Liability of Director of company for cheque issued

 From the above discussion, the following principles emerge:

(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.

(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.

(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.

(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.1
The apex court dealt with the concept of a company’s Director’s responsibility for offences under Section 138 of Companies Act, 1956. It held that for inclusion of a Director under 138 it is necessary to allege that Director was in charge of and responsible for the conduct of company’s business.REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS.1692-1718 OF 2013
(@SPECIAL LEAVE PETITION (CRL.) NOS. 2970-2996 OF 2012)
A.K. SINGHANIA
... APPELLANT
VERSUS
GUJARAT STATE FERTILIZER
CO. LTD. & ANR.
Decided On: 17.10.2013

In
all
these
special
leave
petitions
common
question of law and facts arise and, therefore, they
have been heard together and are being disposed of by
this common judgment.
Leave granted.
In
all
these
cases
we
are
concerned
accused A.K. Singhania and Vikram Prakash.
complaints
were
filed
by
Gujarat
State
with
Several
Fertilizer
Company against Esslon Synthetics Ltd., its Chairman,
Managing
Director
and
other
Directors
including
aforesaid A.K. Singhania and Vikram Prakash alleging
commission of an offence under Section 138 of the
Negotiable Instruments Act, hereinafter referred to
as ‘the Act’.
Page 2
3
In Complaint Case No. 331 of 1996 the allegations
which are relevant for the decision of these appeals
read as follows:
“3. The accused No. 14 is a
Limited Company registered under the
Companies Act, 1956 and are doing
business of chemicals, synthetics etc.
The accused No. 1 is Managing Director
of accused company No. 14 and accused
No. 2 is Deputy Managing Director,
accused No. 3 is Chairman, accused No.
4 is Whole Time Director, accused No.
5 is Finance Director, accused No. 6
to 12 are the Directors and the
accused No. 13 was Senior Manager
(Finance) of the accused company No.
14 Esslon Synthetics Ltd.
4. All the business and financial
affairs of the accused company No. 14
are decided, organized, administered
by
accused
No.
1
being
Managing
Director and accused No. 2 being
Deputy Managing Director, accused No.
3 Chairman, accused No. 4 Whole Time
Director,
accused
No.
5
Finance
Director with consultation of other
Directors from accused Nos. 6 to 12
and accused No. 13 was Sr. Manager
(Finance) of accused company No. 14.
So accused Nos. 1 to 12 and accused
No. 13 are also responsible for all
the transactions and business affairs
done on behalf of accused Company No.
14 and are responsible for all the
financial affairs and administration
of accused Company No. 14.”
Page 3
4
A.K. Singhania is the accused No. 7 and Vikram
Prakash is accused No. 9 in this complaint.
In
Complaint
allegations
with
Case
which
No.
we
1293
are
of
concerned
1996,
in
the
these
appeals read as follows:
“4. All the business and financial
affairs of the accused company No. 1
are decided, organized, administered
by the accused No. 2 being Managing
Director and accused No. 3 being
Managing
Director,
accused
No.
4
Chairman, accused No. 5 Whole Time
Director,
accused
No.
6
Finance
Director with consultation of other
Directors from accused Nos. 7 to 13
and accused No. 14 was Sr. Manager
(Finance) of accused No. 1.
At the
time the offence was committed, they
were incharge of and were responsible
to the company for the conduct of the
business
of
the
accused
company.
Therefore, they are responsible for
day to day affairs and all the
transactions and business done on
behalf of the accused Company No. 1
and they are also responsible for all
the
financial
affairs
and
administration
of
accused
company
No. 1.”
A.K.
Singhania
and
Vikram
Prakash
have
been
arrayed as accused Nos. 8 and 10 in this complaint
and in all other complaints, the allegations against
Page 4
5
A.K.
Singhania
are
identical
to
what
have
been
alleged in the Complaint Case No. 331 of 1996.
Taking into account the allegations made in the
respective complaints,
cognizance of
the
the
learned
offence,
Magistrate
issued
process
took
to
the
accused aforesaid besides other accused to face trial
for commission of the offence under Section 138 of
the Act.
Vikram Prakash, aggrieved by the order issuing
summons to face trial under Section 138 of the Act in
different
complaints,
filed
applications
under
Section 482 of the Code of Criminal Procedure for
quashing
process.
Prakash
the
The
were
order
taking
cognizance filed 
applications
registered
as
and
said
by
Criminal
Application Nos. 13393-13399 of 2007.
issuing
Vikram
Miscellaneous
The High Court
by its common order dated January 20, 2012 allowed
all
the
applications
and
quashed
his
prosecution.
While doing so, the High Court held as follows:
Page 5
6
“7.............It is to be noted that as
such there are general allegations and
averments against the applicant in the
complaints,
however
there
are
no
specific allegations and averments in
the complaint against the applicant
with respect to transaction for which
the cheques were issued by the accused
no.
14
company.
Under
the
circumstance,
on
the
ground
that
applicant was non Executive Director
of the Company on the board of the
company, which is not disputed by the
complainant, the applicant cannot be
prosecuted
for
the
offence
under
Sections 138 r/w 141 of the Negotiable
