Director cannot escape liability for bounced cheques despite not being signatory under Section 141

The Madras HC dismissed a criminal petition challenging vicarious liability of a director under Section 141(1) of the Negotiable Instruments Act, 1881. The court held that merely extracting statutory language is insufficient to establish director liability for Section 138 offences. The complaint must demonstrate the director's role in business conduct and company management. In this case, the petitioner-director had guaranteed a business loan and could not deny knowledge of borrowing or cheque issuance despite not being the signatory. The court found sufficient averments to establish prima facie liability.

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Issues involved:
The case involves the issue of vicarious liability of a director in a private complaint for an offence under Section 138 of the Negotiable Instruments Act, 1881.

Details of the Judgment:

Issue 1: Vicarious Liability of Director

The petitioner, a director of a company, challenged her involvement in a complaint under Section 138 of the Negotiable Instruments Act, claiming lack of active involvement in the company's affairs and absence of specific averments implicating her in the cheque issuance. The petitioner argued that without meeting the criteria of Section 141(1) of the Act, the complaint against her should be quashed.

In support of the petition, the petitioner's counsel cited judgments emphasizing the necessity of specific averments to establish a director's liability under Section 141 of the Act. The complaint alleged that the petitioner, as a director, was responsible for the conduct of the company's business, leading to her vicarious liability.

The court considered relevant precedents, including the requirement to show how a director was in charge of the company's affairs to establish vicarious liability. The court highlighted that mere directorship does not automatically imply liability, emphasizing the need for specific allegations against the director regarding their role in the company's operations.

The court differentiated the present case from previous judgments, noting that the complaint clearly linked the borrowed money to the company's business, for which the petitioner had guaranteed repayment. The petitioner's claim of non-involvement in day-to-day operations lacked specific averments in the complaint, supporting the allegation of her responsibility for the company's conduct.

Consequently, the court dismissed the Criminal Original Petition, stating that the petitioner, as a director, could not deny knowledge of the loan or cheque issuance due to her role in guaranteeing the loan for the company's business purposes. The burden was on the petitioner to refute the averments implicating her in the company's conduct, leading to the dismissal of the quash petition.

This summary provides a detailed overview of the judgment, focusing on the issue of vicarious liability of a director in a complaint under Section 138 of the Negotiable Instruments Act, 1881.

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