The Supreme Court has reaffirmed that directors of a company cannot be automatically held liable under Section 141 of the Negotiable Instruments Act, 1881 merely by virtue of their position. The judgment underscores that a specific averment of day-to-day involvement in the company’s affairs is essential for prosecution, setting aside summoning orders issued without such evidence.
Background & Facts
The Dispute
The appellant, Saroj Pandey, was a director of Projtech Engineering Private Limited, which issued three cheques dated 20.04.2021, each worth Rs. 15 lacs, Rs. 20 lacs, and Rs. 15 lacs, respectively, for payment of iron and steel supplies. Upon deposit, the cheques were returned unpaid with the reason: “DRAWERS SIGNATURES DIFFERS AND ALTERATIONS/CORRECTIONS ON INSTRUMENTS OTHER THAN DATE.” Legal notices were sent on 12.05.2021 and 18.05.2021, and proceedings under Section 138 of the NI Act were initiated on 25.06.2021.
Key Facts
- The appellant was a director of Projtech Engineering Private Limited
- Three cheques issued on 20.04.2021 for Rs. 15 lacs, Rs. 20 lacs, and Rs. 15 lacs
- Cheques returned unpaid on 20.04.2021 due to signature discrepancies
- Legal notices sent on 12.05.2021 (through counsel) and 18.05.2021 (via speed post)
- Complaint filed under Sections 138 and 142 of the NI Act on 25.06.2021
- Summons issued by MM(NI-Act), Dwarka Courts, New Delhi on 23.09.2021 for appearance on 15.12.2021
Procedural History
- 23.09.2021: Metropolitan Magistrate issued summons in CC NI Act 12597/2021
- CR No. 115/2023: Revision petition dismissed by Additional Sessions Judge, Dwarka Courts
- 07.08.2025: High Court of Delhi dismissed Criminal MC No. 8110/2023 and Criminal M.A. No. 30210/2023 under Section 482 CrPC
- 2025: Special Leave Petition filed before the Supreme Court
The Parties' Positions
- Appellant: Argued that mere directorship or signing a board resolution does not establish day-to-day involvement in the company’s affairs, which is a prerequisite under Section 141 NI Act
- Respondent: Contended that the appellant’s signature on board resolutions and her directorship were sufficient to infer her involvement in the company’s day-to-day management
Relief Sought
The appellant sought quashing of the summoning order and proceedings under Sections 138 and 141 of the NI Act, arguing that the complaint lacked specific averments of her involvement in the company’s affairs.
The Legal Issue
The central question was whether a director of a company can be prosecuted under Section 141 of the NI Act without a specific averment in the complaint that she was “in charge of, and responsible for, the conduct of the business of the company” at the time of the offence.
Arguments Presented
For the Appellant
- Relied on S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla to argue that Section 141 NI Act requires a specific averment of day-to-day involvement
- Contended that mere directorship or signing board resolutions does not satisfy the statutory requirement
- Cited Gunmala Sales (P) Ltd. v. Anu Mehta to emphasize that unimpeachable evidence is needed to establish a director’s involvement
For the Respondent
- Argued that the appellant’s signature on board resolutions and her directorship were sufficient to infer her involvement in the company’s affairs
- Relied on the lower courts’ reasoning that the appellant’s role in the company justified the summoning order
The Court's Analysis
The Supreme Court examined the scope of Section 141 NI Act, which imposes liability on directors only if they were “in charge of, and responsible for, the conduct of the business of the company” at the time of the offence. The Court reiterated the principles laid down in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, which held that:
“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.”
The Court further relied on Gunmala Sales (P) Ltd. v. Anu Mehta, which clarified that while the basic averment is necessary, the High Court may quash proceedings if unimpeachable evidence shows the director was not involved. Examples include directors suffering from terminal illness, those who resigned before the offence, or cases where prosecution is an arm-twisting tactic.
In the present case, the Court found that the complaint lacked “even as much as a whisper of direct allegation” against the appellant regarding her day-to-day involvement. The mere fact that she signed board resolutions was insufficient to establish liability under Section 141 NI Act.
The Court also addressed the High Court’s observation that a petition under Section 482 CrPC is circumscribed if a revision petition under Section 397 CrPC has already been entertained. It relied on Krishnan v. Krishnaveni and Dhariwal Tobacco Products Ltd. v. State of Maharashtra to hold that Section 482 CrPC is a paramount power of the High Court, not barred by the dismissal of a revision petition. The inherent power under Section 482 CrPC can be exercised to prevent abuse of process, even if a revision petition is dismissed.
The Verdict
The Supreme Court allowed the appeal, quashing the proceedings against the appellant, Saroj Pandey. The Court set aside the summoning order and the High Court’s order dated 07.08.2025, holding that the complaint failed to satisfy the essential averment required under Section 141 NI Act. The observations in the judgment were limited to the appellant’s case and do not affect the trial of co-accused persons.
What This Means For Similar Cases
Directors Cannot Be Automatically Prosecuted
- Specific averment required: Complaints under Section 141 NI Act must explicitly state that the director was “in charge of, and responsible for, the conduct of the business of the company” at the time of the offence. Mere directorship or signing board resolutions is insufficient.
- Burden of proof: The complainant must provide unimpeachable evidence of the director’s involvement. Courts may quash proceedings if the director’s non-involvement is established (e.g., terminal illness, resignation before the offence).
High Court’s Inherent Powers Under Section 482 CrPC Remain Unrestricted
- No bar from revision dismissal: The dismissal of a revision petition under Section 397 CrPC does not limit the High Court’s jurisdiction under Section 482 CrPC. The inherent power can still be exercised to prevent abuse of process.
- Paramount power: The High Court’s power under Section 482 CrPC is a continuous superintendence, independent of statutory limitations under Section 397 CrPC.
Practical Implications for Practitioners
- Drafting complaints: Ensure complaints under Section 141 NI Act include specific averments of the director’s day-to-day involvement. Generic allegations of directorship will not suffice.
- Defending directors: Argue lack of specific averment or unimpeachable evidence of involvement. Highlight circumstances like resignation, illness, or lack of knowledge to seek quashing of proceedings.
- Section 482 CrPC: Even if a revision petition is dismissed, file a Section 482 CrPC petition if unimpeachable evidence or abuse of process is evident.
