Mere Designation As Director Insufficient For Vicarious Liability Under Section 141 NI Act Without Specific Averments: Calcutta High Court

"In absence of the specific role qua the participation of a director in the alleged transaction with the complainant, no director can be implicated by virtue of Section 141 of the NI Act." Calcutta High Court, in a significant ruling, held that a person cannot be prosecuted for the offence of cheque dishonour merely based on their designation as a director of the accused company.

A single-judge bench of Justice Shampa Dutt (Paul) observed that to invoke vicarious liability under Section 141 of the Negotiable Instruments Act, 1881, the complaint must contain specific and unambiguous averments regarding the role played by the director in the disputed transaction.

The petitioner, Sanjeeva Shukla, is a director of Credforce Asia Limited. He approached the High Court seeking to quash the criminal proceedings initiated against him under Sections 138 and 141 of the NI Act, which were pending before the Judicial Magistrate at Alipore. The petitioner contended that he was arraigned solely on account of his designation as a director, without any specific role being attributed to him regarding the dishonour of the cheque or the day-to-day management of the company.

The primary question before the court was whether a corporate director can be subjected to criminal prosecution under Section 138 read with Section 141 of the NI Act in the absence of specific foundational pleadings detailing their role, participation, and responsibility for the company's business at the time of the offence.

Section 141 Requires Strict Construction

The court noted that Section 141 of the Negotiable Instruments Act creates a legal fiction by extending vicarious criminal liability to persons who have not personally committed the substantive offence under Section 138. Being a penal provision that imposes vicarious liability, the bench emphasised that it is settled law that the provision must receive strict construction. The court observed that a specific averment establishing that the accused was in charge of the business is a mandatory statutory requirement.

Specific Role Must Be Pleaded Unambiguously

Examining the prerequisites for launching a prosecution against corporate directors, the court underscored that the complaint must contain clear, specific, and unambiguous averments. The bench clarified that the complainant is legally bound to plead exactly how and in what manner the director was responsible for the conduct of the business. The court categorically stated that every director is not automatically deemed to be in charge of the company's affairs simply by virtue of holding office.

"Every Director need not be and is not in fact, in charge of the business of the accused company."

General Averments Insufficient To Fasten Liability

Perusing the complaint filed before the trial court, the bench found that the complainant had only made a general statement alleging that the directors were engaged in managing the regular affairs of the company. The court observed that no specific allegation or overt act was attributed to the individual accused persons. The bench pointed out a glaring omission, noting that the complaint even failed to disclose which of the accused directors had actually signed the dishonoured cheque.

"Was In Charge Of" And "Responsible To" Must Be Read Conjunctively

The High Court extensively relied upon a catena of Supreme Court judgments, including Pawan Kumar Goel v. State of U.P, Sunil Todi v. State of Gujarat, Sunita Palita v. M/s. Panchami Stone Quarry, and Ashok Shewakramani v. State of Andhra Pradesh. Drawing from these precedents, the bench reiterated that the expressions "was in charge of" and "was responsible to the company" occurring in Section 141(1) cannot be read disjunctively. The court noted that the legislature consciously employed the conjunctive word "and", making both requirements cumulative.

Continuation Of Proceedings An Abuse Of Process

Concluding that the mandatory statutory requirements were totally absent in the present case, the court held that allowing the proceedings to continue would result in a miscarriage of justice. The bench stressed that the strict pleading requirements under Section 141 are specifically designed to discourage frivolous litigation and prevent the abuse of the legal process. In the absence of foundational pleadings, the court ruled that the prosecution of the director was legally unsustainable.

The High Court allowed the revisional application and quashed the criminal proceedings pending against the petitioner before the Judicial Magistrate, 2nd Court, Alipore. The court reiterated that without specific allegations detailing the active participation of the director in the underlying transaction, vicarious liability cannot be imputed automatically.

Date of Decision: 17 July 2024