TaxTMI 
TaxTMI 
2026 (5) TMI 1581
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....in S.T.C. No. 1980 of 2023, pending on the file of the Court of the learned IV FTC Metropolitan Magistrate, George Town, Chennai, arising out of a private complaint instituted by the appellant under Sections 138 and 141 of the Negotiable Instruments Act, 1881 ['NI Act']. A. FACTUAL MATRIX 3. The appellant, M/s Mansi Finance (Chennai) Ltd., is a finance company carrying on business at Chennai and has instituted the said complaint through its Manager and Power of Attorney holder, A. Ramesh. On the other hand, the first accused in the complaint is M/s Ravindra Bharathi Educational Society, a society registered under the provisions of the Societies Registration Act, 1860. The second accused, namely M. Subramaniam, is the President of the said Society and the signatory to the cheque in question. The present respondent Nos. 1 to 4 were arrayed in the complaint as accused nos. 3, 6, 8 and 9 respectively, in their capacities as office bearers and functionaries of the Society, namely Vice-President, Treasurer, Executive Member and Manager. The case of the appellant is that all the accused persons were actively associated with the affairs of the Society and were responsible for its adm....
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...."Account Blocked". Pursuant thereto, the appellant caused a statutory demand notice dated 12.12.2019 to the Society and all its office bearers, including the present respondents, calling upon them to make payment of the cheque amount within the prescribed statutory period. The notice is stated to have been served on 16.12.2019. Despite service of notice, neither payment was made nor any reply was issued on behalf of the accused persons. 9. Consequent upon failure to comply with the statutory demand, the appellant instituted a private complaint under Sections 138 and 141 of the NI Act before the Court of the learned IV FTC Metropolitan Magistrate, George Town, Chennai, which came to be taken on file as S.T.C. No. 1980 of 2023, by order dated 27.02.2023. 10. In the complaint so instituted, the appellant specifically averred that accused nos. 2 to 9, including the present respondents, were persons in-charge of and responsible to the first accused-Society for the conduct of its day-to-day business affairs. It was further alleged, particularly in paragraph 7 of the complaint, that all the accused persons had knowingly issued the cheque despite being fully aware that the account of....
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....nt despite the specific averments in the complaint that the respondents were in charge of and responsible for the day-to-day affairs and financial management of the Society. 18. It was argued that the complaint sufficiently satisfied the requirements under Section 141 of the NI Act as it specifically alleged that the respondents were responsible for the conduct of the affairs of the Society and had knowingly participated in issuance of the cheque despite insufficiency of funds. 19. It was further submitted that respondent Nos. 1 to 3 were office bearers and members of the Managing Committee entrusted with the management of funds, operation of bank accounts, and approval of withdrawals, thereby attracting liability under Section 141 of the NI Act. 20. Learned senior counsel further argued that the documents placed on record, including the MoU and promissory notes, prima facie demonstrated the active involvement of the respondents in the financial affairs and transactions of the Society. 21. Learned senior counsel for the appellant also contended that the participation of the respondents in execution of financial documents and repayment arrangements clearly established th....
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....ssion of such offence. Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly." 27. While Section 138 of the NI Act creates the offence of dishonour of cheque, Section 141 of the NI Act extends criminal liability to every person who, at the time the offence was committed, was in-charge of and responsible to the company or association for the conduct of its business. The position in ....
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.... (b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases. (c) The answer to Question (c) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory o....
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....hat every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Dire....
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....udgment. It was in that factual context that this Court held that mere reiteration of the statutory formula would not suffice. 32. In S.P. Mani and Mohan Diary (supra), while reiterating the requirement of foundational averments under Section 141 of the NI Act, this Court also emphasized that in construing a complaint a hyper-technical approach ought not to be adopted and that where, read as a whole, the factual foundation for the offence has been laid, the power of quashing should be exercised sparingly. [At Para 42 to 42.8 of S.P. Mani and Mohan Diary judgment.]. This decision underscores that while vicarious liability cannot be fastened in the absence of requisite pleadings, the complaint must nonetheless be read in a practical and purposive manner, and if the factual foundation for offence is disclosed, the proceedings ought not to be interdicted at threshold. 33. Keeping the foregoing principles in mind, the issue, therefore, is whether the appellant's complaint discloses sufficient factual foundation against each of the respondents herein so as to justify continuation of the prosecution. The answer to that question cannot be uniform for all the respondents and must nece....
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....would squarely apply. 39. Learned senior counsel for the appellant had argued that respondent no.3, being an Executive Member and part of the Managing Committee of the Society, was entrusted with the affairs of the Society and, therefore, liable under Section 141 of the NI Act. We are unable to accept the said submission. The law governing Section 141 of the NI Act is clear that there is no deemed liability merely by virtue of holding an office or position in the company or society. [At Para 18 of S.M.S. Pharmaceuticals Ltd. judgment.]. The complaint must disclose the factual basis showing that the person sought to be prosecuted was in-charge of and responsible for the conduct of the business of the entity at the relevant time. As far as the present case is concerned, except for the general assertion regarding his status as an Executive Member, no specific averment or material connecting respondent No. 3 with the transaction in question has been brought on record. His designation alone, therefore, would not be sufficient to attract liability under Section 141 of the NI Act. 40. The High Court, in our view, was justified in quashing the proceedings against respondent No. 3. Ho....