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Pawan Kumar Goel vs State of U.P. & Another

Criminal Appeal · 2022 INSC 1212Decided 17 Nov 2022
Criminal Appeal No. 1999 of 2022
Krishna Murari · Bela M. Trivedi · S. Ravindra Bhat as the second judge · Bela M. Trivedi instead

Background

The appellant, a hardware/machinery trader, had ongoing business dealings with Ravi Organics Limited, a private company. A cheque for Rs. 10 lakh issued by the company's director (respondent no. 2) towards outstanding dues was dishonoured on presentation. After a legal notice went unanswered, the appellant filed criminal complaints under Section 138 of the NI Act, and a Magistrate summoned the director for trial; a Sessions Court later upheld that summoning order. The Allahabad High Court, however, quashed the entire proceedings on a writ petition by the director, holding that the complaint did not contain the necessary averment that he was "in charge of and responsible for the conduct of business" of the company at the relevant time: a requirement drawn from the Supreme Court's earlier rulings in S.M.S. Pharmaceuticals and Aneeta Hada.

Decision Breakdown

The Supreme Court reaffirmed the settled legal position under Section 141 of the NI Act: a director cannot be made vicariously liable for a company's cheque-bounce offence merely by virtue of holding the office of director. The complaint must specifically aver, as a fact, that the individual was in charge of and responsible for the conduct of the company's business when the offence occurred. There is no deemed or automatic liability for directors, though Managing Directors, Joint Managing Directors, and the actual signatory of the cheque are treated differently since their control over the company's affairs is inherent to their role. Finding that the appellant's complaint lacked this essential averment against the respondent, the Court held the High Court had committed no error in quashing the summoning order and the criminal proceedings. All five connected appeals were accordingly dismissed.

Lesson Learnt

To make a company director criminally liable for a dishonoured cheque, a Section 138 complaint must specifically and factually allege that the director was in charge of and responsible for the company's day-to-day business at the time: simply naming someone as a "director" in the complaint is not enough to drag them into a criminal trial.

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

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