Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
2025 INSC 759
CRIMINAL APPEAL NO. OF 2025
(@ SPECIAL LEAVE PETITION (CRL.) NO. 6964 OF 2024)
HDFC BANK LIMITED APPELLANT (s)
VERSUS
STATE OF MAHARASHTRA AND ANR. RESPONDENT(s)
J U D G M E N T
K.V. Viswanathan, J.
1. Leave granted.
2. The present appeal calls in question the correctness of the
judgment dated 10.01.2024 passed by the High Court of Judicature at
Bombay in Criminal Writ Petition No. 275 of 2022. By the said
judgment, the High Court has quashed the criminal proceedings under
Section 138 of the Negotiable Instruments Act, 1881 (for short ‘NI
Signature Not Verified
Digitally signed by
babita pandey
Date: 2025.05.22
17:52:34 IST
Reason:
Act’) insofar as it was against Respondent No. 2-Mrs. Ranjana
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Sharma was concerned. The proceedings have been quashed on the
ground that there were no sufficient averments in the complaint filed
by the appellant to invoke the vicarious liability against the
respondent No. 2 under Section 141 of the NI Act. Aggrieved, the
appellant is before us.
BRIEF FACTS: -
3. The facts lie in a narrow compass. The respondent no. 2 - Mrs.
Ranjana Sharma along with her daughter Ms. Rachana Sharma and
one Mr. Rakesh Rajpal were directors of a company named M/s R
Square Shri Sai Baba Abhikaran Pvt. Ltd. According to the complaint
filed by the appellant, the accused no. 1 - company along with
respondent no. 2 (accused no.2) and other two directors approached
the appellant/complainant for grant of credit facility in the form of
Revolving Loan Facility as Inventory Funding for the working capital
requirements. According to the appellant, loan amounts were
extended and on account of the failure of the accused to repay the
outstanding dues, the account of the company was classified as a
Non-Performing Asset on 27.03.2018 in accordance with the
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guidelines issued by the Reserve Bank of India. It is the case of the
appellant that a cheque issued by the accused for a sum of Rs.
6,02,04,217/- on deposit was dishonored for the reason “account
blocked”. According to the appellant, a legal notice was issued to all
the accused. However, the said notice was returned back as
“unclaimed”. The appellant thus prosecuted the company and the
three directors and prayed for appropriate punishment of
imprisonment as well as direction to pay fine up to double the amount
of the dishonored cheque. On 16.12.2018, the Trial Court issued
process to the respondents in the complaint.
4. Since the complaint has been quashed on the ground of lack of
adequate averments, it will be necessary to extract the crucial
averments that are made in the complaint:-
“2. That, Accused No 1 is a Company registered and
incorporated under the provisions of Indian Companies Act, 2013
[existing within the purview of Companies Act, 1956] and
having it registered and corporate office at the address mentioned
aforesaid and engaged in the business of sale of cars and spare
parts manufactured by Hyundai Motors (I) Ltd Accused Nos 2 to
4 are the Directors of Accused No 1 Company and is
responsible for its day to day affairs, management and
working of the Accused No 1 Company furthermore the
Accused No 3 is the signatory of the dishonored cheque.
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3. That, Accused No 1, through Accused Nos 2 to 4, had
approached the complainant above named for grant of credit
facility in the form of Revolving Loan Facility as Inventory
Funding for the working capital requirements That after due
deliberation and negotiations with Accused Nos 2 to 4 the
complainant granted the Revolving Loan facility initially to
the extent of Rs 5,00,00,000/ (Rupees Five Crores only)
[Inventory funding Rs 3.00 Crores + Inventory Funding
Adhoc: Rs 2.00 Crores vide sanction letter dated 09.08.2014
Hereto annexed and marked as Exhibit B is the copy of said
Sanction letter dated 09. 08.2014 for Revolving Loan Facility
granted to Accused No. 1.
4. That, upon further request made by Accused No. 1,
complainant had enhanced the said facility from Rs 5.00 Crore to
Rs. 6.00 Crores vide sanction letter dated 27.10.2015 The said
facilities were further enhanced from Ra 6.00 Crores to Rs 6.50
Crores vide sanction letter dated 22.02.2016 and lastly the said
facility was enhanced from Rs 6.50 Crores to Rs 8.00 Crores vide
sanction letter dated 12.09.2016. Hereto annexed and marked as
Exhibit C-1 to Exhibit C-3 are the copies of sanction letter dated
27.10.2015, 22.02.2016 and 12.09.2016 respectively
5. The Loan account of Accused No. 1 maintained by
complainant was numbered as loan account No
02400450029354. That in consideration of grant of the said
facilities, accused(s) had executed various loan and security
documents in favor of Complainant from time-to time inter
alia accepting the terms and conditions of respective
documents It is submitted that the Accused No. 1 lastly, amongst
other, entered into Loan agreement with Complainant on
17.09.2016 and executed Demand Promissory Note for a sum of
Rs. 8,00,00,000/- on 20.09.2016 Hereto annexed and marked as
Exhibit 'D-1 IS the copy of Supplemental and Amendatory Loan
Agreement dated 17.09.2016 and Exhibit' D 2" is the Demand
Promissory Note dated 20 09 2016.
6. Be that as it may, the Complainant states that the
sanctioned/renewed credit facilities were duly availed and
utilized by the Accused without any demur. The Complainant
further states that after availing the aforementioned credit
facilities, Accused No. 1 failed to maintain the account with
Complainant Bank in the manner agreed to and defaulted in
making timely repayments.
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7. Thus, owing to the failure on the part of Accused(s) to repay
the outstanding dues on time, thereby willfully defaulting in the
same, Complainant was constrained to classify the account of the
Accused No. 1 as a Non-Performing Asset on 27.03.2018 in
accordance with the guidelines issued by the Reserve Bank of
India from time to time.
8. That, complainant states that despite various oral and written
requests, the Accused failed to regularize and maintain the
account. It is submitted that Accused Company did not pay any
heed to the requests and reminders of the Complainant and
willfully neglected discharging their obligations thereby
depriving the Complainant its legitimate dues.”
(Emphasis supplied)
5. It will be noticed that in Para 2 of the complaint quoted above, it
has been categorically averred as under:
“Accused Nos. 2 to 4 are the directors of the accused no.
1 - company and is responsible for its day-to-day
affairs, management and working of the accused no. 1
– company. Furthermore, the accused no. 3 is the
signatory of the dishonored cheque”.
(Emphasis supplied)
6. Not only this, it is further averred in Para 3 that accused no. 1
(the company) through accused nos. 2 to 4 had approached the
complainant above named for grant of credit facility in the form of
Revolving Loan Facility as inventory funding for the working capital
requirements. It has been stated : -
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“That, after, due deliberation and negotiations with
Accused nos. 2 to 4, the Complainant granted the
Revolving Loan facility initially to the extent of……”.
7. In the Board resolution of the accused no. 1 - company dated
28.09.2018 annexed to the complaint the following statement
occurs: -
“RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly and/or
severally to further negotiate with HDFC Bank and accept the
revised terms and conditions the securities on behalf of the
company.”
It is further resolved as under: -
“RESOLVED FURTHER THAT the property(s) (belonging to
the Company, stipulated as security ‘owe’ me Additional Credit
Facility(ies) sanctioned by HDFC Bank shall be mortgaged in
favor of the Bank, by way of Equitable or Registered Mortgage
as may be required by HDFC Bank and Ms. Rachana Sharma
and/or Mrs. Ranjana Sharma be to and are hereby
authorized, jointly and/or severally to be present in HDFC
Bank and deposit /redeposit the original tittle deeds of the
Company's immovable properties with an intention to create
security thereof and to make necessary declarations on behalf
of the Company .”
(Emphasis supplied)
8. It will be seen that apart from negotiations, Mrs. Ranjana
Sharma - respondent no. 2, was also authorized to deposit the original
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title deeds of the company’s immovable property. Further the board
resolution provides as under: -
“RESOLVED FURTHER THAT the draft of the document
received from HDFC Bank (a) respect credit facility (ies) be and
is/are hereby approved and Ms. Rachana Sharma and/or Mrs.
