Introduction
In a landmark decision in Hitesh Verma v. Health Care at Home India Pvt. Ltd. (Criminal Appeal Nos. 462–468 of 2025), the Supreme Court of India clarified the limited scope of vicarious liability under Section 141 of the Negotiable Instruments Act, 1881. The Court held that a Director who is not the signatory of a dishonoured cheque cannot be prosecuted under Section 138 unless the complaint explicitly alleges that such Director was in charge of and responsible for the conduct of the company’s business at the relevant time. The judgment reiterates the safeguards against indiscriminate prosecution of non-executive or non-signatory directors in cheque bounce cases.
1. Factual Background and Procedural History
The appellant, Hitesh Verma, was arrayed as Accused No. 3 in a series of complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) by M/s Health Care at Home India Pvt. Ltd. before a trial court in Delhi. The complaints alleged dishonour of cheques issued by the accused company.
While Hitesh Verma was not the signatory of the disputed cheque (Cheque No. 214804), he was impleaded based on his designation as a Director. The complaints broadly alleged that Accused Nos. 2 and 3 (including the appellant) were responsible for the day-to-day business of the company and that the cheque was issued by Accused No. 2 under instructions from Accused No. 3.
The Delhi High Court declined to quash the complaint under Section 482 CrPC, prompting the appellant to approach the Supreme Court via Special Leave Petitions, which were granted and converted into Criminal Appeals.
2. Identification of Legal Issues
The Supreme Court dealt with the following key legal issues:
- Can a Director who is not the signatory to a dishonoured cheque be held liable under Section 138 of the NI Act?
- What are the legal prerequisites for vicarious liability under Section 141 of the NI Act?
- Is a general allegation of being a Director sufficient to sustain prosecution under Section 141(1)?
3. Arguments of the Parties
Appellant (Hitesh Verma)
- Asserted that he was not a signatory to the cheque and thus could not be held liable under Section 138.
- Contended that the complaints lacked specific averments that he was “in charge of and responsible for the conduct of the business” of the company at the time of the alleged offence.
- Urged quashing of the criminal proceedings for lack of compliance with mandatory requirements under Section 141.
Respondent (Complainant – Health Care at Home India Pvt. Ltd.)
- Argued that as a Director, the appellant was responsible for the company’s actions and was involved in business decisions.
- Alleged that the cheque was issued by another Director under the appellant’s instructions.
- Relied on general assertions in the complaint regarding responsibility and directorship.
4. Court’s Analysis and Reasoning
a. Non-Signatory Not Liable Under Section 138
The Court reaffirmed that only the drawer or signatory of a dishonoured cheque can be directly held liable under Section 138. A person who has not signed the cheque cannot be roped in under this section unless Section 141 is validly invoked.
b. Twin Conditions under Section 141(1)
Section 141 of the NI Act deals with offences by companies. The Court emphasized that to fix vicarious liability on a Director under Section 141(1), two key averments must be made in the complaint:
- The person was in charge of the business of the company.
- The person was responsible for the conduct of the business of the company.
The Court held that the complaint failed to meet these mandatory conditions in respect of Hitesh Verma. There was no assertion that he was “in charge of” the business at the time the offence was committed.
c. Distinction Between ‘Director’ and ‘Person in Charge’
The Court clarified that merely naming someone as a Director does not automatically mean they were responsible for the company’s operations. Directorship alone is insufficient; the complaint must contain specific allegations of active involvement in day-to-day business activities.
d. Interpretation of Section 141(2)
Although Section 141(2) enables liability where there is “consent, connivance, or neglect” by a company officer, no such allegations were made against the appellant. Thus, this clause was inapplicable.
e. Quashing of Complaint Justified
On a plain reading of the complaint, the Court found no basis to proceed against the appellant. The requirement of “specific averment” not being fulfilled, prosecution was liable to be quashed.
5. Final Conclusion and Holding
The Supreme Court allowed the appeals, quashing the proceedings against the appellant (Accused No. 3) in all connected complaints. The impugned orders taking cognizance were set aside to the extent they related to Hitesh Verma.
The Court explicitly clarified that:
- It had not adjudicated on the merits of the main complaint against other accused.
- The trial against other co-accused (including the signatory) would continue.
The appeals were allowed, protecting the appellant from wrongful prosecution based on vague and insufficient pleadings.
FAQs:
1. Can a Director be held liable for cheque bounce if they didn’t sign the cheque?
No. A non-signatory Director cannot be held liable under Section 138 unless the complaint specifically alleges they were in charge of and responsible for the company’s business at the time of the offence.
2. What are the requirements to prosecute a company Director under Section 141 NI Act?
The complaint must clearly state that the Director was both “in charge of” and “responsible for” the conduct of the company’s business when the offence occurred.
3. Does naming someone as a Director automatically make them liable under cheque bounce law?
No. Being a Director alone is not enough. Specific factual allegations regarding their role and responsibility must be included in the complaint.
4. What does Section 141(2) of the NI Act say about liability?
It states that a company officer may be liable if the offence was committed with their consent, connivance, or due to their neglect—but these elements must be expressly alleged.
5. Can a criminal complaint under Section 138 NI Act be quashed?
Yes, if the complaint fails to meet statutory requirements, especially under Section 141 for vicarious liability, the High Court or Supreme Court can quash it.
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