Gujarat High Court Clarifies Vicarious Liability in Cheque Dishonour Cases: “Not Every Director is Automatically Vicariously Liable”

In a significant ruling that clarifies the nuances of vicarious liability under the Negotiable Instruments Act, the Gujarat High Court, led by Honourable Mr. Justice Sandeep N. Bhatt, pronounced a judgment in the case of Sangeetha Gopalkrishnan Nair versus State of Gujarat. The Court made a pivotal observation, stating, “Not every director is automatically vicariously liable for offences by the company,” shedding light on the roles and responsibilities of directors in cases of cheque dishonour.

The decision, dated November 8, 2023, revolved around an application filed under Section 482 of the Code of Criminal Procedure, 1973, for quashing the process issued against applicants in a case involving the dishonour of a cheque under Section 138 of the Negotiable Instruments Act.

The Court meticulously discussed the liability of additional directors, differentiating it from other directorial roles under the Companies Act. Justice Bhatt emphasized that the specific roles and responsibilities of individuals within a company are crucial in determining their liability, especially in cases of financial transactions and cheque dishonour.

In a landmark observation, the Court stated, “It is required that sufficient averments are made to show that the person who is alleged to be made vicariously liable, was in charge and was also responsible to the company for the conduct of its business.” This statement underscores the importance of clear and specific allegations in legal proceedings involving corporate entities.

The judgment also highlighted the court’s power to interfere under Section 482 of the CrPC, signifying that such powers should be exercised sparingly and not in routine matters.

In this particular case, the Court quashed proceedings against the accused nos. 7 and 8, who were additional directors, due to the lack of specific averments against them. However, it allowed proceedings to continue against accused nos. 4 and 6, as there was no conclusive evidence absolving their involvement.

Date of Decision: 08 November 2023

SANGEETHA GOPALKRISHNAN NAIR Versus STATE OF GUJARAT