Section 141 liability cannot attach to non-signatory directors without specific foundational averments.

Ddev Plastiks Industries Limited supplied polymers, polyethylene and PVC compounds to Gupta Power Infrastructure Limited, Accused No. 1, against 18 invoices raised between July 2022 and February 2023, creating an alleged liability of ₹2,86,78,374.

Four cheques of ₹9,00,000 each, issued by Mahendra Kumar Gupta, the company’s Managing Director and authorised signatory, were dishonoured for “Funds Insufficient” and “Exceeds Arrangement”.

Following a statutory demand notice dated 8 February 2024, the complainant instituted proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881, on 5 March 2024.

The Metropolitan Magistrate recorded the complainant’s evidence and issued summons on 6 April 2024 against the company, its Managing Director, and other directors, including the present petitioners—Pravin Kumar Agarwal, Jitendra Mohan Gupta and Abhishek Gupta, who were described as Whole-Time Directors and were not signatories to the cheques.

The petitioners sought quashing of the proceedings and summoning order under Sections 397, 401 and 482 of the Code of Criminal Procedure, 1973.

Whether the complaint contained the specific foundational averments necessary to invoke vicarious criminal liability under Section 141 of the Negotiable Instruments Act against the petitioners, who were non-signatory Whole-Time Directors?

Whether the continuation of the criminal proceedings and the summoning order warranted interference and quashing under Sections 397, 401 and 482 of the Code of Criminal Procedure?

Section 141(1) of the Negotiable Instruments Act imposes vicarious liability only upon persons who, at the time of the offence, were “in charge of, and responsible to, the company for the conduct of its business”; mere directorship does not create deemed criminal liability.

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, the Supreme Court held that a complaint must specifically aver that the accused was in charge of and responsible for the company’s business at the relevant time, and that merely being a director is insufficient.

The Court also relied on National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, which requires a functional connection with the company’s business, and Sunita Palita v. Panchami Stone Quarry, which reiterates that boilerplate allegations against directors are inadequate, even though executive directors may stand on a different footing from independent directors.

Under State of Haryana v. Bhajan Lal, proceedings may be quashed where the allegations, even if accepted at face value, do not disclose the commission of an offence or continuation would amount to abuse of process.

Pepsi Foods Ltd. v. Special Judicial Magistrate establishes that issuance of process is a serious judicial act requiring application of mind.

The Court found that the complaint merely reproduced the statutory language of Section 141 and made omnibus assertions that all the directors were responsible for the company’s affairs.

It contained no specific allegation identifying the petitioners’ individual roles, operational portfolios, knowledge of the transactions, participation in procurement, or involvement in issuing the dishonoured cheques.

The cheques had been exclusively signed and issued by Mahendra Kumar Gupta as Managing Director and authorised signatory, but the complainant did not plead any factual nexus connecting the petitioners to the transactions or the company’s financial operations.

The Court held that the petitioners’ status as Whole-Time Directors, without more, could not satisfy the statutory requirement of being in charge of and responsible for the conduct of the company’s business.

Since the foundational averments necessary for Section 141 liability were absent, the Magistrate’s issuance of process reflected insufficient application of mind and continuation of the proceedings would constitute abuse of process.

It held that the complaint lacked the specific foundational averments required to impose vicarious liability under Section 141 of the Negotiable Instruments Act upon the non-signatory petitioners.

Exercising revisional and inherent jurisdiction under Sections 397, 401 and 482 of the Code of Criminal Procedure, the Court allowed CRR 2286 of 2024, quashed the proceedings in Case No. CS/26720 of 2024 and set aside the summoning order dated 6 April 2024, only insofar as it concerned Pravin Kumar Agarwal, Jitendra Mohan Gupta and Abhishek Gupta.

The connected application was disposed of and there was no order as to costs.