Ranjana Sharma and/or hereby authorized, jointly and/or to
execute, sign and issue all/any such Demand Promissory
notes Hypothecation Agreements, mortgages (in such form as
HDFC bank may require), guarantees, indemnities all/any
other documents, writings and instruments and all renewals
and/or amendments there to including after
Acknowledgement of Debt/balance confirmations HDFC
Banks(s) may require from time to time in this regard ,
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly
and/or severally on behalf of the company to file the requisite
particulars of charge created in favor of HDFC Bank with
the Registrar of Companies or any other regulatory body
within the time frame prescribed therefor,
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly
and/or severally to be present at the office of Sub-Registrar
for effecting the regulation of various documents on behalf of
the Company whenever required and to do all such acts,
deeds and things as may be necessary or expedient to
implement/give effect to this resolution .
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are thereby authorized jointly
and/or severally to affix the Common Seal of the company on all
the agreement documents writing and instruments and all
renewals/amendments after Acknowledgement of debt/barar
(sic.) conditions there of mentioned above as may be required by
HDFC Bank in conformity with provisions of the Articles of
Association, the Companies Act, 1956 and the Companies Act,
2013 of the Companies (sic.)”
(Emphasis supplied)
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9. Under the resolution, the respondent no. 2-Ranjana Sharma was
authorized to sign demand promissory notes, hypothecation
agreements, mortgages, guarantees and indemnities and any other
documents, writings and instruments, as may be required, from time
to time. Further, respondent no. 2 was also authorized to file the
requisite particulars of charge created in favor of the bank with the
Registrar of Companies. The respondent no. 2 was also authorized to
be present at the office of Sub-Registrar for registration of various
documents and also authorized to affix the common seal on all the
relevant documents.
10. In the sanction letter dated 22.02.2016 which was also annexed
to the complaint, under the head “Security for Inventory Funding
(AUIF)”, the performance guarantee of the directors - Ms. Rachana
Sharma and respondent no. 2 - Mrs. Ranjana Sharma were required to
be given. This clause occurs in the further sanction letter dated
12.09.2016 also.
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11. It is in this background that the correctness of the judgment of
the High Court needs to be appreciated.
12. We have heard learned Senior Counsel/Counsel for the parties
and perused the records. Learned Senior Counsel for the appellant
contends that a perusal of the averments in the complaint read with
the documents filed leave no manner of doubt that the respondent no.
2 - Ranjana Sharma was in charge of, and was responsible for the
conduct of the business of the company inasmuch as she had
participated in the negotiations and was authorized to sign all the
relevant documents and her performance guarantee was also taken. In
view of this, learned Senior Counsel contends that the High Court was
not justified in quashing the complaint insofar as the respondent no. 2
- Ranjana Sharma was concerned.
13. Learned Senior Counsel for the appellant contends that
respondent No.2-Mrs.Ranjana Sharma is the Director of the Accused
No.1-Company and she submitted a personal guarantee and also
signed a supplemental continuing guarantee dated 17.09.2016 for the
loan transaction. It is submitted that the Company is a family-run
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private entity. Learned Senior Counsel for the appellant relied upon
certain judgments of this Court in support of his submission.
14. In response, learned counsel for the respondent No.2 submitted
that the averments in the complaint fell short of the requirement
mandated in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and
Another , (2005) 8 SCC 89; that the words “was in charge of” and
“was responsible to the company for the conduct of the business of
the company” cannot be read disjunctively and the same ought to be
read conjunctively; that as held in Siby Thomas vs. Somany
Ceramics Limited , (2024) 1 SCC 348 if it is not averred in the
complaint that the accused was “in charge of the conduct of the
business” at the relevant time, the prosecution must fail; and that not
only the basic averment as enshrined in Section 141 of the NI Act has
to be incorporated in the complaint but also the specific role should be
attributed to the persons who are directors or employees of the
company. Learned counsel for the respondent also relied on certain
other judgments which will be dealt with in the course of the
discussion herein below.
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QUESTION FOR CONSIDERATION: -
15. In the above background, the question that arises for
consideration is whether the High Court was justified in quashing the
complaint insofar as respondent no. 2 – Mrs. Ranjana Sharma was
concerned on the ground that necessary averments were lacking?
ANALYSIS AND REASONING: -
16. Section 141(1) of the NI Act along with its provisos reads as
under:-
“ 141. Offences by companies .—(1) If the person committing an
offence under Section 138 is a company, every person who, at
the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against
and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence.
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or
a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter.”
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17. It will be noticed that Section 141 of the NI Act employs the
phrase “ was in charge of, and was responsible to the company for the
conduct of the business of the company ”. Insofar as the aspect of
vicarious liability is concerned, in the present case, the averments
made are to the following effect:-
“Accused Nos. 2 to 4 are the Directors of Accused No.1
Company” and
“Is responsible for its day-to-day affairs, management and
working of the Accused No.1-Company”
18. The real question is, is the above averment along with the other
averments in the complaint sufficient to meet the tests laid down by
this Court in the leading judgment of S.M.S. Pharmaceuticals-I
(supra) .
19. Before we advert to S.M.S. Pharmaceuticals-I (supra), it will
be useful to refer to the meaning of the word “ in charge of ”. P.
Ramanatha Aiyar’s Advanced Law Lexicon defines the word “in
charge of” as follows:-
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“A person “in charge of” and responsible to the company for the
conduct of the business of the company must be a person in
overall control of the day-to-day business of the company or
firm”.
20. It will be seen that the averment made in the complaint, in the
present case, clearly uses the phrase “responsible for its day-to-day
affairs, management and working of the Accused No.1 Company”,
which going by the dictionary meaning set out hereinabove in
substance is the same as “in charge of and was responsible to the
Company for the conduct of the business of the Company”.
21. Read in the background of the other averments, the above
averment clearly fulfils the requirement of Section 141. The
contention of the learned counsel for the respondent no. 2, however, is
that actual words mentioned in Section 141 in the same form be
employed in the complaint, for the complaint to be sustained. Learned
Counsel placed strong reliance on S.M.S. Pharmaceuticals-I (supra).
22. To answer this issue, a closer look at the judgment in S.M.S.
Pharmaceuticals-I (supra) needs to be undertaken. S.M.S.
Pharmaceuticals -I (supra) arose out of a reference by a two-Judge
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Bench of this Court. This Court, in the said judgment, set out for
determination the following questions: -
“( a ) Whether for purposes of Section 141 of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the
allegation read as a whole fulfil the requirements of the said
section and it is not necessary to specifically state in the
complaint that the person accused was in charge of, or
responsible for, the conduct of the business of the company.
( b ) Whether a director of a company would be deemed to be in
charge of, and responsible to, the company for conduct of the
business of the company and, therefore, deemed to be guilty of
the offence unless he proves to the contrary.
( c ) 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 directors or joint managing director
who admittedly would be in charge of the company and
responsible to the company for conduct of its business could be
proceeded against.”
23. The following principles are deducible from the said judgment.
(i) “Section 141 contains conditions which have to be satisfied
before the liability can be extended to officers of a company. Since
the provision creates criminal liability, the conditions have to be
strictly complied with. The conditions are intended to ensure that a
person who is sought to be made vicariously liable for an offence of
which the principal accused is the company, had a role to play in
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relation to the incriminating act and further that such a person should
know what is attributed to him to make him liable”. [See Para 4]
(ii) “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 the day-to-day
functioning of the company. As a director he may be attending
meetings of the Board of Directors of the company where usually they
decide policy matters and guide the course of business of a company.
