The Aryavarth Express
Aryavarth (New Delhi): The Supreme Court has firmly reinforced the legal principles governing the vicarious liability of directors in cases involving offenses under the Negotiable Instruments Act, 1881. The apex court’s verdict came in a pair of appeals challenging the Madras High Court’s refusal to quash criminal complaints filed against a non-executive director of a telemarketing company.
The case revolved around two criminal complaints filed by M/s Bharti Airtel Limited, a prominent telecommunication service provider, against Fibtel Telecom Solutions (India) Private Limited, a telemarketing company registered with the Telecom Regulatory Authority of India (TRAI). The complainant alleged that Fibtel Telecom Solutions had defaulted on payments owed under a service agreement, prompting the telecom giant to initiate legal proceedings for the dishonor of five post-dated cheques issued by the company.
Notably, the criminal complaints were lodged not only against Fibtel Telecom Solutions but also against its directors, including Susela Padmavathy Amma, the appellant in the present case. Despite being a non-executive director with no direct involvement in the company’s day-to-day operations, Amma found herself embroiled in the legal proceedings.
Aggrieved by the Madras High Court’s refusal to quash the criminal complaints against her, Amma approached the Supreme Court, contending that the complaints lacked specific averments regarding her role and responsibilities within the company, thereby failing to establish the necessary grounds for invoking vicarious liability under Section 141 of the Negotiable Instruments Act.
The Supreme Court bench, comprising Justices B.R. Gavai and Sandeep Mehta, meticulously examined the legal principles governing the vicarious liability of directors in such cases. Relying on a series of landmark judgments, including N.K. Wahi vs. Shekhar Singh and others, S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and another, and Ashoke Mal Bafna vs. Upper India Steel Manufacturing and Engineering Company Limited, the court reiterated the well-established principle that mere directorshipdoes not automatically render an individual liable for a company’s offenses.
Justice Gavai, authoring the judgment, emphasized that specific averments are necessary to establish how and in what manner a director was responsible for the conduct of the company’s business. Merely reproducing the words of the statute without a clear statement of facts is insufficient to invoke vicarious liability under Section 141 of the Negotiable Instruments Act.
Examining the complaints filed by M/s Bharti Airtel Limited, the court noted a glaring absence of averments suggesting that the appellant, Susela Padmavathy Amma, was actively involved in the day-to-day affairs of Fibtel Telecom Solutions or responsible for its business conduct. The complaints merely stated that Amma and another director were “promoters” of the company, without explicitly attributing any managerial or operational responsibilities to her.
Relying on precedents such as Pooja Ravinder Devidasani vs. State of Maharashtra and another, and State of NCT of Delhi through Prosecuting Officer, Insecticides, Government of NCT, Delhi vs. Rajiv Khurana, the court reiterated the well-established principle that every director need not necessarily be in charge of a company’s business affairs. Specific allegations regarding a director’s duties, responsibilities, and direct involvement in the company’s conduct are essential to establish vicarious liability under Section 141 of the Negotiable Instruments Act.
The court further noted that the complaints did not allege that the appellant was the Managing Director or Joint Managing Director of Fibtel Telecom Solutions, roles that typically entail direct oversight and responsibility for a company’s operations.
Consequently, the Supreme Court concluded that the averments made in the criminal complaints were insufficient to invoke the provisions of Section 141 of the Negotiable Instruments Act against the appellant, Susela Padmavathy Amma.
In a resounding verdict, the apex court allowed the appeals, quashing the Madras High Court’s judgment and setting aside the criminal proceedings against the appellant in the two cheque dishonor cases filed by M/s Bharti Airtel Limited.
The Supreme Court’s judgment has far-reaching implications, reinforcing the legal principles governing the attribution of vicarious liability to directors in cases involving offenses under the Negotiable Instruments Act. The court’s emphatic stance underscores the need for specificity in averments, ensuring that directors are not subject to unjustified criminal proceedings based on mere association with a company.
By upholding the principle that directorship alone does not automatically confer vicarious liability, the apex court has safeguarded the rights of non-executive directors and reinforced the evidentiary standards required to establish their culpability in such cases. This judgment serves as a pivotal precedent, guiding lower courts in navigating the intricate legal terrain of corporate governance and directorial accountability.