Instruments Act and cannot be held
vicariously liable for the offence
alleged to have been committed by the
accused no. 14 company.
Under the
circumstance, this Court is of opinion
that this is a fit case to exercise
the powers under Section 482 of the
Code of Criminal Procedure and to
quash and set aside the impugned
complaint/criminal case qua applicant-
original accused no. 9......”
It is this common order which has been assailed
by the Gujarat State Fertilizer Company Ltd. in the
special leave petitions filed by it.
A.K.
Singhania
also,
aggrieved
by
the
order
issuing process under Section 138 of the Act, filed
separate
applications
prosecution
including
for
the
quashing
aforesaid
the entire
order under
Page 6
7
Section 482 of the Code of Criminal Procedure.
All
the applications filed by A.K. Singhania were taken
together by the High Court for consideration and by
the impugned order the applications filed by him have
been
dismissed.
While
doing
so,
the
High
Court
observed as follows:
“9. As the paragraphs of the
complaint reproduced in earlier part
of decision specifically para 4 and
subsequent
paragraphs
would
reveal
that the applicant in the capacity of
Director was responsible for business
affairs and he was in-charge of the
Company. Not only that but nowhere it
can be said that the applicant was
non-Executive Director and even if it
is so the said argument is in realm of
defence to be decided by Court trying
the
case
under
the
Negotiable
Instruments Act.
Since sufficient
averments attracting of Section 138 of
Negotiable Instrument Act are the
foundation of the complaint and it is
further averred that cheques were
issued
with
mischievous,
dishonest
intention, knowingly and willingly to
cheat
the
complainant
company.
Arguments
canvassed
by
learned
advocate for the applicant do not
require any further deliberation in
exercise of powers under Section 482
of
the
Code
since
quashing
the
complaint would not secure end of
justice
but
would
result
into
miscarriage of justice...........”
Page 7
8
A.K. Singhania, aggrieved by the aforesaid common
order, has preferred these special leave petitions.
Leave granted.
We
have
heard
Mr.Ranjit
Kumar,
learned
Senior
Counsel on behalf of the accused A.K. Singhania and
Mr.Ashok Kr. Srivastava, learned Senior Counsel
behalf
of
Vikram
Prakash
whereas
the
on
complainant,
Gujarat State Fertilizer Company Ltd. is represented
by Mr. Jayant Bhushan, learned Senior Counsel.
Ranjit
Kumar
appearing
on
behalf
of
the
Mr.
accused
submits that necessary averments that at the time the
offence was committed, the accused were in-charge of
and responsible for the conduct of the business of
the company have not been averred, which is sine qua
non
for
company.
proceeding
against
the
Directors
of
the
He has drawn our attention to the averments
made in the complaints, which we have reproduced in
the preceding paragraphs of this judgment and submits
that mere assertion that these accused persons were
the Directors of the company is not sufficient to
make them liable under Section 141 of the Act.
Mr.
Page 8
9
Jayant Bhushan however, submits that there is clear
averment in the complaint that these accused persons
were the Directors of the company and, in fact, in-
charge
of
and
responsible
for
the
conduct
of
the
business of the company and, hence, they were rightly
summoned to face the trial.
He points out that the
judgment and order of the High Court quashing the
prosecution
of
accused
Vikram
Prakash
is
under
challenge in this batch of appeals and accused A.K.
Singhania cannot take benefit of the said order and
the fate of both the accused shall depend upon the
decision in
all
submits that
these
on
appeals.
same
set
of
Mr.
Ranjit
facts
Kumar
when
the
prosecution of the accused Vikram Prakash has been
quashed,
there
does
not
seem
any
justification
to
decline the prayer of the accused A.K. Singhania.
In
consider
view
the
of
rival
exact
submissions,
allegations
we
made
proceed
against
to
the
accused A.K. Singhania and accused Vikram Prakash.
It is not in dispute that allegations against both
the accused in different complaints are one and the
Page 9
10
same.
In
allegation
affairs
Complaint
is
Case
that
of
No.
331
business
accused 
the
“all 
of
company
1996,
and
the
financial
are
decided,
organized, administered by Accused Nos. 1 to 5”.
It
has further been alleged that Accused Nos. 1 to 5 do
so
with
Accused
consultation
Nos.
6
to
of
other
12.
In
Directors
view
of
namely,
aforesaid,
according to the complainant, accused Nos. 1 to 13
are
also
responsible
business
affairs,
for
all
the
transactions
financial
affairs
and
and
administration done on behalf of the accused company.
It is relevant here to state that A.K. Singhania and
Vikram Prakash
complaint.
are accused Nos. 7 and 9 in this
The
averments
made
in
the
complaint
nowhere suggest that these two accused, at the time
the
offence
was
committed,
were
in-charge
of
and
responsible for the conduct of the business of the
company.
According to the complainant itself, it was
accused Nos. 1 to 5 who were taking decisions and the
allegation that in taking the decisions they used to
consult these accused also will not mean that these
two
accused
were
at
the
time
the
offence
was
Page 10
11
committed, were in-charge of and responsible for the
conduct of business of the company.
In complaint
Case No. 1293 of 1996 and all other complaints with
which we are concerned in the present appeals the
allegation is that
