A) ABSTRACT / HEADNOTE

Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited & Anr., [2025] 3 S.C.R. 91 : 2025 INSC 223, examines whether an independent non-executive director can be vicariously criminally liable under Section 141 read with Section 138 of the Negotiable Instruments Act, 1881 for cheques issued and dishonoured by the company. The appellant, who neither signed nor authorised the disputed cheques and who resigned from directorship before certain actions, was initially arrayed as an accused in multiple complaints for dishonour of cheques issued by the company.

The Bombay High Court dismissed quashing petitions under Section 482, CrPC, treating the director’s role as a trial issue. The Supreme Court reversed, reaffirming settled principles that penal vicarious liability under Section 141 must be strictly pleaded and proved, and that mere directorship particularly where the director is non-executive and has no role in day-to-day financial management does not attract automatic liability.

The Court relied on precedents including National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, N.K. Wahi v. Shekhar Singh, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Pooja Ravinder Devidasani v. State of Maharashtra to emphasize the necessity for specific averments showing that the accused was “in charge of and responsible” for company business at the relevant time.

Finding absence of such averments, non-signatory status to the cheques, and resignation formally communicated to the Registrar of Companies, the Court held the complaints failed the mandatory legal threshold and quashed criminal proceedings against the appellant. Keywords: Section 138, Section 141, independent non-executive director, vicarious liability, quashing, Section 482 CrPC.

Keywords: Negotiable Instruments Act, Section 138, Section 141, independent non-executive director, quashing proceedings.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The litigation arises from multiple complaints under Section 138, NI Act against a company for dishonour of several cheques issued as repayment of loans. The appellant was an additional independent non-executive director appointed in 2008 and re-appointed in 2014, who asserts he had no role in financial operations or key management. The company obtained loans in 2016–17 and issued cheques which were dishonoured for insufficiency of funds. The appellant neither signed nor authorised those cheques, and in some demand notices his name initially did not appear.

He resigned on 03.05.2017 and filed Forms DIR-11 and DIR-12 with the Registrar of Companies notifying cessation. The Metropolitan Magistrate received complaints in 2017 across different docket numbers corresponding to the dishonoured cheques. The High Court dismissed the appellant’s Section 482 CrPC petitions, concluding that the extent of a director’s involvement was a matter for trial and that the complainant’s averments were sufficient to proceed.

This Court granted leave to challenge that conclusion. The Supreme Court framed the narrow question whether mere designation as a director, particularly an independent non-executive director, suffices to attract vicarious penal liability under Section 141 without specific allegations showing active charge or responsibility for the company’s business at the time of offence.

D) FACTS OF THE CASE

The appellant was appointed an additional independent non-executive director on 02.01.2008 and designated as independent non-executive director on 27.09.2008, being reappointed on 30.09.2014. During 2016–17, the company availed two loans from Respondent No.1 aggregating ₹56,00,000 and ₹70,00,000. For repayment the company issued several cheques, which were dishonoured for inadequate funds. Specific cheques included Cheque Nos. 455494 (₹8,00,000 dated 24.11.2016), 455495 (₹8,00,000 dated 25.12.2016), 455496 (₹8,00,000 dated 25.01.2017), and 455497–455500 (₹10,00,000 each dated 28.02.2017).

The appellant did not sign or authorize any of these cheques. In two of the four criminal matters, demand notices initially omitted the appellant’s name; later notices included all directors and office-bearers. The appellant resigned on 03.05.2017 and the resignation was formally communicated to the Registrar of Companies via Form DIR-11 and DIR-12 with effect from that date. Complaints under Section 138 were filed before the Learned Metropolitan Magistrate (complaint nos. 66/SS, 645/SS, 697/SS, 1595/SS of 2017).

The High Court dismissed quashing petitions; this appeal ensued. The record lacked specific allegations explaining how the appellant, a non-executive director, was in charge of and responsible for conduct of the company’s business at the time of issuance or dishonour of the cheques.

E) LEGAL ISSUES RAISED

i. Whether mere directorship, and specifically the position of an independent non-executive director, suffices to attract criminal vicarious liability under Section 141 read with Section 138 of the Negotiable Instruments Act, 1881?
ii. Whether the complaints contain the specific averments required to fasten liability on a director who neither signed nor authorised the disputed cheques?
iii. Whether resignation and formal notification to the Registrar of Companies precludes prosecuting a former director for offences allegedly committed after cessation?
iv. Whether the High Court erred in refusing to quash the complaints under Section 482, CrPC where the statutory preconditions for prosecuting a director under Section 141 are absent?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioner / Appellant submitted that the appellant was an independent non-executive director with no role in financial management or daily operations and was neither a signatory to nor an authoriser of the cheques. They argued that the complaint lacked specific averments identifying the appellant as being in charge of and responsible for the conduct of the company’s business at the material time, which is mandatory to incur vicarious liability under Section 141.

