Gujarat High Court Clarifies Roles of Additional Directors in Cheque Dishonor Cases: No Automatic Vicarious Liability Without Specific Averments

In a landmark judgment, the Gujarat High Court has set a significant precedent regarding the liability of additional directors in cases of cheque dishonor under the Negotiable Instruments Act. Honourable Mr. Justice Sandeep N. Bhatt, while delivering the verdict, stated, “No automatic vicarious liability for additional directors without specific averments,” emphasizing the need for clear and specific allegations to establish the responsibility of directors in corporate offences.

The case, involving the quashing of FIR and court proceedings against additional directors of a company, was closely watched by legal experts and corporate entities. The High Court’s decision came as a relief to the applicants, who were the additional directors of the company accused of cheque dishonor.

Justice Bhatt’s observations provided clarity on the interpretation of Sections 138 and 141 of the Negotiable Instruments Act and their applicability to different types of directors. The judgment distinguished the roles and responsibilities of Managing Directors, Non-Executive Directors, Executive Directors, and Additional Directors, noting that the latter cannot be automatically held liable in cheque dishonor cases.

The Court exercised its inherent powers under Section 482 of the Code of Criminal Procedure to quash the proceedings, citing a lack of specific averments against the applicants and the non-satisfaction of legal provisions as required under the Negotiable Instruments Act.

Date of Decision: 08 November 2023

SANGEETHA GOPALKRISHNAN NAIR Versus  STATE OF GUJARAT