A Company must have numerous Directors however, it is not necessary that all Directors must be engaged in the day to day affairs of the Company and therefore, the Directors who have not signed a cheque on behalf of the Company cannot be prosecuted U/s 138 of Negotiable Instruments Act. The Apex Court in numerous judgments, held that a Director of a company can be held liable under Negotiable Instruments Act only if it is established that he/she was in charge of and responsible for the conduct of company’s business at the time of commission of the offence and not otherwise.

Legal Criteria for Holding a Director Liable under Negotiable Instruments Act

For a Director to be impleaded as an accused in an offence under Section 138 of the NI Act, two essential criteria must be satisfied:

1. The Director was in charge of the company’s business.
2. The Director was responsible for the conduct of the company’s business at the time of commission of the offence.
   

The Hon’ble Supreme Court of India in it’s judgment dated 15.03.2024 titled as “Susela Padmavathy Amma Vs. M/s Bharti Airtel Limited” quashed the Complaint U/s 138 NI Act against one of the Director of the Company by holding that the vicarious liability of a Director for an offence committed by a company under the NI Act arises only if at the time of commission of an offence the Director was in-charge of the company and responsible for the conduct of business of the company and not otherwise.

That in it’s another judgment dated 03.08.2023 titled as “ASHOK SHEWAKRAMANI & ORS Vs. STATE OF ANDHRA PRADESH & ANR”, the Apex Court extensively addressed the issue of vicarious liability of directors under Section 141 of the Negotiable Instruments Act, 1881 and held as follows:

“…The most important averment which is required by sub-Section (1) of Section 141 of the NI Act is that the directors were in charge of, and were responsible for the conduct of the company. The appellants are neither the signatories to the cheques nor are wholetime directors.”
“…Accordingly, a complaint bearing CC No.1/12 pending in the Court of Judicial Magistrate, First Class, Nandyal is quashed only in so far as present appellants are concerned.”

The Hon’ble High Court of Delhi in it’s judgment dated 02.11.2022 titled as “Preeti Vs State & Anr”, reiterated that a Director of a Company could be held vicariously liable only if it was shown that he was in-charge of and was responsible for the conduct of the business of the company at the time of commission of offence, and not otherwise. The Hon’ble High Court of Delhi in the present case held as follows:

“….In absence of any specific averments or allegations carving out a specific role attributable to petitioner in relation to conduct of business of accused company, merely making bald statements that all the accused persons/directors were incharge and responsible for the day to day affairs of the company, does not suffice to make the petitioner herein vicariously liable for dishonouring of the cheques not signed by her and there being material on record to show that she was an independent director in the company.”

Conclusion

The vicarious liability of a Director/person for the offence committed by a Company under the Negotiable Instruments Act arises only if at the time of commission of the offence, he was in charge of and was also responsible to the company for the conduct of Company’s business. Merely being a Director or holding a position in the Company does not automatically result in liability under Section 138 of the NI Act and specific allegations regarding the involvement of Director in the business must be established to fasten the liability upon such Director.