No Vicarious Liability Without Specific Involvement in Day-to-Day Operations of the Company: Delhi High Court Quashes Summons Against Wives of Directors

Delhi High Court in Sangeeta Chadha vs. New India Color Company Limited quashed the summons against Sangeeta Chadha and Nidhi Beri Chadha, wives of directors in M/s RBT Pvt. Ltd., issued by the Magistrate Court. The court ruled that there was no specific averment of their involvement in the company's day-to-day operations, and thus they could not be held criminally liable under Section 138 of the Negotiable Instruments Act for cheque dishonor.

The petitioners, Sangeeta Chadha and Nidhi Beri Chadha, were implicated in a cheque bounce case where M/s RBT Pvt. Ltd., a company in which their husbands are directors, owed ₹62,90,019 to New India Color Company Ltd. as payment for materials supplied. The company had issued three cheques, all of which were dishonored. The respondent filed a legal demand notice, and subsequently, a criminal complaint under Section 138 of the Negotiable Instruments Act, leading to summons against the petitioners.

The core issue was whether the petitioners, as managers and wives of the directors, could be held vicariously liable for the dishonored cheques under Section 141 of the Negotiable Instruments Act. The petitioners argued that they had no role in the day-to-day operations of the company and did not sign the dishonored cheques, thus challenging the Magistrate’s summoning order.

The respondent claimed that the petitioners were involved in managing the company and responsible for its debts.

Justice Subramonium Prasad noted that Section 141 of the Negotiable Instruments Act creates vicarious liability only for those who are in charge of the company’s daily operations. The court emphasized that there was no specific averment or evidence in the complaint linking the petitioners to the issuance of the dishonored cheques or management of the company's affairs.

Citing the Supreme Court’s decision in Pooja Ravinder Devidasani v. State of Maharashtra and other precedents, the court held that merely naming the petitioners as managers or being wives of the directors was insufficient to establish criminal liability under Section 138.

“No vicarious liability can be imposed in the absence of specific allegations regarding their role in the company’s daily activities," the court ruled, and quashed the summons issued by the Metropolitan Magistrate.

The Delhi High Court quashed the criminal proceedings against the petitioners, reaffirming that vicarious liability under Section 141 of the Negotiable Instruments Act requires a clear demonstration of involvement in the conduct of a company's business.

Date of Decision: September 24, 2024

Sangeeta Chadha vs. New India Color Company Limited​.