Liability and Defense U/S 138 For Persons Having Separate Role/ Designation In A Company

What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company.

The liability arises from being in charge of and responsible for 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.

A.R.RadhaKrishna v. Dasari Deepthi and Ors.| Crl. Appeal No.s 403-405 of 2019
In a case pertaining to an offence under S. 138 and S. 141 of the Act, the law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for, the conduct of the company’s business at the time when the offence was committed.

1. Managing Director or a Joint Managing Director
S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla and anr. | Crl. Appeal No. 662 of 2002
The position of a Managing Director or a Joint Managing Director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company.

In order to escape liability such persons may have to bring their case within the proviso to Section 141 (1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.

2. Signatory of a Cheque
S.M.S. Pharmaceuticals Ltd. V. Neeta Bhalla and anr. | Crl. Appeal No. 662 of 2002
So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141.

K.K. Ahuja v. V.K. Vora & Anr. | Crl. Appeal No.s 1130-31 of 2003
In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under sub-section (2) of Section 141.

DCM Financial Services Ltd. V. J.N. Sareen and Ors. | Crl. Appeal No. 875 of 2008
A person who is signatory to a cheque but had before the encashment and subsequent dishonour of the instrument resigned from the Company could not be made responsible for the payment on behalf of the company.

3. Non-Executive Director
Pooja Ravinder Devidasani v. State of Maharashtra & Anr | Crl. Appeal No. 2604-2610 of 2014
Non-executive Director is no doubt a custodian of the governance of the Company but does not involve in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of the Company, one who actively looks after the day-to-day activities of the Company and particularly responsible for the conduct of its business. Simply because a person is a Director of a Company, does not make him liable under the N.I. Act.

Chanakya Bhupen Chakravarti & Anr v. Mrs Rajeshri Karwa | Crl. MC 3729 of 2017[Delhi HC]
The petitioners concededly being non-executive directors, in absence of any further averments as to their role in the company at the time of Crl. M.C. No.3729/2017 & conn. Page 11 of 11 commission of the offences, the presumption under Section 141 NI Act cannot be raised against them.

4. Independent Director
Sh Somendra Khosla N Srinivasa Rao V. State & Anr. | CRL.M.C. 3982 of 2017[Delhi HC] – AGAINST 01.09.2019
Since there are allegations against petitioners (Independent Director) ofbeing responsible for day to day functioning of businessof accused company, therefore, in the considered opinion of this Court, no case for quashing complaint and summoning order is made out.

Gunmala Sales Private Ltd v. Anu Mehta & Ors. | Crl Appeal No. 2228 of 2014
In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about role of the Director in the complaint.

It may do so having come across some unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of the process of the court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the Director.

Take for instance a case of a Director suffering from a terminal illness who was bedridden at the relevant time or a Director who had resigned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm-twisting tactics, the High Court may quash the proceedings.

It bears repetition to state that to establish such case unimpeachable, uncontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case being there cannot be ruled out. In the absence of such evidence or circumstances, complaint cannot be quashed.