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Sunita Palita & Others vs M/s Panchami Stone Quarry

Criminal Appeal · 2022 INSC 775Decided 1 Aug 2022
Criminal Appeal No. 1105 of 2022
Indira Banerjee · J.K. Maheshwari · V. Ramasubramanian as the second judge

Background

M/s Panchami Stone Quarry (PSQ) supplied stone material worth over Rs. 2.3 crore to MBL Infrastructures Limited, which issued a cheque for about Rs. 1.71 crore that was later dishonoured for "account closed." PSQ filed a criminal complaint under Sections 138/141 of the Negotiable Instruments Act not only against the company and its Managing Director (who signed the cheque) but also against three independent, non-executive directors (the appellants), on the bald allegation that they were "directors responsible for day-to-day affairs," without specifying their actual role. The trial court refused to exempt the appellants from personal appearance, and the Calcutta High Court dismissed their plea under Section 482 CrPC to quash the proceedings against them.

Decision Breakdown

The Supreme Court reaffirmed settled law that Section 141 of the NI Act (vicarious liability of company officers) is a penal provision requiring strict construction, and that merely being a director does not create liability, only persons actually in charge of and responsible for the company's day-to-day business (such as a Managing/Joint Managing Director or the cheque's signatory) are automatically covered, while others need specific, particularised averments about their actual role in the transaction. The Court found the complaint's allegation against these directors was a bald, formulaic statement with no factual particulars, and that unimpeachable company records (Form DIR-12/DIR-32) showed the appellants were non-executive independent directors uninvolved in daily operations. The High Court had wrongly applied a "no hyper-technical approach" standard to save a complaint that in substance contained no real averment against these specific directors, while itself being hyper-technical in refusing to look past formulaic language. The Supreme Court set aside the High Court's order and quashed the criminal case only as against these three appellants, expressly leaving the prosecution to continue against the company, its Managing Director, and the cheque's signatory.

Lesson Learnt

Independent, non-executive directors of a company cannot automatically be dragged into criminal cheque-bounce proceedings merely by virtue of holding a directorship; a complainant must specifically plead how a particular director was actually in charge of and responsible for the company's business at the relevant time, or the case against that director is liable to be quashed.

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

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