Director of a company can’t be prosecuted vicariously for cheque bounce if company is not arraigned as accused: SC

Case Details: Pawan Kumar Goel v. State of U.P. - [2022] 145 taxmann.com 57 (SC)

Judiciary and Counsel Details

• • Krishna Murari & Bela M. Trivedi, JJ.

Facts of the Case

In the instant case, the following two main issues arose before the Apex Court:

(1) Whether a director of a company would be liable for prosecution under Section 138 of NI Act without the company being arraigned as an accused?

(2) Whether a complaint under Section 138 of NI Act would be liable to be proceeded against the director of the company without their being any averments in the complaint that the director arrayed as an accused was in charge of and responsible for the conduct and business of the company?

Supreme Court Held

The Apex Court held as under:

The provisions of Section 141 of the NI Act impose vicarious liability by deeming fiction which pre-supposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-Section (1) and (2) of section 141 would not be liable to be convicted on the basis of the principles of vicarious liability.

For maintaining the prosecution under Section 141 of NI Act, arraigning of the company as an accused is imperative and non-impleadment of the company would be fatal for the complaint.

Arguments advanced by learned counsel for the appellant that an additional accused can be impleaded subsequent to the filing of the complaint merits no consideration, once the limitation prescribed for taking cognizance of the offence under Section 142 of NI Act has expired.

More particularly, in view of the fact that neither any effort was made by the petitioner at any stage of the proceedings to arraign the company as an accused nor any such circumstances or reason has been pointed out to enable the Court to exercise the power conferred by proviso to Section 142, to condone the delay for not making the complaint within the prescribed period of limitation.

Vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of a company, it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business.

Where the allegations in the complaint did not in express words or with reference to the allegations contained therein make out a case that at the time of commission of the offence, the individual named in the complaint as accused was in charge of and was responsible to the company for the conduct of its business, it was to be held that requirement of Section 141 was not met and the complaint against the accused was to be quashed.