It was pointed out that in two cases demand notices initially did not even name the appellant and that he resigned on 03.05.2017 with statutory forms filed with the Registrar. Reliance was placed on precedents which require strict pleading and proof to fasten penal vicarious liability and the submission that allowing prosecution on mere directorship would subvert the protective principle that penal vicarious liability must be specifically pleaded.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondents submitted that the appellant, by virtue of holding directorship, formed part of the decision-making apparatus and therefore could be implicated under Section 141 even if non-executive. They urged that the role of the director is a fact question to be examined at trial and that the complainant included sufficiently framed averments. The respondents contended that strict exclusion of non-executive directors from Section 141 liability would unduly narrow enforcement and allow culpable office-holders to escape responsibility, urging that the High Court rightly allowed the matter to proceed to evidence and trial.

H) JUDGEMENT

The Court reaffirmed the well-settled principle that penal provisions creating vicarious liability must be strictly construed and the complainant must make specific, unambiguous averments demonstrating how the accused was in charge of and responsible for the conduct of the business of the company at the relevant time. Citing National Small Industries Corporation Ltd. v. Harmeet Singh Paintal [2010] 2 SCR 805 : (2010) 3 SCC 330, the Court reiterated that bald statements of charge are inadequate and that vicarious liability cannot be inferred merely from designation.

The judgment surveyed prior precedents N.K. Wahi v. Shekhar Singh [2007] 3 SCR 883 : (2007) 9 SCC 481, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] Supp. 3 SCR 371 : (2005) 8 SCC 89, and Pooja Ravinder Devidasani v. State of Maharashtra [2014] 14 SCR 1468 : (2014) 16 SCC 1 emphasizing that non-executive directors play a governance role and are generally not involved in daily operations or financial management.

The Court analyzed the record and found that the complaints lacked specific averments tying the appellant to cheque issuance or financial control; he was not a signatory, and resignation was communicated to the Registrar before several proceedings. The Court held that a director can be liable if he was actually in charge of company affairs at the time or if he signed the cheques or otherwise was shown to have authorised the acts, but such facts had to be pleaded.

Applying the strict test, the Court concluded absence of requisite pleadings and evidence at the quashing stage warranted setting aside the High Court order and quashing criminal proceedings against the appellant. No costs were awarded. The appeals were allowed.

a. RATIO DECIDENDI

The ratio is that Section 141 creates a penal vicarious liability which must be strictly pleaded and proved; mere designation as a director, including an independent non-executive director, does not automatically render one liable for offences under Section 138. To fasten liability the complaint must contain clear, specific averments showing that at the time of commission of the offence the accused was in charge of and responsible for conduct of the company’s business, or that the accused signed or authorised the negotiable instrument. Absent such averments, prosecution cannot be sustained at the pre-trial quashing stage.

b. OBITER DICTA

The Court observed by way of guidance that when an accused is a Managing Director or Joint Managing Director, or an officer who signed the cheques, the position differs and specific averments may be unnecessary due to the nature of those offices. The judgment noted the policy rationale: penal provisions imposing vicarious liability must not be stretched to penalise directors who function in supervisory or governance capacities without operational control. The Court also indicated that resignation formally intimated to the Registrar is material and may disentitle the complainant from dragging a former director into prosecution for post-resignation acts.

c. GUIDELINES

i. Complaints invoking Section 141 must clearly aver how the specific director was in charge of and responsible for the conduct of the business at the relevant time.
ii. Mere recital of directorship in the complaint is insufficient; particulars of role, control, signatory authority or active involvement must be pleaded.
iii. If a director has signed the cheque, or the office is Managing Director/Joint Managing Director, different presumptions arise; complaints should still identify the factual basis.
iv. Resignation and official filing of Form DIR-11/DIR-12 with the Registrar should be pleaded and proved where reliance is on cessation of office.
v. Trial courts should not proceed to try defendants absent the mandatory averments; High Courts when considering quashing must examine whether the statutory threshold for vicarious liability is met.

I) CONCLUSION & COMMENTS

The decision reinforces established safeguards against indiscriminate criminalisation of corporate office-holders by insisting on precise pleading and proof before attaching vicarious penal liability under Section 141. It draws a clear line between governance functions of independent non-executive directors and the operative responsibilities whose breach may attract criminal consequences. Practically, the judgment instructs complainants and public prosecutors to frame complaints with particularity as to roles, signatures, authorisations and temporal connection to the offence; it also protects directors from being swept into prosecutions on the basis of titular association alone.

The ruling values the doctrine of strict construction of penal statutes and emphasises the procedural role of Section 482, CrPC as a corrective against frivolous or unsubstantiated criminal proceedings. For corporate governance, the judgment highlights the legal distinctions between executive control and oversight roles and underscores the importance for companies to maintain clear records of authorisations and board-level responsibilities to prevent misuse of criminal process.

J) REFERENCES

a. Important Cases Referred

i. Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited & Anr., [2025] 3 S.C.R. 91 : 2025 INSC 223.
ii. National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, [2010] 2 SCR 805 : (2010) 3 SCC 330.
iii. N.K. Wahi v. Shekhar Singh, [2007] 3 SCR 883 : (2007) 9 SCC 481.
iv. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, [2005] Supp. 3 SCR 371 : (2005) 8 SCC 89.
v. Pooja Ravinder Devidasani v. State of Maharashtra, [2014] 14 SCR 1468 : (2014) 16 SCC 1.

b. Important Statutes Referred

i. Negotiable Instruments Act, 1881 (India).
ii. Code of Criminal Procedure, 1973 (India).