In a recent ruling, the Supreme Court provided clarity on the liability of directors in cases of cheque dishonour under the Negotiable Instruments Act. The case involved Susela Padmavathy Amma, accused of cheque dishonor as a director of M/S. Bharti Airtel Limited. However, the Court found the allegations insufficient to establish her direct involvement in the company’s day-to-day operations crucial for invoking liability under Section 141 of the Act.
Emphasizing that mere directorship does not imply awareness or responsibility for operational matters, the Court overturned the High Court’s decision. It ruled that holding a director liable requires specific allegations demonstrating their involvement in the company’s conduct at the time of the offense. This judgment sets a precedent ensuring that directors are held accountable only when their direct involvement in the company’s affairs is established beyond doubt.
CASE DETAILS:
Susela Padmavathy Amma v. M/S. Bharti Airtel Limited
2024 LiveLaw (SC) 237
Supreme Court
Coram: Justices B.R. Gavai and Sandeep Mehta
BACKGROUND:
- In the present case, the complainant/respondent complained about Section 138 of the Negotiable Instruments Act against the Appellant alleging that she held the position of Director of the Company.
- However, the complainant failed to provide evidence or averments to demonstrate how the appellant in her capacity as Director was responsible for managing the day-to-day affairs of the company.
- Subsequently, the appellant filed an application before the High Court seeking to quash the pending proceedings before the Metropolitan Magistrate, Fast Track Court-III, Saidapet, Chennai related to the offence under Section 138 of the Negotiable Instruments Act, 1881.
- The High Court declined to quash the ongoing proceedings against the accused/director of the company under Section 138 of the Negotiable Instruments Act.
- The present appeals challenge the collective judgment and order dated April 26, 2022 issued by the High Court of Judicature at Madras.
OBSERVATIONS:
After examining the complaint, the Supreme Court concluded that merely being a director of a company does not imply that the individual is aware of the company’s day-to-day operations. Additionally, the court found that the allegations made were insufficient to invoke the provisions of Section 141 of the Negotiable Instruments Act against the appellant as the complainant failed to demonstrate how and in what capacity the director was responsible for the company’s actions when the cheque was dishonored.
The court reiterated that being a director does not automatically fulfil the requirements of Section 34(1) of the said Act to hold the individual liable. It emphasized that liability cannot be imposed unless, at the relevant time, the person was in charge of and responsible for the company’s conduct of business.
JUDGEMENT:
The Supreme Court noted that a director of a company who is not responsible for its day-to-day affairs cannot be held accountable for the dishonour of a cheque under the Negotiable Instruments Act, of 1881. In a reversal of the High Court’s decision which had declined to quash pending proceedings under Section 138 of the Negotiable Instruments Act against the accused/director of the company, the bench consisting of Justices B.R. Gavai and Sandeep Mehta observed that in order to hold a director liable for the company’s offences under Section 141 of the Act, there must be specific allegations against the director demonstrating how and in what capacity the director was responsible for the company’s business conduct.
