Mere Designation as Director Not Enough to Attract Criminal Liability Under Section 141 NI Act: Gujarat High Court Quashes Complaint Against Director

“Vicarious liability can be fastened only when there are specific allegations showing how and in what manner the director was in charge of the business” — Gujarat High Court, presided by Justice J.C. Doshi, quashed a criminal complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, against a nonsignatory director of a company. The Court ruled that general and vague averments against directors are not sufficient to sustain prosecution under the NI Act and that a person cannot be dragged into criminal trial merely because he holds the position of a director. 
The Court, while deciding R/Criminal Misc. Application No. 6387 of 2018, filed by Meghdoot Hiralal Patel, held: “The present petitioner who is arraigned as accused No.4 on the ground that he was director of the company, cannot to be put to trial because of insufficient averments which are stated in para 2 of the complaint, in view of specific role alleged to have been played by accused No.2 who has signed the cheque.” 
 “Strict compliance with statutory requirements of vicarious liability under NI Act is mandatory before putting a director to trial” 
The complaint had been filed by M/s B & C Energy Infra Pvt. Ltd. 
Alleging dishonour of cheque issued by the company. Though the Managing Director had signed the cheque, other directors including the petitioner were also arraigned as accused. However, the complaint merely stated that: “Accused Nos.3 to 5 are also the directors of the No.1 company and they all are from the same family and are also managing the affairs and day to day management of the company along with accused No.2 Ashvinbhai.” 
Referring to this, the Court observed: “Allegations of commission of offence by the company is not levelled against the petitioner. Neglect, if any, has been attributed to the Managing Director who is signatory of the cheque.” 
The Court relied heavily on the landmark decisions of the Supreme Court on vicarious liability of directors. Citing National Small Industries Corporation v. Harmeet Singh Paintal (2010) 3 SCC 330, the Court emphasized: “Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. This has to be averred as a fact.” 
Quoting from the same case, the High Court reiterated: “Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed.” 
 
The Court also referred to Gunmala Sales Pvt. Ltd. V. Navkar Infra Projects Pvt. Ltd. (2015) 1 SCC 103, in which the Supreme Court clarified: “Where the offence under Section 138 of the NI Act is committed by a company, the complaint must prima facie disclose the act committed by the directors from which a reasonable inference of their vicarious liability can be drawn.” 
In Susela Padmavathy Amma v. Bharti Airtel Ltd., 2024 (3) SCR 647, the Apex Court held that: “There is no averment to the effect that the present appellant is in-charge of and responsible for the day-to-day affairs of the Company… Thus, the averments made are not sufficient to invoke the provisions of Section 141 of the N.I. Act qua the appellant.” 
Relying on these rulings, the Gujarat High Court held that in the present case: “The allegations of commission of offence by the company is not levelled against the petitioner… The present petitioner is not the signatory of the cheque in question nor has been alleged to be in-charge of the financial affairs of the company.” 
The Court noted that: “This is not a case where the complaint can be sustained on the basis of mere reproduction of the wording of Section 141.” 
Consequently, it held: “In net result, the petition succeeds. The proceedings being Criminal Case No.8437 of 2016 filed before the learned Chief Judicial Magistrate, Mehsana qua the present petitioner is hereby quashed.” 
At the same time, the Court clarified that: “It is needless to state that proceedings under Section 138 of N.I. Act for other accused shall proceed in accordance with law… and are expected to be concluded within six months without being influenced by aforesaid reasons and observations.” 
This judgment reaffirms the well-settled principle of law that criminal prosecution under the Negotiable Instruments Act cannot be maintained against directors based on sweeping and vague allegations. A complaint must disclose specific, concrete facts showing how a director was responsible for the conduct of the company’s business at the time of the offence. The ruling stands as a significant protection for non-executive and independent directors from being unnecessarily entangled in criminal proceedings. 
Date of Decision: 09 April 2025