S. M. S. Pharmaceuticals Ltd. v. Neeta Bhalla & Ors. [AIR 2005 SC 3512]

Issues

  1. Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, would it be sufficient if the substance of the allegation read as a whole fulfils the requirements of the said section and would it not be necessary to specifically state in the complaint that the persons accused was in charge of, or responsible for, the conduct of the business of the company.
  2. Whether a director of a company would be deemed to be in charge of and responsible to, the company for the conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary.
  3. Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and/ or the Managing Director or Joint Managing Director who admittedly would be in charge of the company and responsible to the company for the conduct of its business could be proceeded against.

Ratio

  1. It is settled law that at the time of issuing of the process the Magistrate is required to see only the allegations in the complaint and where allegations in the complaint or the charge sheet do not constitute an offence against a person, the complaint is liable to be dismissed.
  2. There is nothing which suggests that simply by being a director in a Company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about day-to-day functioning of the company.
  3. The role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs.
  4. Not every person connected with a Company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a Company would naturally know why the cheque in question was issued and why it got dishonoured.
  5. What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of commission of an offence, who will be liable for criminal action.
  6. A director of a Company who was not in charge of and who was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision.
  7. Every Director of a company is not automatically vicariously liable for the offence committed by the company. Only such Directors or Director who were in charge of or responsible to the company for the conduct of business of the company at the material time when the offence was committed alone shall be deemed to be guilty of the offence.
  8. The requirement of law is that “there must be clear, unambiguous and specific allegations against the persons who are pleaded as accused and also that they were in charge of and responsible to the company in the conduct of its business in the material time when the offence was committed.”

Held

  1. It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company.
  2. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business.
  3. If the Managing Director or Joint Director is admittedly in charge of the company and responsible to the company for conduct of its business, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is responsible for the incriminating act and will be covered under Section 141(2).

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