Supreme Court Restores Criminal Proceedings Against Director; Holds Complaint Sufficient To Invoke Section 141 NI Act

A bench of Justices Manoj Misra and K.V. Viswanathan heard an appeal by HDFC Bank challenging a Bombay High Court order that had quashed criminal proceedings under Section 138 of the Negotiable Instruments Act insofar as one director was concerned. The question before the Supreme Court was whether the High Court was justified in holding that the complaint lacked sufficient averments to attract vicarious liability under Section 141(1) of the NI Act against respondent No.2, Mrs. Ranjana Sharma.

The Court allowed the appeal, set aside the High Court judgment dated 10.01.2024 and restored the order of process issued by the trial court to proceed in accordance with law. The Court held that the complaint, read as a whole and taken with documentary material such as board resolutions and sanction letters, sufficiently averred that respondent No.2 was “responsible for its day-to-day affairs, management and working of the Accused No.1 Company” and thereby met the requirements of Section 141(1). The Court emphasised that “substance will prevail over form” and rejected a rigid requirement of verbatim parroting of the statutory phrase where the substance of the averments fulfilled Section 141. The Court, in its reasoning, observed: "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 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." The Court also noted that “the averments in the complaint set out hereinabove against the respondent No.2 … fulfill the requirement of Section 141(1) of the NI Act,” and therefore quashment was not appropriate.

Background: The dispute arose from credit facilities extended by HDFC Bank to M/s R Square Shri Sai Baba Abhikaran Pvt. Ltd. The bank alleged that the company defaulted on repayments, the account was classified as a Non-Performing Asset on 27.03.2018 and a cheque for over Rs 6 crore was dishonoured with the reason “account blocked.” The bank issued a legal notice which was returned “unclaimed” and filed a complaint under Section 138 NI Act against the company and its directors, seeking prosecution. The trial court issued process on 16.12.2018. The Bombay High Court quashed proceedings against respondent No.2 on the ground that the complaint did not contain sufficient averments to invoke vicarious liability under Section 141.

The Supreme Court undertook a detailed review of precedent, including the three-judge reference in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, Monaben Ketanbhai Shah, Sabitha Ramamurthy, Siby Thomas and more recent authorities such as Ashok Shewakramani, S.P. Mani and K.K. Ahuja. The Court explained that S.M.S. (three-judge reference) did not require mechanical repetition of statutory language and that the complaint must disclose necessary facts so that a prima facie case under Section 141 could be formed. The Court distinguished authorities where omnibus or conclusory averments failed to identify a specific role, and found on the facts here that the complaint, together with board resolution and sanction letters (which authorised the director to negotiate, execute promissory notes, mortgages and affix the common seal), adequately pleaded that respondent No.2 was in charge of and responsible for the conduct of the company's business at the relevant time. The Court therefore restored the charge-sheet and ordered that C.C. No. 2486/SS/2019 be restored to the Metropolitan Magistrate, Bhiwandi, for trial.

Case Details: Case No.: 2025 INSC 759 Case Title: HDFC Bank Limited v. State of Maharashtra and Anr. Appearances: For the Petitioner(s): Counsel for HDFC Bank (senior counsel and other counsel not specified in the judgment) For the Respondent(s): Counsel for State of Maharashtra and for respondent No.2 (names not specified in the judgment)