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B. V. NAGARATHNA, SATISH CHANDRA SHARMA
K. S. Mehta – Appellant
Versus
Morgan Securities And Credits Pvt. Ltd. – Respondent
What is the test to hold non-executive directors vicariously liable under Section 141 NI Act? What is required in the complaint to fasten vicarious liability under Section 141 NI Act? What factors justify quashing of Section 138 read with Section 141 proceedings against non-executive directors?
Key Points: - The Court held non-executive directors cannot be held vicariously liable under Section 141 NI Act without specific allegations linking them to the company's financial affairs. (!) (!) (!) - The complaint must spell out how a director was in charge of and responsible for the conduct of the business at the relevant time; mere presence as a director or attendance at board meetings is insufficient. (!) (!) (!) - The appeals were allowed and the proceedings against the non-executive directors were quashed due to lack of specific averments tying them to the disputed financial transactions. (!) (!)
JUDGMENT :
SATISH CHANDRA SHARMA, J.
1. Leave granted.
2. The present appeals arise from the common Impugned Judgment and Order dated 28.11.2023, passed by the High Court of Delhi at New Delhi (the “High Court”), whereby the High Court dismissed the petitions filed under Section 482 of the Code of Criminal Procedure, 1973 (the “CrPC”). The petitions sought the quashing of criminal proceedings initiated against the Appellant(s) under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (the “NI Act”).
BACKGROUND
3. The Appellant(s) K.S. Mehta, and Basant Kumar Goswami, were appointed as directors of M/s Blue Coast Hotels & Resorts Ltd. (Accused No. 1/Company) at different times. K.S. Mehta was appointed as an additional director on 29.06.2001, while Basant Kumar Goswami was appointed as a director on 16.04.1998. Appellant(s) were designated as non-executive director in compliance with clause 49 of the Listing Agreement prescribed by the Securities and Exchange Board of India (the “SEBI”). Their role was confined to governance oversight without any executive authority or financial decision-making power in the company.
4. The dispute stems from an Inter-Corporate Deposi
Non-executive directors cannot be held vicariously liable under Section 141 of the NI Act without specific allegations of their involvement in the company's financial affairs.
Mere designation as a director does not establish liability under Section 138 NI Act; specific allegations of involvement are necessary for vicarious liability.
(1) Dishonour of cheque – Impleadment of all Directors of Accused Company on the basis of a statement that they are in charge of and responsible for conduct of business of company, without anything m....
Non-Executive Directors cannot be held liable under Section 141 of the Negotiable Instruments Act without specific averments demonstrating their involvement in the company's day-to-day affairs.
Dishonour of cheque – Offence by company – It may not be proper to split while reading complaint so as to come to a conclusion that allegations as a whole are not sufficient to fulfil requirement of ....
The main legal point established in the judgment is the requirement for specific averments and unimpeachable evidence to establish vicarious liability of directors in cases of cheque bounce under Sec....
A Company Secretary, who is not involved in the day-to-day affairs of the company and is not responsible for the conduct of its business, cannot be held criminally liable for a dishonored cheque issu....
Liability under Section 141 of NI Act depends on the role in the conduct of the company's affairs, not just the designation, and the burden of proof lies on the accused to establish lack of knowledge....
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