It may be that a Board of Directors may appoint sub-committees
consisting of one or two directors out of the Board of the company
who may be made responsible for the day-to-day functions of the
company. These are matters which form part of resolutions of the
Board of Directors of a company. Nothing is oral. What emerges
from this is that the role of a director in a company is a question
of fact depending upon the peculiar facts in each case. There is
no universal rule that a director of a company is in charge of its
everyday affairs ”. [See Para 8] (Emphasis supplied)
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(iii) “Mere use of a particular designation of an officer without more,
may not be enough by way of an averment in a complaint. When the
requirement in Section 141, which extends the liability to officers of
the company, is that such a person should be in charge of and
responsible to the company for conduct of business of the company,
how can a person be subjected to liability of criminal prosecution
without it being averred in the complaint that satisfies those
requirements. 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 ”. [See Para 8]
(Emphasis supplied)
(iv) “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
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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
the conduct of business of the company at the time of commission
of an offence, who will be liable for criminal action . It follows
from this that if a director of a company who was not in charge of and
was not responsible for the conduct of the business of the company at
the relevant time will not be liable under the provision”. [See Para 10]
(Emphasis supplied)
(v) “Therefore, in order to bring a case within Section 141 of the
Act, the complaint must disclose the necessary facts which make a
person liable”. [See Para 12]
24. After setting out the above principles, this Court in S.M.S.
Pharmaceuticals-I (supra) , cited a whole host of judgments of
various High Courts and this Court, including the judgment of this
Court which was then the latest in line, namely, Monaben Ketanbhai
Shah and Another vs. State of Gujarat and Others , (2004) 7 SCC
15. This Court in S.M.S. Pharmaceuticals-I (supra) cited Monaben
Ketanbhai Shah (supra) which had held that it was not necessary to
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reproduce the language of Section 141 verbatim in the complaint
since the complaint was required to be read as a whole. Monaben
Ketanbhai Shah (supra) had held that if the substance of the
allegations made in the complaint fulfil the requirements of Section
141, the complaint has to proceed and is required to be tried with. It
was further held in Monaben Ketanbhai Shah (supra) that in
construing a complaint, a hypertechnical approach should not be
adopted and the laudable object of preventing bouncing of cheques
and sustaining the credibility of commercial transactions had to be
borne-in-mind.
25. After setting out the holding in Monaben Ketanbhai Shah
(supra) , this Court in S.M.S. Pharmaceuticals-I (supra) in para 18
held as follows:-
“ 18. To sum up, there is almost unanimous judicial opinion that
necessary averments ought to be contained in a complaint before
a person can be subjected to criminal process. A liability under
Section 141 of the Act is sought to be fastened vicariously on a
person connected with a company, the principal accused being
the company itself. It is a departure from the rule in criminal law
against vicarious liability. A clear case should be spelled out
in the complaint against the person sought to be made liable.
Section 141 of the Act contains the requirements for making
a person liable under the said provision. That the
respondent falls within the parameters of Section 141 has to
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be spelled out. A complaint has to be examined by the
Magistrate in the first instance on the basis of averments
contained therein. If the Magistrate is satisfied that there are
averments which bring the case within Section 141, he would
issue the process. We have seen that merely being described
as a director in a company is not sufficient to satisfy the
requirement of Section 141. Even a non-director can be
liable under Section 141 of the Act. The averments in the
complaint would also serve the purpose that the person
sought to be made liable would know what is the case which
is alleged against him. This will enable him to meet the case
at the trial .”
(Emphasis supplied)
26. Thereafter, in para 19, the conclusion was recorded in the
following terms:-
“ 19. In view of the above discussion, our answers to the
questions posed in the reference are as under:
( a ) 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. This averment is an essential
requirement of Section 141 and has to be made in a complaint.
Without this averment being made in a complaint, the
requirements of Section 141 cannot be said to be satisfied.
( b ) The answer to the question posed in sub-para ( b ) has to be in
the negative. 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 the conduct of
its business. The requirement of Section 141 is that the person
sought to be made liable should be in charge of and
responsible for the conduct of the business of the company at
the relevant time. This has to be averred as a fact as there is
no deemed liability of a director in such cases.
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( c ) The answer to Question ( c ) has to be in the affirmative. The
question notes that the managing director or joint managing
director would be admittedly in charge of the company and
responsible to the company for the conduct of its business. When
that is so, holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they hold as
managing director or joint managing director, these persons are in
charge of and responsible for the conduct of business of the
company. Therefore, they get covered under Section 141. So far
as the signatory of a cheque which is dishonoured is concerned,
he is clearly responsible for the incriminating act and will be
covered under sub-section (2) of Section 141.”
(Emphasis supplied)
27. Hence, it is very clear that the conclusion in para 19(a) in S.M.S.
Pharmaceuticals-I (supra) has to be read with the other holdings in
judgment especially the ratio extracted hereinabove culminating in
para 18. Merely reading para 19(a) to contend that what is required is
parroting of the words of the section for a complaint to be sustained is
completely unjustified. Para 19(a) does not mention that the words of
the Section 141 has to be mechanically parroted. In fact, the cases
that we discuss hereinbelow have expressly rejected the said
contention.
28. After the reference in S.M.S. Pharmaceuticals-I (supra) was
answered by the three-Judge Bench and before the case of the said
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parties could be taken up for disposal by the two judge Bench, came
the judgment in Sabitha Ramamurthy and Another vs.
R.B.S.Channabasavaradhya , (2006) 10 SCC 581. This Court, after
noticing S.M.S. Pharmaceuticals-I (supra), held that it was not
necessary for the complainant to specifically reproduce the wordings
of the section but what was required was a clear statement of fact so
as to enable the Court to arrive at a prima facie opinion that the
accused are vicariously liable. Such vicarious liability can be inferred
only if the requisite statements, which are required to be averred in
the complaint petition are made so as to make the accused therein
vicariously liable for the offence committed by the company. It was
also held that before a person can be made vicariously liable, strict
compliance with the statutory requirements should be insisted. On
facts, the Court found that the averments did not meet the
requirements in the said case.
29. Thereafter, came the judgment in S.M.S. Pharmaceuticals Ltd.
vs. Neeta Bhalla and Another, (2007) 4 SCC 70 (hereinafter referred
to as S.M.S. Pharmaceuticals-II (supra) . Referring to para 18 and 19
of the order in the three-Judge Bench reference in S.M.S.
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Pharmaceuticals-I (supra) and following the judgment in Sabitha
Ramamurthy (Supra) , the averments in the complaint were tested and
it was found that the complaint petition when read in its entirety, the
averments therein fell short of the requirements to implicate the
respondent-accused in that case.
30. To the same effect is the judgment of this Court in A.K.
Singhania vs. Gujarat State Fertilizer Company Limited and
Another , (2013) 16 SCC 630, wherein this Court categorically ruled
as under:-
“ 14. From a plain reading of the aforesaid provision it is
evident that every person who at the time the offence was
committed was in charge of and responsible to the company
shall be deemed to be guilty of the offence under Section 138
of the Act. In the face of it, will it be necessary to specifically
state in the complaint that the person accused was in charge of
and responsible for the conduct of the business of the
company? In our opinion, in the case of offence by the
company, to bring its Directors within the mischief of
Section 138 of the Act, it shall be necessary to allege that
they were in charge of and responsible to the conduct of the
business of the company. It is a necessary ingredient which
would be sufficient to proceed against such Directors.
However, we may add that as no particular form is
prescribed, it may not be necessary to reproduce the words
of the section. If reading of the complaint shows and the
substance of accusation discloses necessary averments, that
would be sufficient to proceed against such of the Directors
and no particular form is necessary. However, it may not be
necessary to allege and prove that, in fact, such of the Directors
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have any specific role in respect of the transaction leading to
issuance of cheque. Section 141 of the Act makes the Directors
in charge of and responsible to the company “for the conduct
of the business of the company” within the mischief of Section
138 of the Act and not particular business for which the cheque
was issued. We cannot read more than what has been mandated
in Section 141 of the Act.”
(Emphasis supplied)
31. In Ashok Shewakramani and Others vs. State of Andhra
Pradesh and Another , (2023) 8 SCC 473, a judgment relied upon by
Respondent No.2, the averments did not satisfy the ingredients of
Section 141 and this Court observed that all that was averred in that
case (the first set of appeal therein) was that the accused were liable
for the transactions of the company and they were fully aware of the
issuance of the cheque and dishonor of the cheque. This Court held
that even taking a broad and liberal view of the pleadings in the
complaint, there was no compliance with the requirements of Section
141 (1). In the second set of appeals therein the accused directors
were not even described as directors of the first accused company
therein. On that simple ground proceedings were quashed. In the third
set of appeals therein, insofar as the directors were concerned who
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were accused nos. 4 to 7 an omnibus averment was made in the
following terms.
"(1) It is submitted that the complainant is the proprietor
of Chakra Cotton Traders, doing business in cotton,
resident of bearing Door No. 3/917-1, Sri Chackra
Nilayam, YMR Colony, Proddatur Town-516 360,
Kadapa District, A.P.
Accused 1 is the private limited Company
concerned and registered under the Companies Act.
