A) ABSTRACT / HEADNOTE

Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited & Anr., Criminal Appeal Nos. 758-761 of 2025, decided 13 February 2025 by a Bench including B.V. Nagarathna and Satish Chandra Sharma, addresses whether an independent non-executive director can be fastened with vicarious criminal liability under Section 141 read with Section 138 of the Negotiable Instruments Act, 1881 for dishonour of company cheques.

The appellant, an independent non-executive director, was arraigned in four complaints arising from dishonoured cheques issued by the company. The High Court dismissed his Section 482, CrPC petitions; this Court granted leave and examined precedent-based principles on vicarious liability for directors. The Supreme Court reiterated settled law that mere directorship or titular association does not attract penal vicarious liability under Section 141 unless the complaint contains specific, unambiguous averments showing the director was in charge of and responsible for the conduct of the business at the relevant time, or falls within recognized exceptions (e.g., Managing Director or signatory to the cheque).

The Court found that the appellant was neither a signatory nor involved in day-to-day financial management, had resigned before the offending transactions, and that the complaints lacked required specific averments. Relying on National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, N.K. Wahi v. Shekhar Singh, and Pooja Ravinder Devidasani v. State of Maharashtra, the Court quashed the criminal proceedings against the appellant.

Keywords: Section 138 NI Act, Section 141 NI Act, independent non-executive director, vicarious liability, quashing under Section 482 CrPC.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appeal tests the boundary between corporate office-holding and penal vicarious liability in cheque dishonour prosecutions under the Negotiable Instruments Act. The appellant served as an additional and thereafter independent non-executive director of the company; he was re-appointed by ordinary corporate processes and had no role in routine financial management. The company issued cheques to a creditor which were dishonoured for insufficiency of funds; multiple complaints under Section 138 followed.

The complainant subsequently included the appellant among other directors as accused under Section 141, claiming vicarious liability. The High Court refused to quash the proceedings, treating the appellant’s role as a matter for trial. On appeal, this Court revisited the settled requirement that Section 141 creates penal vicarious liability and therefore must be strictly construed: the complainant must plead specific facts to show a director was in charge of and responsible for the conduct of the company’s business at the relevant time.

The Court examined the appellant’s appointment dates, lack of signature on the cheques, absence of alleged financial control, and a formal resignation filed before certain offences. The background thus raises two competing concerns: preventing abuse of process by indiscriminate roping-in of directors vis-à-vis the legitimate object of enforcing negotiable instrument obligations.

The Supreme Court applied precedent to ensure that personal liability is not inferred solely from titular directorship; the decision underscores the protective principle that penal statutes imposing vicarious criminal liability require specific, factual pleading and cannot be generalized.

D) FACTS OF THE CASE

The appellant was appointed as an additional independent non-executive director on 2 January 2008 and confirmed as such on 27 September 2008; reappointment occurred by resolution on 30 September 2014. The company allegedly obtained two loans from the complainant during 2016–2017 aggregating ₹1,26,00,000/-, and issued a series of cheques in purported repayment. Several cheques presented in late 2016 and early 2017 were dishonoured for insufficient funds; details include cheque numbers 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 four cheques numbered 455497–455500 (₹10,00,000 each dated 28.02.2017).

The appellant did not sign or authorise any of these cheques. Initial demand notices in two of the four complaints were not directed to him; his name appeared later alongside all categories of directors in subsequent notices. The appellant resigned from his directorship on 3 May 2017, with resignation formally communicated to the Registrar of Companies through Form DIR-11 and Form DIR-12. Complaints under Section 138 NI Act were filed between February and July 2017 before the Metropolitan Magistrate, Esplanade, Mumbai (Complaint Nos. 66/SS, 645/SS, 697/SS, 1595/SS of 2017). The High Court dismissed petitions seeking quashing under Section 482 CrPC, finding the director’s role a trial issue. The appellant challenges that order before the Supreme Court.

E) LEGAL ISSUES RAISED

i. Whether mere designation as an independent non-executive director is sufficient to attract vicarious criminal liability under Section 141 of the Negotiable Instruments Act?
ii. Whether the complaint contains the necessary specific averments to show that the appellant was in charge of and responsible for the conduct of the company’s business at the relevant time?
iii. Whether a director who is not a signatory to the dishonoured cheques and not involved in day-to-day financial management can be prosecuted under Section 138 read with Section 141?
iv. Whether resignation prior to or contemporaneous with the offending transactions defeats vicarious liability alleged in the complaints?

F) PETITIONER / APPELLANT’S ARGUMENTS

The appellant’s counsel submitted that the appellant functioned solely as an independent non-executive director with governance responsibilities and no executive or financial role. It was argued that the complaints lack specific averments explaining how he was in charge of and responsible for the company’s business when the cheques were issued and presented. The appellant was not a signatory to any dishonoured cheque, did not authorise the payments, and had resigned with formal filings (Form DIR-11 and DIR-12) on 3 May 2017.

The submission emphasised the settled legal precept that vicarious liability under Section 141 is not automatic and must be pleaded and proved; mere listing of directors in demand notices or subsequent amendment cannot supply the mandatory factual basis for criminal prosecution. The counsel urged quashing under Section 482, CrPC to prevent misuse of the criminal process and stigma to an uninvolved director.

