2025 (4) TMI 355 - HC - Indian Laws

Former company director cannot be prosecuted for cheque dishonour under Section 141 NI Act after resignation

Delhi HC dismissed petition challenging revisional court's order quashing proceedings against former company director under Section 141 NI Act. Court held ... Dishonour of Cheque - vicarious liability of former director, u/s 141 of the Negotiable Instruments Act, 1881, for cheques issued by the company after her resignation - HELD THAT:- The Revisional Court has examined this issue threadbare and applied the correct test for vicarious liability under Section 141 of the NI Act. The Revisional Court, relying on the Supreme Court’s judgment in S.P. Mani & Mohan Dairy v. Dr. Snehalatha Elangovan [2022 (9) TMI 846 - SUPREME COURT], rightly observed that where there exists unimpeachable material, such as a duly recorded resignation and absence of any role in the cheque issuance, the complaint against such a person cannot be sustained. Mere prior association with the company or the fact that she is related to other co-accused cannot, by themselves, form the basis for continuing criminal proceedings under Sections 138 read with 141 of the NI Act. It is a settled position in criminal jurisprudence that vicarious liability, where one person is held liable for the acts of another, is not ordinarily recognised unless explicitly provided for by statute. Section 141 of the NI Act carves out a statutory exception to this general rule. It incorporates a deeming fiction, enabling the prosecution of not only the company that issued the dishonoured cheque but also those individuals who, at the material time, were in charge of and responsible for its business - However, in order to attract Section 141 (1), it must be shown that the person, at the time the offence was committed, was in charge of and responsible to the company for the conduct of the business of the company. The Supreme Court has repeatedly emphasised that this deeming provision must be applied with precision. There is no material on record to suggest that the Respondent exercised control over the affairs of the company at the relevant time, particularly after her resignation as director. The mere fact that her email address continued to reflect on the website of the RoC Ministry of Corporate Affairs does not, by itself, establish that she retained any decision-making authority or functional role within the company. In the absence of a formal designation or specific averments demonstrating her responsibility in the conduct of the company’s business on the date the offence is alleged to have been committed, the deeming fiction under Section 141 (1) of the NI Act cannot be invoked against her. In the present case, a careful perusal of the complaints reveals that the allegations against the Respondent are vague, generalised and bereft of any particulars that would indicate her role in the commission of the alleged offence. There is no material to suggest how, and in what manner, she consented to or connived in the issuance of the dishonoured cheques or that her neglect was the proximate cause of the same. In the absence of such foundational pleadings, the threshold for invoking vicarious liability under Section 141 (2) is also not met. Conclusion - The Revisional Court has correctly appreciated the factual matrix and applied the settled legal principles to conclude that the summoning orders against the Respondent could not be sustained. This Court finds no cogent reason to interfere with the impugned order in exercise of its revisional jurisdiction under Section 528 of the BNSS. Petition dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were: Whether the Respondent, a former director of Insion Private Limited, can be held vicariously liable under Section 141 of the Negotiable Instruments Act, 1881, for cheques issued by the company after her resignation. Whether the Revisional Court correctly set aside the summoning orders against the Respondent based on her resignation and lack of involvement in the company's affairs at the time of the offence.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involves Section 138 and Section 141 of the Negotiable Instruments Act, 1881. Section 141 deals with the vicarious liability of directors and officers of a company for offences committed by the company. The Supreme Court's judgments in S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan and National Small Industries Corporation Limited v. Harmeet Singh Paintal provided guidance on the requirements for establishing such liability.Court's Interpretation and ReasoningThe Court emphasized that vicarious liability under Section 141 requires that the person was in charge of and responsible for the conduct of the company's business at the time the offence was committed. The Court noted that mere designation as a director or past association with the company is insufficient to attract liability. The Court also highlighted that specific and detailed averments are necessary to demonstrate active participation in the company's affairs.Key Evidence and FindingsThe Court found that the Respondent had resigned from the Board of Directors before the issuance of the dishonoured cheques. The complaints themselves acknowledged her status as a former director. There was no evidence to suggest that she was involved in the company's affairs or had any role in the issuance of the cheques post-resignation.Application of Law to FactsThe Court applied the principles of vicarious liability under Section 141 and concluded that the complaints did not meet the necessary threshold. The absence of specific averments indicating the Respondent's involvement or responsibility at the time of the offence meant that the deeming fiction of liability could not be invoked against her.Treatment of Competing ArgumentsThe Petitioner argued that the Respondent remained involved in the company's affairs despite her resignation, citing her email address's continued presence in official records. However, the Court found these arguments unsubstantiated by the complaints or any concrete evidence. The Court dismissed the argument that familial ties or past association could establish liability.ConclusionsThe Court concluded that the Revisional Court correctly set aside the summoning orders, as the complaints did not establish the Respondent's liability under Section 141. The Court found no reason to interfere with the Revisional Court's decision.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Court cited the Supreme Court's observation: 'In the absence of such evidence or circumstances, complaint cannot be quashed.' This underscored the requirement for specific evidence to establish vicarious liability.Core Principles EstablishedThe judgment reinforced the principle that vicarious liability under Section 141 requires specific averments of a person's involvement in the company's affairs at the time of the offence. Mere resignation or past association is insufficient.Final Determinations on Each IssueThe Court determined that the Respondent could not be held liable under Section 141 due to her resignation and lack of involvement in the company's affairs at the time of the offence. The petitions were dismissed, affirming the Revisional Court's decision to set aside the summoning orders.