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by sayum
14 June 2025 3:48 PM
Not a Mantra or Magic Incantation: Exact Words of Section 141 Not Mandatory in Complaint, Supreme Court of India breathing clarity and pragmatism into the law of vicarious liability under Section 141 of the Negotiable Instruments Act, 1881. The Court reversed the Bombay High Court’s decision which had quashed criminal proceedings against a company director in a ₹6 crore cheque bounce case, ruling that the complaint contained sufficient material to proceed to trial. The judgment reiterates a vital legal principle: “Substance will prevail over form.”
"The complaint need not mechanically parrot the language of Section 141," the Court held, emphasizing that “what is mandated is that the complaint should spell out that the accused sought to be arrayed falls within the parameters of Section 141(1)”.
The case arose from a loan dispute where HDFC Bank had extended an enhanced credit facility of ₹8 crores to M/s R Square Shri Sai Baba Abhikaran Pvt. Ltd., whose directors included Mrs. Ranjana Sharma. Upon default, a cheque issued by the company for ₹6.02 crores was dishonoured due to the account being blocked. The bank issued a statutory legal notice, which returned as “unclaimed”, prompting a criminal complaint under Section 138 of the NI Act.
The Trial Court issued process, but the Bombay High Court quashed proceedings against Mrs. Sharma, citing lack of specific averments about her role in the company’s affairs, as required under Section 141. The bank appealed to the Supreme Court.
The crux of the legal question was whether the complaint sufficiently established vicarious liability of Mrs. Ranjana Sharma, a director, under Section 141(1) of the NI Act.
The Court extracted from the complaint the key averments, particularly:
“Accused Nos. 2 to 4 are the Directors of Accused No.1 Company and is responsible for its day-to-day affairs, management and working of the Accused No.1 Company.”
It also noted that Mrs. Sharma was authorised by board resolution to sign critical documents, deposit title deeds, and execute legal instruments on behalf of the company: “Mrs. Ranjana Sharma be and are hereby authorized...to execute, sign and issue all/any such Demand Promissory notes, Hypothecation Agreements, mortgages... as may be required by HDFC Bank.”
The Court juxtaposed this against legal precedents including S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, Sabitha Ramamurthy, S.P. Mani & Mohan Dairy, and K.K. Ahuja.
Rejecting a hyper-technical reading of Section 141, the Bench observed: “Merely reading para 19(a) to contend that what is required is parroting of the words of the section for a complaint to be sustained is completely unjustified.”
And more strikingly: “What is important to note is that the repetition of the exact words of the Section in the same order, like a mantra or a magic incantation, is not the mandate of the law.”
The Court further clarified: “The complainant is supposed to know only generally as to who were in charge of the affairs of the company... The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge.”
In this context, the Court distinguished Mrs. Sharma’s case from others like Siby Thomas v. Somany Ceramics Ltd., where mere designation as director was deemed insufficient.
Holding that the complaint did contain the required substance, the Court reasoned:
“It is clearly averred that the respondent No.2 along with the accused Nos. 3 and 4 being directors were responsible for its day-to-day affairs, management and working of accused No.1 - Company.”
The High Court had erred by adopting a restrictive and rigid interpretation of Section 141:
“The High Court was completely unjustified in quashing the proceedings against her.”
The Supreme Court therefore:
This ruling provides significant clarity in cheque bounce prosecutions involving company directors. The Supreme Court has decisively held that directorial liability cannot be defeated by demanding ritualistic precision in pleadings, and that meaningful participation in company affairs is sufficient to face trial.
“A clear case should be spelled out in the complaint against the person sought to be made liable... Substance will prevail over form.”
By restoring the complaint against Mrs. Sharma, the Court reaffirmed its commitment to uphold the intent of Section 141—to ensure accountability of those in control of a company’s affairs, without allowing technical loopholes to shield wrongdoing.
Date of Decision: 22 May 2025
