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K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd.

Criminal Appeal · 2025 INSC 315Decided 4 Mar 2025
Crl.A. No.-001105-001105 - 2025 (arising out of SLP (Crl.) No. 4774 of 2024 and connected matters)
Mrs. Justice B.V. Nagarathna · Justice Satish Chandra Sharma

Background

The appellants were non-executive directors of a hotel company that had taken an Inter-Corporate Deposit and later issued post-dated cheques toward repayment, both of which were dishonoured. Criminal complaints under Section 138 of the NI Act were filed against all directors, including the appellants, even though they were not present at the board meeting approving the deposit, were not signatories to the cheques or the loan agreement, and company records confirmed their role was limited to governance oversight without any executive or financial decision-making authority.

Decision Breakdown

The Supreme Court reaffirmed settled law that vicarious liability under Section 141 of the NI Act is a penal provision requiring strict construction, and a complaint must contain specific averments showing that the director was actually in charge of, and responsible for, the company's business at the relevant time: mere directorship or attendance at board meetings is not enough. Since the appellants were not signatories to the dishonoured cheques, had no role in their issuance, and the complaint lacked any specific allegation linking them to the financial transaction, the Court held they could not be prosecuted. The High Court's refusal to quash the proceedings was therefore set aside and the complaints against the appellants were quashed.

Lesson Learnt

A person cannot be dragged into a cheque-bounce prosecution merely because they hold the title of "director". The law protects non-executive directors who have no real say in a company's financial affairs, and complainants must specifically plead how such a person was actually in charge of the business.

Official source (sci.gov.in)View Judgment (PDF)

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