affairs the accused
of
“all
business
company
and
No.1,
financial
are
decided,
organized, administered by accused Nos. 2 to 6 and in
consultation
of
Nos. 7 to 13”.
other
directors
i.e.
from
accused
It has further been averred that at
the time the offence was committed “they were in-
charge and responsible to the company for the conduct
of
the
business”
and,
therefore,
“they
are
responsible for day to day affairs and transaction,
business
and
company.”
all
Mr.
financial
Ranjit
affairs
Kumar
of
the
submits
accused
that
the
aforesaid averments are not sufficient and from that
it cannot be inferred that accused A.K. Singhania and
accused
Vikram Prakash
and responsible
in-charge
have
been alleged
the conduct
for
to
of
be
the
business of the company at the time the offence was
committed. He points
accused 8 whereas
No.
out
that
accused
A.K.
Vikram
Singhania is
Prakash is
Page 11
12
accused
No.
10
in
these
complaints.
Mr.
Jayant
Bhushan, however, joins issue and submits that the
substance of the accusation clearly indicates that
the two accused were in-charge and responsible for
the conduct of the business of the company at the
time of the offence.
We have perused the complaints and, in fact, the
relevant
portions
reproduced
judgment.
in
of
the
the
allegations
foregoing
have
paragraphs
of
been
the
From that it is difficult to infer that
there is any averment that these two accused were
in-charge of and responsible for the conduct of the
business of the company at the time the offence was
committed.
and
The allegations in the complaints in sum
substance
mean
that
business
and
financial
affairs of the company used to be decided, organized
and administered by accused Nos. 2 to 6 and while
doing so, other Directors including the two accused
herein were consulted.
complainant on
therefore, are
company
for
that
The inference drawn by the
basis
in-charge
the
conduct
that
and
of
these
two
responsible
its
accused,
to
business,
the
is
Page 12
13
absolutely misconceived.
We are, therefore, of the
opinion that essential averment in the complaints is
lacking.
In case of offence by company for dishonour of
cheque, the culpability of the Directors has to be
decided with reference to Section 141 of the Act,
same reads as follows:
“141. Offences by companies.-(1) If
the person committing an offence under
section 138 is a company, every person
who, at the time the offence was
committed, was in charge of, and was
responsible to the company for the
conduct
of
the
business
of
the
company, as well as the company, shall
be deemed to be guilty of the offence
and shall be liable to be proceeded
against and punished accordingly:
Provided that nothing contained in
this sub-section shall render any
person liable to punishment if he
proves that the offence was committed
without his knowledge, or that he had
exercised all due diligence to prevent
the commission of such offence:
Provided further that where a
person is nominated as a Director of a
company by virtue of his holding any
office or employment in the Central
Government or State Government or a
financial
corporation
owned
or
controlled by the Central Government
or the State Government, as the case
Page 13
14
may be, he shall not be liable for
prosecution under this Chapter.
(2) Notwithstanding anything contained
in sub-section (1), where any offence
under this Act has been committed by a
company and it is proved that the
offence has been committed with the
consent
or
connivance
of,
or
is
attributable to, any neglect on the
part
of,
any
director,
manager,
secretary or other officer of the
company,
such
director,
manager,
secretary or other officer shall also
be deemed to be guilty of that offence
and shall be liable to be proceeded
against and punished accordingly.
Explanation.- For the purposes of this
section,-
(a)
"company"
means
any
body
corporate and includes a firm
or
other
association
of
individuals; and
(b) "director", in relation to a
firm, means a partner in the
firm.”
From a plain reading of the aforesaid provision
it is evident that every person who at the time the
offence was committed is in charge of and responsible
to the Company shall be deemed to be guilty of the
offence under Section 138 of the Act.
In the face of
it, will it be necessary to specifically state in the
complaint that the person accused was in charge of
Page 14
15
and responsible for the conduct of the business of
the Company? In our opinion, in the case of offence
by to
Company,
mischief
of
bring
Section
its
138
Directors
of
the
Act,
within
it
shall
the
be
necessary to allege that they were in charge of and
responsible to the conduct of the business of the
Company.
It is necessary ingredient which would be
sufficient
to
proceed
against
such
Directors.
However, we may add that as no particular form is
prescribed, it may not be necessary to reproduce the
words of the section.
If reading of the complaint
shows and substance of accusation discloses necessary
averments,
that
would
be
sufficient
to
proceed
against such of the Directors and no particular form
is necessary.
However, it may not be necessary to
allege and prove that, in fact, such of the Directors
have any specific role in respect of the transaction
leading to issuance of cheque.
Section 141 of the
Act makes the Directors in charge and responsible to
Company
“for
the
conduct
of
the
business
of
the
Company” within the mischief of Section 138 of the
Act and not particular business for which the cheque

