Person responsible for conduct of company’s affairs at the time of cheque dishonor alone liable under NI Act: Supreme Court

Person responsible for conduct of company’s affairs at the time of cheque dishonor alone liable under NI Act: Supreme Court

The appeal was filed after the Punjab and Haryana High Court refused to quash the complaint under Section 482 CrPC.

The Supreme Court has reiterated the principles relating to the liability of a company’s director for the dishonor of a cheque issued by the company.

Referring to Section 141(a) of the Negotiable Instruments Act, 1881, the bench comprising Justice CT Ravikumar and Justice PV Sanjay Kumar stated, "Only that person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the company’s business, as well as the company alone shall be deemed guilty of the offence and shall be liable to be proceeded against and punished."

The bench was hearing an appeal seeking to quash the complaint under Section 138 of the NI Act against a person, accused on the sole ground that he was a partner of the partnership firm, which issued the cheque.

The appeal was filed after the Punjab and Haryana High Court refused to quash the complaint in the exercise of powers under Section 482 CrPC.

The Apex Court observed that the only averment in the complaint regarding the liability of the appellant was that he was a partner of the firm. The relevant averment was that ‘accused Nos.2 to 6 being the partners, were responsible for the day-to-day conduct and business of accused No.1.’

The Court held that the averment alone was not sufficient to put criminal liability on the appellant. Referring to the S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan case, the bench explained that it was the primary responsibility of the complainant to make specific averments in the complaint to make the accused vicariously liable.

The Judges stated, "It is not averred anywhere in the complaint that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed. What is stated in the complaint is only that accused Nos.2 to 6 being the partners are responsible for the day-to-day conduct and business of the company. It is relevant to note that an overall reading of the complaint would not disclose any clear and specific role of the appellant."

The bench also noted that the appellant replied to the notice sent by the complainant. The former informed that he had retired from the firm two years before the cheque was issued.

The judgment authored by Justice Ravikumar also referred to the recent judgment in the Ashok Shewakramani v. State Of Andhra Pradesh case, wherein it was held, "Merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company."

Thus, while allowing the appeal, the Court held, "The upshot of the discussion is that the averments in the complaint filed by the respondent are not sufficient to satisfy the mandatory requirements under Section 141(1) of the NI Act. Thus, the appellant is entitled to succeed in this appeal."