Accused 2 is Chairman of Accused 1. Accused 3 is the
Managing Director of Accused 2 and Accused 4 to 7 are
the Directors of Accused 1 Company and Accused 2 to 7
are managing the Company and busy with day-to-day
affairs of the Company and all are managing the
Company and also in charge of the Company and all are
jointly and severally liable for the acts of Accused 1
Company.”
Considering these averments the Court while quashing the
proceedings held that merely because somebody is managing the
affairs of company, per se they do not become in charge of the
conduct of the business of the company or the person responsible for
the company for the conduct of the business of the company. It was
further held that the averment that the accused were busy with the
day-to-day affairs was also insufficient to attract the ingredients of
24
Section 141(1). Proceeding further, the Court held that merely
averring that the accused were in-charge of the company was neither
here nor there as such averment was insufficient to conclude that the
accused were responsible to the company for the conduct of the
business. This is vastly different from the averments in the present
case wherein it is clearly averred that the respondent no. 2 was
responsible for the day-to-day affairs, management and working of
the accused no. 1 company.
32. Ashok Shewakramani (supra) turned on the special facts of that
case. This is more so since the averments in the complaint therein
extracted hereinabove lumping the role of the directors with others
and making omnibus averments, was found to be insufficient to attract
the vicarious liability under Section 141(1) of the NI Act.
33. In Ashutosh Ashok Parasrampuriya and Another vs. Gharrkul
Industries Private Limited and Others , (2023) 14 SCC 770, after
noticing that the averments in the complaint were to the effect that the
directors of the accused company were responsible for its business
and all the appellant-accused therein were involved in the business of
25
the company and are responsible for all the affairs of the company,
this Court held that reading the complaint as a whole, the ingredients
of Section 141 were satisfied.
34. What is important to note is that the repetition of the exact
words of the Section in the same order, like a mantra or a magic
incantation is not the mandate of the law. What is mandated is that the
complaint should spell out that the accused sought to be arrayed falls
within the parameters of Section 141(1) of the NI Act. Only then
could vicarious liability be inferred against the said accused, so as to
proceed to trial. Substance will prevail over form.
35. Strong reliance is placed on Siby Thomas (supra) by learned
counsel for the respondent No.2 to contend that in the absence of the
words “was in charge of”, the present case against respondent No.2
cannot be proceeded. We are unable to countenance the said
submission. This Court, in Siby Thomas (supra), on facts, found that
on an overall reading of the complaint it did not disclose any clear and
specific role to the appellant-accused therein. It was further held that
what was averred was only that the accused being partners are
26
responsible for the day-to-day conduct of business of the company.
This is vastly different from the averments in the present case as
discussed hereinabove. In this case, it is clearly averred that the
respondent No.2 along with the accused Nos. 3 and 4 being directors
were responsible for its day-to-day affairs, management and working
of accused No.1 - Company. Hence, the judgment in Siby Thomas
(supra) can be of no help to the respondent No.2 as the case turned on
its own facts.
36. The other aspect of the matter canvassed by the learned counsel
for the respondent No.2 is that not only are the basic averments as
enshrined in Section141 to be mandatorily incorporated but also the
specific role be attributed to the persons who are mere directors or
employees of the company. We are unable to agree with the
submission of the learned counsel.
37. Recently, this Court in S.P. Mani and Mohan Dairy vs. Dr.
Snehalatha Elangovan , (2023) 10 SCC 685, after reiterating the
principle that it was not necessary to reproduce the language of
Section 141 verbatim in the complaint further reiterated the holding in
27
K.K.Ahuja vs. V.K. Vora and Another , (2009) 10 SCC 48. In K.K.
Ahuja (supra) , it was held that insofar as the director was concerned,
an averment in the complaint that he was in charge of, and was
responsible to the company, for the conduct of the business of the
company was enough and no further averment was necessary though
some particulars will be desirable. Thereafter, this Court in S.P. Mani
(supra) , in para 58.2 of the judgment concluded as under:-
“ 58.2. The complainant is supposed to know only generally as to
who were in charge of the affairs of the company or firm, as the
case may be. The other administrative matters would be within
the special knowledge of the company or the firm and those who
are in charge of it. In such circumstances, the complainant is
expected to allege that the persons named in the complaint are in
charge of the affairs of the company/firm. It is only the Directors
of the company or the partners of the firm, as the case may be,
who have the special knowledge about the role they had played in
the company or the partners in a firm to show before the Court
that at the relevant point of time they were not in charge of the
affairs of the company. Advertence to Sections 138 and Section
141, respectively, of the NI Act shows that on the other elements
of an offence under Section 138 being satisfied, the burden is on
the Board of Directors or the officers in charge of the affairs of
the company/partners of a firm to show that they were not liable
to be convicted. The existence of any special circumstance that
makes them not liable is something that is peculiarly within their
knowledge and it is for them to establish at the trial to show that
at the relevant time they were not in charge of the affairs of the
company or the firm.”
28
38. As was rightly held therein, the administrative role of each
director would be within the special knowledge of the company or the
director of the firm and it is for them to establish that they were not in
charge of the affairs of the company. In view of this, the contention
of the learned counsel for the respondent No.2 that the specific role
attributed to the directors should be set out in the complaint does not
merit acceptance. Reliance has been placed on National Small
Industries Corporation Limited vs. Harmeet Singh Paintal and
Another , (2010) 3 SCC 330 by the learned counsel for the respondent
No.2 in support of the proposition canvassed. We are unable to
countenance the said submission. If the learned counsel by the said
submission seeks to contend that the complainant in a Section 138
complaint is obliged to plead administrative matters which are
especially within the knowledge of the company and the directors,
then he is completely wrong in the understanding of the ingredients of
Section 141. As held in K.K. Ahuja (supra) and reiterated in S.P.
Mani (supra), the complainant is supposed to know only generally as
to who are in charge of the affairs of the company. Harmeet Singh
Paintal (supra) when it holds in para 22 that
29
“further, in order to fasten the vicarious liability in accordance
with Section 141, the averment as to the role of the Directors
concerned should be specific. The description should be clear
and there should be some unambiguous allegations as how the
Directors concerned were alleged to be in charge of and were
responsible for the conduct of the affairs of the company”
should be understood to only mean vis-à-vis the transaction
concerning the issue of the cheque, in question, which are within the
knowledge of the complainant. K.K. Ahuja (supra) where it holds that
“in the case of a Director, secretary or manager [as defined in
Section 2(24) of the Companies Act] or a person referred to in
clauses (e) and (f) of Section 5 of the Companies Act, an
averment in the complaint that he was in charge of, and was
responsible to the company, for the conduct of the business of
the company is necessary to bring the case under Section
141(1) of the Act. No further averment would be necessary in
the complaint, though some particulars will be desirable. They
can also be made liable under Section 141(2) by making
30
necessary averments relating to consent and connivance or
negligence, in the complaint, to bring the matter under that
sub-section”
sets out the correct legal position. A harmonious reading of the
judgments in K.K. Ahuja (supra) , Harmeet Singh Paintal (supra)
and S.P. Mani (supra) brings out the position that there is no
obligation on the complainant to plead in the complaint as to matters
within the special knowledge of the company or the directors or firm
about the specific role attributed to them in the company.
39. Applying the said legal position to the facts of the present case,
it is found that the averments in the complaint set out hereinabove
against the respondent No.2 – Mrs. Ranjana Sharma fulfill the
requirement of Section 141(1) of the NI Act, and this is not a case
where trial against her can be aborted by quashment of proceedings.
The High Court was completely unjustified in quashing the
proceedings against her.
40. The appeal is, accordingly, allowed and the judgment of the
High Court of Judicature at Bombay dated 10.01.2024 in Criminal
31
Writ Petition No. 275 of 2022 is set aside. Consequently, the order
dated 16.12.2019 issuing process to respondent No.2 in proceeding in
C.C. No. 2486/SS/2019 is restored to the file of the Metropolitan
th
Magistrate, 7 Court, Bhiwandi, Dadar, Mumbai to be proceeded with
in accordance with law.
……….........................J.
[ MANOJ MISRA ]
.……….........................J.
[ K. V. VISWANATHAN ]
New Delhi;
22nd May, 2025
32
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
2025 INSC 759
CRIMINAL APPEAL NO. OF 2025
(@ SPECIAL LEAVE PETITION (CRL.) NO. 6964 OF 2024)
HDFC BANK LIMITED APPELLANT (s)
VERSUS
STATE OF MAHARASHTRA AND ANR. RESPONDENT(s)
J U D G M E N T
K.V. Viswanathan, J.
