Institute of Legal and Management Studies

The Supreme Court held that to make directors of a company liable for the offence of dishonour of cheque, it is not necessary that the complaint should state their specific role within the company.

The Court noted that while Section 141(1) of the Negotiable Instruments Act requires a specific averment that the person was “in charge of, and responsible to the company for the conduct of its business”, there is no necessity to adopt word for word the language of the statute. Rather, material compliance is enough provided the complaint specifies the role of the director.

"What is important to note is that the repetition of the exact words of the Section in the same order, like a mantra or a magic incantation is not the mandate of the law."

Challenging the High Court's verdict, the Special Leave Petition was filed in the Supreme Court

A Bench comprising Justice Manoj Misra and Justice K.V. Viswanathan of the Supreme Court set aside the High Court's judgment.

The judgment authored by Justice Viswanathan observed :

"...the administrative role of each director would be within the special knowledge of the company or the director of the firm and it is for them to establish that they were not in charge of the affairs of the company. In view of this, the contention of the learned counsel for the respondent No.2 that the specific role attributed to the directors should be set out in the complaint does not merit acceptance.

Reliance has been placed on National Small Industries Corporation Limited vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330 by the learned counsel for the respondent No.2 in support of the proposition canvassed. We are unable to countenance the said submission. If the learned counsel by the said submission seeks to contend that the complainant in a Section 138 complaint is obliged to plead administrative matters which are especially within the knowledge of the company and the directors, then he is completely wrong in the understanding of the ingredients of Section 141. As held in K.K. Ahuja (supra) and reiterated in S.P. Mani (supra), the complainant is supposed to know only generally as to who are in charge of the affairs of the company. "

Here, the complaint made Sharma "responsible for the day-to-day affairs, management and working" of the company, sufficiently expressing her responsibility under Section 141.

The Court relied extensively on S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. [(2005) 8 SCC 89], which laid down:

Other key precedents discussed by the Court include K.K. Ahuja v. V.K. Vora & Anr. [(2009) 10 SCC 48], where it was held that a general averment of a person being “in charge of and responsible for” the conduct of business is sufficient at the complaint stage. In National Small Industries Corp. Ltd. v. Harmeet Singh Paintal [(2010) 3 SCC 330] the Court emphasized the need for clear and specific allegations to establish vicarious liability. Similarly, in S.P. Mani & Mohan Dairy v. Snehalatha Elangovan [(2022) 6 SCC 220], the court reaffirmed that a complainant is only expected to generally plead the role of those in control of the company's affairs.

Harmonizing these judgments, the Supreme Court held that it is enough for the complainant to state the accused's role in the transaction, to the best of their knowledge.

"A harmonious reading of the judgments in K.K. Ahuja (supra), Harmeet Singh Paintal (supra) and S.P. Mani (supra) brings out the position brings out the position that there is no obligation on the complainant to plead in the complaint as to matters within the special knowledge of the company or the directors or firm about the specific role attributed to them in the company."

It again emphasized that the Magistrate has to be satisfied that the complaint has sufficient and substantive averments. Any defence, like non-knowledge or lack of due diligence, can be taken into account at the trial stage under the proviso to Section 141.

The Court underscored that there is no automatic or deemed liability merely because one is a director. The burden to show involvement rests with the complainant at least through appropriate pleadings.

Granting the appeal, the Supreme Court reinstated the Magistrate's order directing process against Sharma and quashed the High Court's order.

Case : HDFC Bank Ltd. v. State of Maharashtra

Citation : 2025 LiveLaw (SC) 624

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