In a recent judgment delivered on October 11, the Supreme Court has revisited and reiterated the critical principles concerning the liability of company directors in cases of dishonoured cheques. This verdict serves as an essential clarification in a legal landscape often grappling with such matters.
Context and Legal Background
The case at hand was brought before a bench comprising Justices CT Ravikumar and PV Sanjay Kumar. The appeal sought to quash a complaint under Section 138 of the Negotiable Instruments Act (NI Act) against an individual who was named as an accused solely because of their association as a partner in the partnership firm that had issued the dishonoured cheque. This appeal was filed after the Punjab and Haryana High Court had declined to quash the complaint.
Supreme Court’s Observations
The Supreme Court’s verdict highlights that mere association, such as being a partner in a firm that issued the cheque, is insufficient to impose criminal liability on an individual. The Court drew attention to the necessity for specific averments in the complaint to establish vicarious liability, citing the SP Mani and Mohan Dairy v. Dr. Snehalatha Elangovan judgment.
Furthermore, the Court underlined that the complaint failed to state that the accused individual was in charge of the business’s conduct at the time when the alleged offence was committed. It noted that the overall reading of the complaint did not reveal any explicit or specific role played by the accused. Additionally, the Court considered the fact that the accused had retired from the firm two years prior to the issuance of the cheque and had informed the complainant about this.
Recent Judgment and Final Verdict
The Supreme Court’s judgment in this case referred to the recent judgment in Ashok Shewakramani V. State Of Andhra Pradesh, which clarified that merely managing the affairs of a company does not automatically entail responsibility for the conduct of the business. Based on these legal observations, the Court ruled that the averments in the complaint did not meet the mandatory requirements outlined in Section 141(1) of the NI Act.
Consequently, the appeal was allowed, and the appellant was absolved of vicarious liability for the dishonour of the cheque.
Case Title: Siby Thomas v. Somany Ceramics Ltd.
Citation: 2023 LiveLaw (SC) 869
Summary:
- The Supreme Court reaffirmed principles governing the liability of directors in cases of dishonoured cheques.
- Mere partnership in a firm issuing a cheque is insufficient to establish criminal liability.
- Specific averments in the complaint are required to establish vicarious liability.
- The complaint failed to indicate that the accused was responsible for the company’s conduct at the relevant time.
- A recent judgment clarified that managing a company’s affairs does not imply responsibility for its conduct.
- The Court ruled that the complaint’s averments were inadequate to impose criminal liability on the accused.
- The appeal was allowed, and the accused was not held vicariously liable for the cheque’s dishonour.