1. Leave granted.
2. The present appeal calls in question the correctness of the
judgment dated 10.01.2024 passed by the High Court of Judicature at
Bombay in Criminal Writ Petition No. 275 of 2022. By the said
judgment, the High Court has quashed the criminal proceedings under
Section 138 of the Negotiable Instruments Act, 1881 (for short ‘NI
Signature Not Verified
Digitally signed by
babita pandey
Date: 2025.05.22
17:52:34 IST
Reason:
Act’) insofar as it was against Respondent No. 2-Mrs. Ranjana
1
Sharma was concerned. The proceedings have been quashed on the
ground that there were no sufficient averments in the complaint filed
by the appellant to invoke the vicarious liability against the
respondent No. 2 under Section 141 of the NI Act. Aggrieved, the
appellant is before us.
BRIEF FACTS: -
3. The facts lie in a narrow compass. The respondent no. 2 - Mrs.
Ranjana Sharma along with her daughter Ms. Rachana Sharma and
one Mr. Rakesh Rajpal were directors of a company named M/s R
Square Shri Sai Baba Abhikaran Pvt. Ltd. According to the complaint
filed by the appellant, the accused no. 1 - company along with
respondent no. 2 (accused no.2) and other two directors approached
the appellant/complainant for grant of credit facility in the form of
Revolving Loan Facility as Inventory Funding for the working capital
requirements. According to the appellant, loan amounts were
extended and on account of the failure of the accused to repay the
outstanding dues, the account of the company was classified as a
Non-Performing Asset on 27.03.2018 in accordance with the
2
guidelines issued by the Reserve Bank of India. It is the case of the
appellant that a cheque issued by the accused for a sum of Rs.
6,02,04,217/- on deposit was dishonored for the reason “account
blocked”. According to the appellant, a legal notice was issued to all
the accused. However, the said notice was returned back as
“unclaimed”. The appellant thus prosecuted the company and the
three directors and prayed for appropriate punishment of
imprisonment as well as direction to pay fine up to double the amount
of the dishonored cheque. On 16.12.2018, the Trial Court issued
process to the respondents in the complaint.
4. Since the complaint has been quashed on the ground of lack of
adequate averments, it will be necessary to extract the crucial
averments that are made in the complaint:-
“2. That, Accused No 1 is a Company registered and
incorporated under the provisions of Indian Companies Act, 2013
[existing within the purview of Companies Act, 1956] and
having it registered and corporate office at the address mentioned
aforesaid and engaged in the business of sale of cars and spare
parts manufactured by Hyundai Motors (I) Ltd Accused Nos 2 to
4 are the Directors of Accused No 1 Company and is
responsible for its day to day affairs, management and
working of the Accused No 1 Company furthermore the
Accused No 3 is the signatory of the dishonored cheque.
3
3. That, Accused No 1, through Accused Nos 2 to 4, had
approached the complainant above named for grant of credit
facility in the form of Revolving Loan Facility as Inventory
Funding for the working capital requirements That after due
deliberation and negotiations with Accused Nos 2 to 4 the
complainant granted the Revolving Loan facility initially to
the extent of Rs 5,00,00,000/ (Rupees Five Crores only)
[Inventory funding Rs 3.00 Crores + Inventory Funding
Adhoc: Rs 2.00 Crores vide sanction letter dated 09.08.2014
Hereto annexed and marked as Exhibit B is the copy of said
Sanction letter dated 09. 08.2014 for Revolving Loan Facility
granted to Accused No. 1.
4. That, upon further request made by Accused No. 1,
complainant had enhanced the said facility from Rs 5.00 Crore to
Rs. 6.00 Crores vide sanction letter dated 27.10.2015 The said
facilities were further enhanced from Ra 6.00 Crores to Rs 6.50
Crores vide sanction letter dated 22.02.2016 and lastly the said
facility was enhanced from Rs 6.50 Crores to Rs 8.00 Crores vide
sanction letter dated 12.09.2016. Hereto annexed and marked as
Exhibit C-1 to Exhibit C-3 are the copies of sanction letter dated
27.10.2015, 22.02.2016 and 12.09.2016 respectively
5. The Loan account of Accused No. 1 maintained by
complainant was numbered as loan account No
02400450029354. That in consideration of grant of the said
facilities, accused(s) had executed various loan and security
documents in favor of Complainant from time-to time inter
alia accepting the terms and conditions of respective
documents It is submitted that the Accused No. 1 lastly, amongst
other, entered into Loan agreement with Complainant on
17.09.2016 and executed Demand Promissory Note for a sum of
Rs. 8,00,00,000/- on 20.09.2016 Hereto annexed and marked as
Exhibit 'D-1 IS the copy of Supplemental and Amendatory Loan
Agreement dated 17.09.2016 and Exhibit' D 2" is the Demand
Promissory Note dated 20 09 2016.
6. Be that as it may, the Complainant states that the
sanctioned/renewed credit facilities were duly availed and
utilized by the Accused without any demur. The Complainant
further states that after availing the aforementioned credit
facilities, Accused No. 1 failed to maintain the account with
Complainant Bank in the manner agreed to and defaulted in
making timely repayments.
4
7. Thus, owing to the failure on the part of Accused(s) to repay
the outstanding dues on time, thereby willfully defaulting in the
same, Complainant was constrained to classify the account of the
Accused No. 1 as a Non-Performing Asset on 27.03.2018 in
accordance with the guidelines issued by the Reserve Bank of
India from time to time.
8. That, complainant states that despite various oral and written
requests, the Accused failed to regularize and maintain the
account. It is submitted that Accused Company did not pay any
heed to the requests and reminders of the Complainant and
willfully neglected discharging their obligations thereby
depriving the Complainant its legitimate dues.”
(Emphasis supplied)
5. It will be noticed that in Para 2 of the complaint quoted above, it
has been categorically averred as under:
“Accused Nos. 2 to 4 are the directors of the accused no.
1 - company and is responsible for its day-to-day
affairs, management and working of the accused no. 1
– company. Furthermore, the accused no. 3 is the
signatory of the dishonored cheque”.
(Emphasis supplied)
6. Not only this, it is further averred in Para 3 that accused no. 1
(the company) through accused nos. 2 to 4 had approached the
complainant above named for grant of credit facility in the form of
Revolving Loan Facility as inventory funding for the working capital
requirements. It has been stated : -
5
“That, after, due deliberation and negotiations with
Accused nos. 2 to 4, the Complainant granted the
Revolving Loan facility initially to the extent of……”.
7. In the Board resolution of the accused no. 1 - company dated
28.09.2018 annexed to the complaint the following statement
occurs: -
“RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly and/or
severally to further negotiate with HDFC Bank and accept the
revised terms and conditions the securities on behalf of the
company.”
It is further resolved as under: -
“RESOLVED FURTHER THAT the property(s) (belonging to
the Company, stipulated as security ‘owe’ me Additional Credit
Facility(ies) sanctioned by HDFC Bank shall be mortgaged in
favor of the Bank, by way of Equitable or Registered Mortgage
as may be required by HDFC Bank and Ms. Rachana Sharma
and/or Mrs. Ranjana Sharma be to and are hereby
authorized, jointly and/or severally to be present in HDFC
Bank and deposit /redeposit the original tittle deeds of the
Company's immovable properties with an intention to create
security thereof and to make necessary declarations on behalf
of the Company .”
(Emphasis supplied)
8. It will be seen that apart from negotiations, Mrs. Ranjana
Sharma - respondent no. 2, was also authorized to deposit the original
6
title deeds of the company’s immovable property. Further the board
resolution provides as under: -
“RESOLVED FURTHER THAT the draft of the document
received from HDFC Bank (a) respect credit facility (ies) be and
is/are hereby approved and Ms. Rachana Sharma and/or Mrs.
