Supreme Court rules that only the person responsible for company conduct during cheque dishonour is liable.

Supreme Court reiterates principles on liability of company directors for dishonoured cheques

In a judgment pronounced on October 11, the Supreme Court reiterated the principles relating to liability of a director of a company for the dishonour of a cheque issued by the company.

Background

A bench comprising Justices CT Ravikumar and PV Sanjay Kumar was hearing an appeal seeking to quash the complaint under Section 138 of the Negotiable Instruments Act (NI Act) against a person who was named as an accused solely because he was a partner of the partnership firm which issued the cheque. The appeal was filed after the Punjab and Haryana High Court refused to quash the complaint.

Supreme Court’s observation

The Supreme Court noted that the only averment in the complaint regarding the liability of the appellant was that he was a partner of the firm. The Court held that this averment alone is not sufficient to impose criminal liability on the appellant. Referring to SP Mani and Mohan Dairy v. Dr. Snehalatha Elangovan 2022 LiveLaw (SC) 772, the Court observed that the complainant must make specific averments in the complaint to establish vicarious liability.

The Court also pointed out that the complaint did not state anywhere that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed. It further noted that an overall reading of the complaint did not disclose any clear and specific role of the appellant. The Court took into consideration the fact that the appellant had retired from the firm two years before the cheque was issued and had informed the complainant about the same.

Recent judgment and conclusion

The judgment authored by Justice Ravikumar also referred to the recent judgment in Ashok Shewakramani V. State Of Andhra Pradesh 2023 LiveLaw (SC) 622, which held that merely managing the affairs of a company does not make a person responsible for the conduct of the business of the company.

Based on these observations, the Court held that the averments in the complaint were insufficient to satisfy the mandatory requirements under Section 141(1) of the NI Act. Therefore, the Court allowed the appeal and stated that the appellant was not vicariously liable for the dishonour of the cheque.

Case Title: Siby Thomas v. Somany Ceramics Ltd.

Citation: 2023 LiveLaw (SC) 869

Click here to read the judgment