was issued.
We cannot read more than what has been
mandated in Section 141 of the Act.
A large number of authorities of this Court have
been cited by the counsel representing the party to
bring home their point.
refer to all of them.
question
has
been
We deem it inexpedient to
Suffice it to say that this
answered
eloquently
by
a
three-
Judge Bench decision of this Court in the case of
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8
SCC 89, in the following words:
“19. In view of the above discussion,
our answers to the questions posed in
the reference are as under:
(a) It is necessary to specifically
aver in a complaint under Section 141
that at the time the offence was
committed, the person accused was in-
charge of, and responsible for the
conduct of business of the company.
This
averment
is
an
essential
requirement of Section 141 and has to
be made in a complaint. Without this
averment being made in a complaint,
the requirements of Section 141 cannot
be said to be satisfied.”

This
Court
Industries
Corpn.
in
the
Ltd.
case
v.
of
Harmeet
National
Singh
Small
Paintal,
(2010) 3 SCC 330, after reviewing all its earlier
judgments summarized the legal position as follows:
“39. From the above discussion,
following principles emerge:
the
(i) The primary responsibility is on
the
complainant
to
make
specific
averments as are required under the
law in the complaint so as to make the
accused
vicariously
liable.
For
fastening
the
criminal
liability,
there is no presumption that every
Director knows about the transaction.
(ii) Section 141 does not make all
the Directors liable for the offence.
The criminal liability can be fastened
only on those who, at the time of the
commission of the offence, were in
charge of and were responsible for the
conduct
of
the
business
of
the
company.
(iii) Vicarious liability can be
inferred against a company registered
or incorporated under the Companies
Act,
1956
only
if
the
requisite
statements, which are required to be
averred in the complaint/petition, are
made so as to make the accused therein
vicariously
liable
for
offence
committed by the company along with
averments in the petition containing
that the accused were in charge of and
responsible for the business of the
company
and
by
virtue
of
their

position
they
proceeded with.
are
liable
to
be
(iv) Vicarious liability on the part
of a person must be pleaded and proved
and not inferred.
(v) If the accused is a Managing
Director or a Joint Managing Director
then it is not necessary to make
specific averment in the complaint and
by virtue of their position they are
liable to be proceeded with.
(vi) If the accused is a Director or
an officer of a company who signed the
cheques on behalf of the company then
also it is not necessary to make
specific averment in the complaint.
(vii) The person sought to be made
liable should be in charge of and
responsible for the conduct of the
business
of
the
company
at
the
relevant time. This has to be averred
as a fact as there is no deemed
liability
of
a
Director
in
such
cases.”
In
(2011)
Harshendra
3 SCC
decisions in
National Small
351,
Kumar D.
after referring
S.M.S.
v.
Rebatilata
to
Pharmaceuticals
Industries
Corpn.
its
Koley,
earlier
Ltd.(supra),
Ltd.(supra),
N.
Rangachari v. Bharat Sanchar Nigam Ltd., (2007) 5 SCC
Page 18
19
108 and K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48,
this Court reiterated the same view.
We have found on fact that there is no averment
that the two accused herein were in charge of and
responsible for the conduct of the business of the
company
Hence,
at
the
there
complaints.
is
time
no
the
offence
essential
was
committed.
averment
in
the
In view of what we have observed above,
the prosecution of accused A.K. Singhania and accused
Vikram
Prakash
cannot
be
allowed
to
continue.
Accordingly, the order of the High Court quashing the
prosecution of the accused Vikram Prakash is not fit
to be interfered with.
For the same reason the order
passed by the High Court declining the prayer of A.K.
Singhania for quashing of the prosecution cannot be
sustained and the appeals preferred by him deserve to
be allowed.
In the result, we dismiss the appeals preferred
by the complainant Gujarat State Fertilizers Company
Ltd.
and
allow
the
appeals
preferred
by
A.K.
Page 19
20
Singhania
and
quash
his
prosecution
in
all
these
cases.
................................................................J.
(CHANDRAMAULI KR. PRASAD)
...........................................................J.
(KURIAN JOSEPH)
NEW DELHI,
OCTOBER 17, 2013
Page 20

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