Ranjana Sharma and/or hereby authorized, jointly and/or to
execute, sign and issue all/any such Demand Promissory
notes Hypothecation Agreements, mortgages (in such form as
HDFC bank may require), guarantees, indemnities all/any
other documents, writings and instruments and all renewals
and/or amendments there to including after
Acknowledgement of Debt/balance confirmations HDFC
Banks(s) may require from time to time in this regard ,
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly
and/or severally on behalf of the company to file the requisite
particulars of charge created in favor of HDFC Bank with
the Registrar of Companies or any other regulatory body
within the time frame prescribed therefor,
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are hereby authorized jointly
and/or severally to be present at the office of Sub-Registrar
for effecting the regulation of various documents on behalf of
the Company whenever required and to do all such acts,
deeds and things as may be necessary or expedient to
implement/give effect to this resolution .
RESOLVED FURTHER THAT Ms. Rachana Sharma and/or
Mrs. Ranjana Sharma be and are thereby authorized jointly
and/or severally to affix the Common Seal of the company on all
the agreement documents writing and instruments and all
renewals/amendments after Acknowledgement of debt/barar
(sic.) conditions there of mentioned above as may be required by
HDFC Bank in conformity with provisions of the Articles of
Association, the Companies Act, 1956 and the Companies Act,
2013 of the Companies (sic.)”
(Emphasis supplied)
7
9. Under the resolution, the respondent no. 2-Ranjana Sharma was
authorized to sign demand promissory notes, hypothecation
agreements, mortgages, guarantees and indemnities and any other
documents, writings and instruments, as may be required, from time
to time. Further, respondent no. 2 was also authorized to file the
requisite particulars of charge created in favor of the bank with the
Registrar of Companies. The respondent no. 2 was also authorized to
be present at the office of Sub-Registrar for registration of various
documents and also authorized to affix the common seal on all the
relevant documents.
10. In the sanction letter dated 22.02.2016 which was also annexed
to the complaint, under the head “Security for Inventory Funding
(AUIF)”, the performance guarantee of the directors - Ms. Rachana
Sharma and respondent no. 2 - Mrs. Ranjana Sharma were required to
be given. This clause occurs in the further sanction letter dated
12.09.2016 also.
8
11. It is in this background that the correctness of the judgment of
the High Court needs to be appreciated.
12. We have heard learned Senior Counsel/Counsel for the parties
and perused the records. Learned Senior Counsel for the appellant
contends that a perusal of the averments in the complaint read with
the documents filed leave no manner of doubt that the respondent no.
2 - Ranjana Sharma was in charge of, and was responsible for the
conduct of the business of the company inasmuch as she had
participated in the negotiations and was authorized to sign all the
relevant documents and her performance guarantee was also taken. In
view of this, learned Senior Counsel contends that the High Court was
not justified in quashing the complaint insofar as the respondent no. 2
- Ranjana Sharma was concerned.
13. Learned Senior Counsel for the appellant contends that
respondent No.2-Mrs.Ranjana Sharma is the Director of the Accused
No.1-Company and she submitted a personal guarantee and also
signed a supplemental continuing guarantee dated 17.09.2016 for the
loan transaction. It is submitted that the Company is a family-run
9
private entity. Learned Senior Counsel for the appellant relied upon
certain judgments of this Court in support of his submission.
14. In response, learned counsel for the respondent No.2 submitted
that the averments in the complaint fell short of the requirement
mandated in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and
Another , (2005) 8 SCC 89; that the words “was in charge of” and
“was responsible to the company for the conduct of the business of
the company” cannot be read disjunctively and the same ought to be
read conjunctively; that as held in Siby Thomas vs. Somany
Ceramics Limited , (2024) 1 SCC 348 if it is not averred in the
complaint that the accused was “in charge of the conduct of the
business” at the relevant time, the prosecution must fail; and that not
only the basic averment as enshrined in Section 141 of the NI Act has
to be incorporated in the complaint but also the specific role should be
attributed to the persons who are directors or employees of the
company. Learned counsel for the respondent also relied on certain
other judgments which will be dealt with in the course of the
discussion herein below.
10
QUESTION FOR CONSIDERATION: -
15. In the above background, the question that arises for
consideration is whether the High Court was justified in quashing the
complaint insofar as respondent no. 2 – Mrs. Ranjana Sharma was
concerned on the ground that necessary averments were lacking?
ANALYSIS AND REASONING: -
16. Section 141(1) of the NI Act along with its provisos reads as
under:-
“ 141. Offences by companies .—(1) If the person committing an
offence under Section 138 is a company, every person who, at
the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against
and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such
offence.
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or
a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
shall not be liable for prosecution under this Chapter.”
11
17. It will be noticed that Section 141 of the NI Act employs the
phrase “ was in charge of, and was responsible to the company for the
conduct of the business of the company ”. Insofar as the aspect of
vicarious liability is concerned, in the present case, the averments
made are to the following effect:-
“Accused Nos. 2 to 4 are the Directors of Accused No.1
Company” and
“Is responsible for its day-to-day affairs, management and
working of the Accused No.1-Company”
18. The real question is, is the above averment along with the other
averments in the complaint sufficient to meet the tests laid down by
this Court in the leading judgment of S.M.S. Pharmaceuticals-I
(supra) .
19. Before we advert to S.M.S. Pharmaceuticals-I (supra), it will
be useful to refer to the meaning of the word “ in charge of ”. P.
Ramanatha Aiyar’s Advanced Law Lexicon defines the word “in
charge of” as follows:-
12
“A person “in charge of” and responsible to the company for the
conduct of the business of the company must be a person in
overall control of the day-to-day business of the company or
firm”.
20. It will be seen that the averment made in the complaint, in the
present case, clearly uses the phrase “responsible for its day-to-day
affairs, management and working of the Accused No.1 Company”,
which going by the dictionary meaning set out hereinabove in
substance is the same as “in charge of and was responsible to the
Company for the conduct of the business of the Company”.
21. Read in the background of the other averments, the above
averment clearly fulfils the requirement of Section 141. The
contention of the learned counsel for the respondent no. 2, however, is
that actual words mentioned in Section 141 in the same form be
employed in the complaint, for the complaint to be sustained. Learned
Counsel placed strong reliance on S.M.S. Pharmaceuticals-I (supra).
22. To answer this issue, a closer look at the judgment in S.M.S.
Pharmaceuticals-I (supra) needs to be undertaken. S.M.S.
Pharmaceuticals -I (supra) arose out of a reference by a two-Judge
13
Bench of this Court. This Court, in the said judgment, set out for
determination the following questions: -
“( a ) Whether for purposes of Section 141 of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the
allegation read as a whole fulfil the requirements of the said
section and it is not necessary to specifically state in the
complaint that the person accused was in charge of, or
responsible for, the conduct of the business of the company.
( b ) Whether a director of a company would be deemed to be in
charge of, and responsible to, the company for conduct of the
business of the company and, therefore, deemed to be guilty of
the offence unless he proves to the contrary.
( c ) 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 directors or joint managing director
who admittedly would be in charge of the company and
responsible to the company for conduct of its business could be
proceeded against.”
23. The following principles are deducible from the said judgment.
(i) “Section 141 contains conditions which have to be satisfied
before the liability can be extended to officers of a company. Since
the provision creates criminal liability, the conditions have to be
strictly complied with. The conditions are intended to ensure that a
person who is sought to be made vicariously liable for an offence of
which the principal accused is the company, had a role to play in
14
relation to the incriminating act and further that such a person should
know what is attributed to him to make him liable”. [See Para 4]
(ii) “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 the day-to-day
functioning of the company. As a director he may be attending
meetings of the Board of Directors of the company where usually they
decide policy matters and guide the course of business of a company.
