managing Director, Joint Managing Director, and the signatory of the cheque. It concluded that the Managing Director and Joint Managing Director, by virtue of their positions, are in charge of and responsible for the conduct of the business of the company. Therefore, they are liable under Section 141. The signatory of a dishonoured cheque is clearly responsible for the incriminating act and is covered under sub-section (2) of Section 141. The court emphasized that these individuals are inherently responsible for the conduct of the business of the company and the issuance of the cheque.

Conclusion:

1. Averments in a Complaint: It is necessary to specifically aver in a complaint under Section 141 that the accused was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. Without this averment, the requirements of Section 141 are not satisfied.

2. Director's Liability: Merely being a director is not sufficient to make a person liable under Section 141. A director cannot be deemed to be in charge of and responsible for the conduct of the business of the company unless it is specifically averred in the complaint.

3. Managing Director, Joint Managing Director, and Signatory's Liability: The Managing Director and Joint Managing Director are inherently in charge of and responsible for the conduct of the business of the company and are liable under Section 141. The signatory of a dishonoured cheque is also liable under sub-section (2) of Section 141.

The reference was answered accordingly, and individual cases were to be listed before the appropriate Bench for disposal in accordance with the law.