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

"The requirement of Section 141 of the NI Act was that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company. This has to be averred as a fact." Calcutta High Court, in a significant ruling, quashed criminal proceedings initiated under Section 138 of the Negotiable Instruments Act (NI Act) against a company director, ruling that vicarious liability cannot be fastened based on mere designation.

A bench of Justice Shampa Dutt (Paul) held that the complainant’s failure to specifically aver how the director was "in charge of and responsible to the company for the conduct of its business" at the time of the offence renders the prosecution unsustainable.

The petitioner, a director of Credforce Asia Limited, approached the High Court under Section 482 of the Code of Criminal Procedure (CrPC) to quash a complaint case filed by an HUF. The complainant had arraigned the company and its directors as accused in a cheque dishonour case. The petitioner contended that the complaint lacked the mandatory foundational pleadings required to invoke the vicarious liability provisions under Section 141 of the NI Act.

The primary question before the court was whether a person can be prosecuted for an offence under Section 138 of the NI Act solely by virtue of their status as a director. The court also examined the necessity of specific factual averments regarding the role and responsibility of a director in the day-to-day business of the company as a condition precedent for initiating criminal proceedings.

Requirement of Strict Construction

The Court emphasized that Section 141 of the NI Act creates a legal fiction of vicarious liability and, being a penal provision, must receive strict construction. Mere assertion that a person is a director does not suffice to trigger criminal liability, as the statute mandates that the accused must have been in charge of and responsible for the company’s business at the material time.

Conjunctive Reading of Statutory Ingredients

The bench underscored that the expressions "was in charge of" and "was responsible to the company for the conduct of the business" are not disjunctive. Because the legislature employed the word "and," these requirements are cumulative. A complaint failing to allege both conditions simultaneously fails to meet the statutory threshold, thereby prohibiting the automatic imputation of criminal intent to a director.

Role-Based Liability

The Court noted that liability depends on the specific role played by an individual in the affairs of the company rather than their status. Relying on settled precedents, the Court held that the complainant must demonstrate how the director was involved in the transaction in question, the issuance of the cheque, or the day-to-day management of the business.

"Every person connected with the company does not fall within the ambit of Section 141 of the NI Act."

Absence of Specific Averments

Upon reviewing the complaint, the Court found it devoid of any specific act attributed to the petitioner. The complainant had merely leveled general allegations against the company’s directors without specifying who signed the cheque or who exercised control over the specific transaction. The Court observed that such "bald statements" without any clear and unambiguous evidence of active involvement constitute an abuse of the process of law.

Protection Against Frivolous Litigation

The Court reiterated that the object of Section 138 and 141 is to sustain the credibility of commercial transactions but clarified that this objective cannot be used to harass individuals without foundational facts. Consequently, the High Court allowed the petition and quashed the proceedings pending before the Learned Metropolitan Magistrate, 11th Court, Calcutta, against the petitioner.

Date of Decision: 31 August 2026