It may be that a Board of Directors may appoint sub-committees
consisting of one or two directors out of the Board of the company
who may be made responsible for the day-to-day functions of the
company. These are matters which form part of resolutions of the
Board of Directors of a company. Nothing is oral. What emerges
from this is that the role of a director in a company is a question
of fact depending upon the peculiar facts in each case. There is
no universal rule that a director of a company is in charge of its
everyday affairs ”. [See Para 8] (Emphasis supplied)
15
(iii) “Mere use of a particular designation of an officer without more,
may not be enough by way of an averment in a complaint. When the
requirement in Section 141, which extends the liability to officers of
the company, is that such a person should be in charge of and
responsible to the company for conduct of business of the company,
how can a person be subjected to liability of criminal prosecution
without it being averred in the complaint that satisfies those
requirements. 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 ”. [See Para 8]
(Emphasis supplied)
(iv) “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
16
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
the conduct of business of the company at the time of commission
of an offence, who will be liable for criminal action . It follows
from this that if a director of a company who was not in charge of and
was not responsible for the conduct of the business of the company at
the relevant time will not be liable under the provision”. [See Para 10]
(Emphasis supplied)
(v) “Therefore, in order to bring a case within Section 141 of the
Act, the complaint must disclose the necessary facts which make a
person liable”. [See Para 12]
24. After setting out the above principles, this Court in S.M.S.
Pharmaceuticals-I (supra) , cited a whole host of judgments of
various High Courts and this Court, including the judgment of this
Court which was then the latest in line, namely, Monaben Ketanbhai
Shah and Another vs. State of Gujarat and Others , (2004) 7 SCC
15. This Court in S.M.S. Pharmaceuticals-I (supra) cited Monaben
Ketanbhai Shah (supra) which had held that it was not necessary to
17
reproduce the language of Section 141 verbatim in the complaint
since the complaint was required to be read as a whole. Monaben
Ketanbhai Shah (supra) had held that if the substance of the
allegations made in the complaint fulfil the requirements of Section
141, the complaint has to proceed and is required to be tried with. It
was further held in Monaben Ketanbhai Shah (supra) that in
construing a complaint, a hypertechnical approach should not be
adopted and the laudable object of preventing bouncing of cheques
and sustaining the credibility of commercial transactions had to be
borne-in-mind.
25. After setting out the holding in Monaben Ketanbhai Shah
(supra) , this Court in S.M.S. Pharmaceuticals-I (supra) in para 18
held as follows:-
“ 18. To sum up, there is almost unanimous judicial opinion that
necessary averments ought to be contained in a complaint before
a person can be subjected to criminal process. A liability under
Section 141 of the Act is sought to be fastened vicariously on a
person connected with a company, the principal accused being
the company itself. It is a departure from the rule in criminal law
against vicarious liability. A clear case should be spelled out
in the complaint against the person sought to be made liable.
Section 141 of the Act contains the requirements for making
a person liable under the said provision. That the
respondent falls within the parameters of Section 141 has to
18
be spelled out. A complaint has to be examined by the
Magistrate in the first instance on the basis of averments
contained therein. If the Magistrate is satisfied that there are
averments which bring the case within Section 141, he would
issue the process. We have seen that merely being described
as a director in a company is not sufficient to satisfy the
requirement of Section 141. Even a non-director can be
liable under Section 141 of the Act. The averments in the
complaint would also serve the purpose that the person
sought to be made liable would know what is the case which
is alleged against him. This will enable him to meet the case
at the trial .”
(Emphasis supplied)
26. Thereafter, in para 19, the conclusion was recorded in the
following terms:-
“ 19. In view of the above discussion, our answers to the
questions posed in the reference are as under:
( a ) 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. This averment is an essential
requirement of Section 141 and has to be made in a complaint.
Without this averment being made in a complaint, the
requirements of Section 141 cannot be said to be satisfied.
( b ) The answer to the question posed in sub-para ( b ) has to be in
the negative. 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 the conduct of
its business. The requirement of Section 141 is that the person
sought to be made liable should be in charge of and
responsible for the conduct of the business of the company at
the relevant time. This has to be averred as a fact as there is
no deemed liability of a director in such cases.
19
( c ) The answer to Question ( c ) has to be in the affirmative. The
question notes that the managing director or joint managing
director would be admittedly in charge of the company and
responsible to the company for the conduct of its business. When
that is so, holders of such positions in a company become liable
under Section 141 of the Act. By virtue of the office they hold as
managing director or joint managing director, these persons are in
charge of and responsible for the conduct of business of the
company. Therefore, they get covered under Section 141. So far
as the signatory of a cheque which is dishonoured is concerned,
he is clearly responsible for the incriminating act and will be
covered under sub-section (2) of Section 141.”
(Emphasis supplied)
27. Hence, it is very clear that the conclusion in para 19(a) in S.M.S.
Pharmaceuticals-I (supra) has to be read with the other holdings in
judgment especially the ratio extracted hereinabove culminating in
para 18. Merely reading para 19(a) to contend that what is required is
parroting of the words of the section for a complaint to be sustained is
completely unjustified. Para 19(a) does not mention that the words of
the Section 141 has to be mechanically parroted. In fact, the cases
that we discuss hereinbelow have expressly rejected the said
contention.
28. After the reference in S.M.S. Pharmaceuticals-I (supra) was
answered by the three-Judge Bench and before the case of the said
20
parties could be taken up for disposal by the two judge Bench, came
the judgment in Sabitha Ramamurthy and Another vs.
R.B.S.Channabasavaradhya , (2006) 10 SCC 581. This Court, after
noticing S.M.S. Pharmaceuticals-I (supra), held that it was not
necessary for the complainant to specifically reproduce the wordings
of the section but what was required was a clear statement of fact so
as to enable the Court to arrive at a prima facie opinion that the
accused are vicariously liable. Such vicarious liability can be inferred
only if the requisite statements, which are required to be averred in
the complaint petition are made so as to make the accused therein
vicariously liable for the offence committed by the company. It was
also held that before a person can be made vicariously liable, strict
compliance with the statutory requirements should be insisted. On
facts, the Court found that the averments did not meet the
requirements in the said case.
29. Thereafter, came the judgment in S.M.S. Pharmaceuticals Ltd.
vs. Neeta Bhalla and Another, (2007) 4 SCC 70 (hereinafter referred
to as S.M.S. Pharmaceuticals-II (supra) . Referring to para 18 and 19
of the order in the three-Judge Bench reference in S.M.S.
21
Pharmaceuticals-I (supra) and following the judgment in Sabitha
Ramamurthy (Supra) , the averments in the complaint were tested and
it was found that the complaint petition when read in its entirety, the
averments therein fell short of the requirements to implicate the
respondent-accused in that case.
30. To the same effect is the judgment of this Court in A.K.
Singhania vs. Gujarat State Fertilizer Company Limited and
Another , (2013) 16 SCC 630, wherein this Court categorically ruled
as under:-
“ 14. From a plain reading of the aforesaid provision it is
evident that every person who at the time the offence was
committed was in charge of and responsible to the company
shall be deemed to be guilty of the offence under Section 138
of the Act. In the face of it, will it be necessary to specifically
state in the complaint that the person accused was in charge of
and responsible for the conduct of the business of the
company? In our opinion, in the case of offence by the
company, to bring its Directors within the mischief of
Section 138 of the Act, it shall be necessary to allege that
they were in charge of and responsible to the conduct of the
business of the company. It is a necessary ingredient which
would be sufficient to proceed against such Directors.
However, we may add that as no particular form is
prescribed, it may not be necessary to reproduce the words
of the section. If reading of the complaint shows and the
substance of accusation discloses necessary averments, that
would be sufficient to proceed against such of the Directors
and no particular form is necessary. However, it may not be
necessary to allege and prove that, in fact, such of the Directors
22
have any specific role in respect of the transaction leading to
issuance of cheque. Section 141 of the Act makes the Directors
in charge of and responsible to the company “for the conduct
of the business of the company” within the mischief of Section
138 of the Act and not particular business for which the cheque
was issued. We cannot read more than what has been mandated
in Section 141 of the Act.”
(Emphasis supplied)
31. In Ashok Shewakramani and Others vs. State of Andhra
Pradesh and Another , (2023) 8 SCC 473, a judgment relied upon by
Respondent No.2, the averments did not satisfy the ingredients of
Section 141 and this Court observed that all that was averred in that
case (the first set of appeal therein) was that the accused were liable
for the transactions of the company and they were fully aware of the
issuance of the cheque and dishonor of the cheque. This Court held
that even taking a broad and liberal view of the pleadings in the
complaint, there was no compliance with the requirements of Section
141 (1). In the second set of appeals therein the accused directors
were not even described as directors of the first accused company
therein. On that simple ground proceedings were quashed. In the third
set of appeals therein, insofar as the directors were concerned who
23
were accused nos. 4 to 7 an omnibus averment was made in the
following terms.
"(1) It is submitted that the complainant is the proprietor
of Chakra Cotton Traders, doing business in cotton,
resident of bearing Door No. 3/917-1, Sri Chackra
Nilayam, YMR Colony, Proddatur Town-516 360,
Kadapa District, A.P.
