Bald Allegation of Assurance Insufficient to Implicate Independent Director in Cheque Bounce Case: Madhya Pradesh High Court Quashes Proceedings Under S.141 NI Act - 2025-08-07

Independent Director Cannot Be Prosecuted on Bald Allegations, Specific Role Must Be Averred: MP High Court

Indore, Madhya Pradesh – The High Court of Madhya Pradesh, in a significant ruling, has quashed criminal proceedings against an independent director in a cheque dishonour case, emphasizing that vicarious liability under the Negotiable Instruments Act, 1881, cannot be invoked based on "bald and omnibus allegations."

Hon'ble Shri Justice Sanjeev S Kalgaonkar, presiding over the case, allowed the petitions filed by Subhojit, an additional independent director of Omaxe Infrastructure and Construction Ltd., and set aside the summoning orders issued by the Judicial Magistrate First Class, Indore. The court held that for a director to be prosecuted, the complaint must contain specific averments detailing their role and responsibility in the company's day-to-day business, particularly concerning the transaction in question.

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Case Background

The legal battle stemmed from a complaint filed by SKM Steels Ltd. against Omaxe Infrastructure and Construction Ltd. and its directors, including the petitioner, Subhojit. SKM Steels had supplied TMT steel to Omaxe and received cheques that were subsequently dishonoured due to "insufficient funds." Consequently, SKM Steels initiated proceedings under Section 138 (cheque dishonour) read with Section 141 (offences by companies) of the Negotiable Instruments Act.

The petitioner, Subhojit, approached the High Court under Section 482 of the Code of Criminal Procedure, seeking to quash the proceedings against him.

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Key Arguments

Petitioner's Submissions: The counsel for the petitioner argued that the complaint lacked the necessary specific allegations to hold him vicariously liable. It was contended that: -

The petitioner was an "additional independent director" and not involved in the company's day-to-day financial affairs. -

The complaint contained only a general statement that he had "personally assured" the payment, which is insufficient to establish his role in the conduct of the company's business. -

Citing a plethora of Supreme Court judgments, including SMS Pharmaceuticals vs. Neeta Bhalla and Pooja Ravinder Devidasani vs. State of Maharashtra , the petitioner argued that mere designation as a director does not automatically attract criminal liability.

Respondent's Submissions: Conversely, the respondent, SKM Steels Ltd., contended that: -

The petitioner had given an assurance for the honour of the cheques, making him liable under Section 141(2) of the Act. -

The burden to prove non-involvement rests on the accused director, and this is a matter for trial, not to be decided at a preliminary stage.

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Court's Analysis and Precedents

Justice Kalgaonkar embarked on a detailed analysis of Section 141 of the NI Act, which establishes vicarious liability. The court underscored that this section is a departure from the general rule of criminal law and must be construed strictly.

The judgment heavily relied on established legal principles, noting:

"The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company." - Quoting S.M.S. Pharmaceuticals Ltd .

The court further examined the special status of an independent director under the Companies Act, 2013, observing that their role is non-executive and they are not involved in daily operations. Their liability is limited to acts of omission or commission that occurred with their knowledge, consent, or connivance, or where they did not act diligently.

One of the pivotal excerpts from the judgment reads:

"The material on record shows that the petitioner was associated with Omaxe Infrastructure and Construction Ltd. as an independent additional Director. He was not involved in day-to-day functioning of the company or directly concerned with the financial affairs of the accused company. There is no averment to the effect that with the cheques were issued with knowledge of the petitioner attributable through Board processes and with his consent or connivance... In such a scenario, bald allegation of the assurance to honour the cheque, aimed at implicating the petitioner, would not make the petitioner liable for the alleged offence."

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Final Decision and Implications

Concluding that the continuation of proceedings would be an "abuse of the process of court," the High Court quashed the criminal complaints and all subsequent proceedings against the petitioner, Subhojit.

The decision reinforces the legal shield available to non-executive and independent directors, preventing them from being needlessly dragged into criminal litigation for corporate defaults. It serves as a crucial reminder to complainants that a director's liability must be founded on specific, concrete allegations about their direct role in the company's affairs, rather than on vague and sweeping statements.