Independent Non‑Executive Director Cannot Be Held Vicariously Liable Under Section 141 NI Act Without Specific Averments

A bench of Justices B. V. Nagarathna and Satish Chandra Sharma heard appeals against a common judgment of the High Court of Judicature at Bombay which had dismissed petitions under Section 482 CrPC seeking quashing of criminal proceedings initiated under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The appeals concerned whether an independent non‑executive director could be vicariously prosecuted for company cheques dishonoured for insufficiency of funds.

The Supreme Court allowed the appeals and set aside the High Court order, quashing the criminal complaints against the appellant. The Court held that vicarious criminal liability under Section 141 could not be fastened on a director merely by designation and that the complaints failed to make the specific averments required to implicate a non‑executive director. The Court noted that “a mere designation as a director does not conclusively establish liability under section 138 read with section 141 of the NI Act,” and emphasised that liability depended on specific allegations of active involvement in the company’s affairs at the relevant time. The Court, in its reasoning, observed: “13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability.”

Background

The appellant, Kamalkishor Shrigopal Taparia, served as an additional and thereafter an independent non‑executive director of M/s D.S. Kulkarni Developers Ltd., with no role in the company’s financial operations or key management. The company allegedly availed two loans from India Ener‑Gen Private Limited in 2016–2017 and issued several cheques in repayment which were dishonoured for insufficiency of funds. The cheques in question included Nos. 455494 (₹8,00,000 dated 24.11.2016), 455495 (₹8,00,000 dated 25.12.2016), 455496 (₹8,00,000 dated 25.01.2017), and Nos. 455497–455500 (₹10,00,000 each dated 28.02.2017). The appellant neither signed nor authorised issuance of these cheques and he resigned as director on 03.05.2017, with resignation notified to the Registrar of Companies by Form DIR‑11 and DIR‑12.

Complainant petitions under Section 138 NI Act were filed before the Metropolitan Magistrate, and the appellant moved the High Court under Section 482 CrPC to quash the proceedings. The High Court dismissed those petitions, observing that the appellant’s role was a matter for trial and that sufficient averments had been made. On appeal to the Supreme Court, counsel for the appellant argued that as a non‑executive director he had no involvement in daily financial affairs and that Section 141 vicarious liability required that the director be “in‑charge of and responsible for the conduct of the business” at the relevant time. Respondents contended that vicarious liability could extend to directors irrespective of executive status and that the appellant formed part of the company’s decision‑making apparatus.

The Supreme Court reviewed settled precedents including National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, N.K. Wahi v. Shekhar Singh, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Pooja Ravinder Devidasani v. State of Maharashtra, reiterating that criminal liability under Section 141 required specific, unambiguous averments of a director’s role. The Court found that the complaints contained no particularised allegations demonstrating the appellant’s responsibility for the dishonoured cheques, and that he was neither a signatory nor involved in financial decision‑making. Consequently, the Court held that the complaints did not meet mandatory legal requirements to implicate him and quashed the criminal proceedings against him in Complaint Nos. 66/SS, 645/SS, 697/SS and 1595/SS of 2017. The appeals were allowed and no order as to costs was made.

Case Details: Case No.: 2025 INSC 223 Case Title: KAMALKISHOR SHRIGOPAL TAPARIA v. INDIA ENER‑GEN PRIVATE LIMITED & ANR. Appearances: For the Petitioner(s): [Advocate names not specified in the judgment] For the Respondent(s): [Advocate names not specified in the judgment]