10 Aug 2023 11:08 AM GMT
The Supreme Court recently held that under Section 141 of the Negotiable Instruments Act, 1881, a person will become vicariously liable when a company is accused of the offence under Section 138 (Dishonour of cheque for insufficiency of funds ) of the Act, only if such a person was "in charge of" and was "responsible to the company for the conduct of the business of the company" at the time the offence was committed.
A division bench of Justice Abhay S Oka and Justice Sanjay Karol observed that just because a person is managing a company and is involved in its day-to-day affairs, he does not automatically come under the ambit of Section 141 of the NI Act. The requirement under sub-section 1 of Section 141 of the Act is ‘something different and higher’ the Apex Court held:
Under Section 141 of the Act, every person who was in charge of, and was responsible to the Company for the conduct of business of the company at the time the offence was committed, will be guilty of the offence under Section 138 of the NI Act along with the Company.
“Section 141 is an exception to the normal rule that there cannot be any vicarious liability when it comes to a penal provision. The vicarious liability is attracted when the ingredients of sub-section 1 of Section 141 are satisfied.” The Court observed.
For reference, Section 141 (1) of the Negotiable Instruments Act reads as follows:
141. Offences by companies.- (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deeded to be guilty of the offence and shall be liable to be proceeded against and punished accordingly
The Apex Court held that the words "was in charge of" and "was responsible to the company for the conduct of the business of the company" under the said section, need to be read conjunctively:
In the matter at hand, the Top Court was considering appeals by directors of a company, who were accused in a complaint filed under Section 138 of the NI Act. The High Court had dismissed their petitions under Section 482 of the Code of Criminal Procedure, 1973 for quashing of the complaints against the appellants filed by the same complainant.
The contention of the complainant (second respondent in the appeal) was that the appellants were liable for transactions of the company and were fully aware of the issuance of the cheques and dishonour of the cheques. Relying on S.P. Mani and Mohan Diary Versus Dr Snehalatha Elangovan 2022 LiveLaw (SC) 772 the complainant also contended that the appellants failed to reply to the statutory notice. However, the Apex Court held that the requirements under Section 141 had not been met:
The Apex Court while allowing the appeals held that just because the appellants were involved in the day-to-day affairs of the company, sub-section 1 of Section 141 of the NI Act would not be attracted. In this context, the Court emphasized on the distinction between being in charge of the Company and being responsible for the conduct of business of the Company:
Case Title: Ashok Shewakramani V. State Of Andhra Pradesh, Criminal Appeal No.879 Of 2023
Citation: 2023 LiveLaw (SC) 622;2023 INSC 692
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