Accused 1 is the private limited Company
concerned and registered under the Companies Act.
Accused 2 is Chairman of Accused 1. Accused 3 is the
Managing Director of Accused 2 and Accused 4 to 7 are
the Directors of Accused 1 Company and Accused 2 to 7
are managing the Company and busy with day-to-day
affairs of the Company and all are managing the
Company and also in charge of the Company and all are
jointly and severally liable for the acts of Accused 1
Company.”
Considering these averments the Court while quashing the
proceedings held that merely because somebody is managing the
affairs of company, per se they do not become in charge of the
conduct of the business of the company or the person responsible for
the company for the conduct of the business of the company. It was
further held that the averment that the accused were busy with the
day-to-day affairs was also insufficient to attract the ingredients of
24
Section 141(1). Proceeding further, the Court held that merely
averring that the accused were in-charge of the company was neither
here nor there as such averment was insufficient to conclude that the
accused were responsible to the company for the conduct of the
business. This is vastly different from the averments in the present
case wherein it is clearly averred that the respondent no. 2 was
responsible for the day-to-day affairs, management and working of
the accused no. 1 company.
32. Ashok Shewakramani (supra) turned on the special facts of that
case. This is more so since the averments in the complaint therein
extracted hereinabove lumping the role of the directors with others
and making omnibus averments, was found to be insufficient to attract
the vicarious liability under Section 141(1) of the NI Act.
33. In Ashutosh Ashok Parasrampuriya and Another vs. Gharrkul
Industries Private Limited and Others , (2023) 14 SCC 770, after
noticing that the averments in the complaint were to the effect that the
directors of the accused company were responsible for its business
and all the appellant-accused therein were involved in the business of
25
the company and are responsible for all the affairs of the company,
this Court held that reading the complaint as a whole, the ingredients
of Section 141 were satisfied.
34. What is important to note is that the repetition of the exact
words of the Section in the same order, like a mantra or a magic
incantation is not the mandate of the law. What is mandated is that the
complaint should spell out that the accused sought to be arrayed falls
within the parameters of Section 141(1) of the NI Act. Only then
could vicarious liability be inferred against the said accused, so as to
proceed to trial. Substance will prevail over form.
35. Strong reliance is placed on Siby Thomas (supra) by learned
counsel for the respondent No.2 to contend that in the absence of the
words “was in charge of”, the present case against respondent No.2
cannot be proceeded. We are unable to countenance the said
submission. This Court, in Siby Thomas (supra), on facts, found that
on an overall reading of the complaint it did not disclose any clear and
specific role to the appellant-accused therein. It was further held that
what was averred was only that the accused being partners are
26
responsible for the day-to-day conduct of business of the company.
This is vastly different from the averments in the present case as
discussed hereinabove. In this case, it is clearly averred that the
respondent No.2 along with the accused Nos. 3 and 4 being directors
were responsible for its day-to-day affairs, management and working
of accused No.1 - Company. Hence, the judgment in Siby Thomas
(supra) can be of no help to the respondent No.2 as the case turned on
its own facts.
36. The other aspect of the matter canvassed by the learned counsel
for the respondent No.2 is that not only are the basic averments as
enshrined in Section141 to be mandatorily incorporated but also the
specific role be attributed to the persons who are mere directors or
employees of the company. We are unable to agree with the
submission of the learned counsel.
37. Recently, this Court in S.P. Mani and Mohan Dairy vs. Dr.
Snehalatha Elangovan , (2023) 10 SCC 685, after reiterating the
principle that it was not necessary to reproduce the language of
Section 141 verbatim in the complaint further reiterated the holding in
27
K.K.Ahuja vs. V.K. Vora and Another , (2009) 10 SCC 48. In K.K.
Ahuja (supra) , it was held that insofar as the director was concerned,
an averment in the complaint that he was in charge of, and was
responsible to the company, for the conduct of the business of the
company was enough and no further averment was necessary though
some particulars will be desirable. Thereafter, this Court in S.P. Mani
(supra) , in para 58.2 of the judgment concluded as under:-
“ 58.2. The complainant is supposed to know only generally as to
who were in charge of the affairs of the company or firm, as the
case may be. The other administrative matters would be within
the special knowledge of the company or the firm and those who
are in charge of it. In such circumstances, the complainant is
expected to allege that the persons named in the complaint are in
charge of the affairs of the company/firm. It is only the Directors
of the company or the partners of the firm, as the case may be,
who have the special knowledge about the role they had played in
the company or the partners in a firm to show before the Court
that at the relevant point of time they were not in charge of the
affairs of the company. Advertence to Sections 138 and Section
141, respectively, of the NI Act shows that on the other elements
of an offence under Section 138 being satisfied, the burden is on
the Board of Directors or the officers in charge of the affairs of
the company/partners of a firm to show that they were not liable
to be convicted. The existence of any special circumstance that
makes them not liable is something that is peculiarly within their
knowledge and it is for them to establish at the trial to show that
at the relevant time they were not in charge of the affairs of the
company or the firm.”
28
38. As was rightly held therein, the administrative role of each
director would be within the special knowledge of the company or the
director of the firm and it is for them to establish that they were not in
charge of the affairs of the company. In view of this, the contention
of the learned counsel for the respondent No.2 that the specific role
attributed to the directors should be set out in the complaint does not
merit acceptance. Reliance has been placed on National Small
Industries Corporation Limited vs. Harmeet Singh Paintal and
Another , (2010) 3 SCC 330 by the learned counsel for the respondent
No.2 in support of the proposition canvassed. We are unable to
countenance the said submission. If the learned counsel by the said
submission seeks to contend that the complainant in a Section 138
complaint is obliged to plead administrative matters which are
especially within the knowledge of the company and the directors,
then he is completely wrong in the understanding of the ingredients of
Section 141. As held in K.K. Ahuja (supra) and reiterated in S.P.
Mani (supra), the complainant is supposed to know only generally as
to who are in charge of the affairs of the company. Harmeet Singh
Paintal (supra) when it holds in para 22 that
29
“further, in order to fasten the vicarious liability in accordance
with Section 141, the averment as to the role of the Directors
concerned should be specific. The description should be clear
and there should be some unambiguous allegations as how the
Directors concerned were alleged to be in charge of and were
responsible for the conduct of the affairs of the company”
should be understood to only mean vis-à-vis the transaction
concerning the issue of the cheque, in question, which are within the
knowledge of the complainant. K.K. Ahuja (supra) where it holds that
“in the case of a Director, secretary or manager [as defined in
Section 2(24) of the Companies Act] or a person referred to in
clauses (e) and (f) of Section 5 of the Companies Act, an
averment in the complaint that he was in charge of, and was
responsible to the company, for the conduct of the business of
the company is necessary to bring the case under Section
141(1) of the Act. No further averment would be necessary in
the complaint, though some particulars will be desirable. They
can also be made liable under Section 141(2) by making
30
necessary averments relating to consent and connivance or
negligence, in the complaint, to bring the matter under that
sub-section”
sets out the correct legal position. A harmonious reading of the
judgments in K.K. Ahuja (supra) , Harmeet Singh Paintal (supra)
and S.P. Mani (supra) brings out the position that there is no
obligation on the complainant to plead in the complaint as to matters
within the special knowledge of the company or the directors or firm
about the specific role attributed to them in the company.
39. Applying the said legal position to the facts of the present case,
it is found that the averments in the complaint set out hereinabove
against the respondent No.2 – Mrs. Ranjana Sharma fulfill the
requirement of Section 141(1) of the NI Act, and this is not a case
where trial against her can be aborted by quashment of proceedings.
The High Court was completely unjustified in quashing the
proceedings against her.
40. The appeal is, accordingly, allowed and the judgment of the
High Court of Judicature at Bombay dated 10.01.2024 in Criminal
31
Writ Petition No. 275 of 2022 is set aside. Consequently, the order
dated 16.12.2019 issuing process to respondent No.2 in proceeding in
C.C. No. 2486/SS/2019 is restored to the file of the Metropolitan
th
Magistrate, 7 Court, Bhiwandi, Dadar, Mumbai to be proceeded with
in accordance with law.
……….........................J.
[ MANOJ MISRA ]
.……….........................J.
[ K. V. VISWANATHAN ]
New Delhi;
22nd May, 2025
32