G) RESPONDENT’S ARGUMENTS

The complainant’s counsel contended that directors, by virtue of their office, form part of the decision-making apparatus and therefore can be roped in for offences by the company; the role of the appellant should be tested at trial where evidence can be examined. It was contended that Section 141 contemplates vicarious liability for directors and that the complaint contained sufficient averments to proceed.

The respondents resisted pre-trial quashing, urging that the High Court’s approach of leaving role-specific scrutiny for trial was appropriate to prevent undue curtailment of prosecution opportunities. The respondent relied on the general principle that corporate officers can be proceeded against where prima facie material exists.

H) JUDGMENT

The Supreme Court allowed the appeals and quashed the proceedings against the appellant. The Court reaffirmed the cardinal rule that Section 141 imposes penal vicarious liability and must be strictly construed. Precedent binds that a complaint must contain clear and unambiguous averments showing how the director was in charge of and responsible for company business at the time of the offence.

The Court relied on National Small Industries Corporation Ltd. v. Harmeet Singh Paintal (2010), which lays down that mere bald statements are insufficient and that the complaint should spell out the role and the manner of responsibility. N.K. Wahi v. Shekhar Singh (2007) was cited for the same proposition that prosecution of directors requires specific allegations about the part played by them. S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) was applied to underscore that mere designation is insufficient and some operative function must be averred.

Pooja Ravinder Devidasani v. State of Maharashtra (2014) was invoked to highlight that non-executive directors play a governance role and are typically not involved in day-to-day financial operations; hence liability under Section 141 requires active in-charge involvement.

Applying these principles to facts, the Court observed the appellant was not a signatory, lacked financial or managerial charge, and had resigned (with ROC filings) by 3 May 2017. The complaints failed to make specific allegations of the appellant’s active involvement in issuance, authorization, or financial control related to the dishonoured cheques. The absence of pleaded particulars meant vicarious liability could not be inferred.

The Court held that to fasten liability at the pre-trial stage would contravene the strict construction mandate for penal vicarious provisions and could amount to abuse of process. Consequently, the High Court order was set aside and all proceedings in the four complaints were quashed. No costs were awarded.

a. RATIO DECIDENDI

The controlling ratio is that Section 141 creates vicarious criminal liability which is penal in nature and must therefore be strictly construed; a complaint must aver specific, clear, and unambiguous facts establishing that the director was in charge of and responsible for the conduct of the company’s business at the relevant time. Mere titular directorship or inclusion of a director’s name in demand notices is insufficient.

Exceptions exist when the accused is a Managing Director or where the director signed the cheques, but absent such categorical factors, the prosecution must plead and later prove operational control or active responsibility. The Court concluded that in the absence of such averments, pre-trial quashing is appropriate to prevent unwarranted harassment and to uphold the statutory safeguard against generalising penal liability.

b. OBITER DICTA 

The Court observed, by way of guidance, that non-executive directors generally perform a governance function and are ordinarily not involved in day-to-day financial transactions; therefore, prosecutorial agencies and complainants should exercise care before including such directors in complaints. It was remarked that where the complaint contains material showing a director’s active role (board minutes authorising specific payments, signatures, delegation memoranda), the matter must proceed to trial; but such material should be averred.

The Court also noted that later inclusion of names in demand notices does not retroactively supply the missing specific averments. The observations underscore the policy balance between corporate accountability and protecting office-holders from indiscriminate criminalisation.

c. GUIDELINES 

1. Complainants framing prosecutions under Section 138 read with Section 141 must plead particulars showing how each director accused was in charge of and responsible for company business at the relevant time; general assertions are inadequate.

2. Where a director is a Managing Director or signed the dishonoured cheque, specific pleading of such status or signature remains sufficient.

3. For non-executive or independent directors, complainants should aver supporting facts—board resolutions, participation in financial decisions, signatory authority, delegated control, or contemporaneous documents—before proceeding to arraign them.

4. Courts hearing Section 482, CrPC petitions must test the complaint for requisite specificity; if absent, quashing is appropriate to prevent misuse and harassment.

5. Resignation with formal filings to ROC should be considered; complainants must show prima facie that the accused remained in effective control despite resignation if they seek to prosecute.

6. Prosecutors must avoid treating director identity as ipso facto culpability; investigations should determine operational roles before invoking Section 141.

I) CONCLUSION & COMMENTS

The decision reiterates a protective and principled approach to prosecutions of corporate officers: penal vicarious liability cannot be extrapolated from titular office alone. The Court’s reliance on a line of authority places a salutary check on the routine roping-in of directors in cheque-dishonour cases, particularly independent non-executive directors whose primary function is oversight, not execution. Practically, the judgment signals to complainants and investigating agencies the necessity of diligence documentary evidence and specific averments are indispensable to sustain allegations against non-executive directors.

For company directors, the ruling offers clarity that absence of signatory authority, non-involvement in financial decision-making, and formal resignation are potent defenses at the pre-trial stage. For courts, the judgment provides a template to balance corporate accountability with the rule of law by scrutinising pleadings for the mandatory factual matrix that the precedents demand. The decision therefore strengthens procedural safeguards while preserving the ability to prosecute genuinely culpable officers whose active control is credibly alleged.

J) REFERENCES

a. Important Cases Referred

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

b. Important Statutes Referred

i. Negotiable Instruments Act, 1881 — Section 138, Section 141.
ii. Code of Criminal Procedure, 1973 — Section 482.