Three directors, no cheque signature, no daily role — still summoned.

Three directors, one bounced cheque, and a Supreme Court shield

Sunita Palita, along with two others, was a director on the board of a company that supplied stone materials. They were not the Managing Director. They did not sign the cheque. They had no role in the day-to-day operations. Yet, when a Rs.1.71 crore cheque bounced with the endorsement “account closed,” the trial court in Suri, Birbhum, summoned them as accused under the Negotiable Instruments Act. The stakes were simple: a criminal trial, years of litigation, and the stigma of a Section 138 proceeding. The Supreme Court of India, in a judgment authored by Justice Indira Banerjee on August 1, 2022, asked one question: did the complaint say anything specific about what these three directors actually did?

The cheque that started it all

M/s Panchami Stone Quarry (PSQ) supplied stone materials to MBL Infrastructure Ltd. The company issued a cheque for Rs.1.71 crore. It bounced. PSQ filed a criminal complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, before the Additional Chief Judicial Magistrate, 2nd Court, Suri, Birbhum. The complaint named the company, its Managing Director, and three other directors — Sunita Palita and two others — as accused. The complaint was registered as AC/121/2017 on July 13, 2017. Cognizance was taken. Summons were issued.

The three directors moved an application under Sections 205 and 305 of the Code of Criminal Procedure, 1973, seeking to dispense with their personal appearance. The Judicial Magistrate, 2nd Court, Suri, rejected it on July 9, 2018. They then approached the Calcutta High Court under Section 482 CrPC, arguing that the complaint did not contain any specific averment showing they were in charge of and responsible for the conduct of the company’s business. The High Court dismissed the petition on September 11, 2019, holding that the complaint’s averments were sufficient to meet the requirements of Section 141 of the NI Act.

The directors appealed to the Supreme Court.

What the complaint actually said

The complaint contained a standard recital: that all the directors were “in charge of and responsible for the conduct of the business of the company.” That was it. No particulars. No description of who handled finances, who signed cheques, who managed operations. The three directors claimed they were independent non-executive directors — a fact that the complaint did not dispute. They had no role in the day-to-day affairs of the company. They had not signed the dishonoured cheque. The Managing Director had.

The respondent-complainant, PSQ, argued that the directors were liable by virtue of their designation alone. The High Court had agreed, saying the complaint’s general averment was enough to proceed to trial.

The rule the Supreme Court applied

The Supreme Court did not create new law. It applied settled principles from a line of precedents stretching back decades. The key provision was Section 141 of the NI Act, which creates vicarious criminal liability for directors when an offence is committed by a company. But the Court made clear that this liability is not automatic.

Justice Banerjee, writing for the Bench, distilled the law from seven precedents. The most important was S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89, which held that a person can be held liable under Section 141 only if they were “in charge of and responsible for the conduct of the business of the company” at the time the offence was committed. Mere designation as a director is not enough.

Then came K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48, which created a clear hierarchy. The Managing Director or Joint Managing Director — by virtue of the prefix “Managing” — is presumed to be in charge. A director who signs the cheque is liable without further averment. But for other directors, specific averments are required to show how they were in charge of the business.

Pooja Ravinder Devidasani v. State of Maharashtra (2014) 16 SCC 1 was directly on point. There, the Supreme Court held that a non-executive director who is not involved in day-to-day affairs cannot be held vicariously liable without specific averments. The same principle was reinforced in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330, which held that a bald statement that directors are in charge, without anything more, does not satisfy Section 141.

The Court also cited Girdhari Lal Gupta v. D.H. Mehta (1971) 3 SCC 189, which defined “in charge of business” as meaning overall control of day-to-day business. And State of Karnataka v. Pratap Chand (1981) 2 SCC 335, which laid down the twin routes to liability: either the director was in charge of the business, or the offence was committed with the director’s consent, connivance, or negligence.

The Supreme Court found that the complaint against Sunita Palita and the other two directors did not satisfy any of these tests. There was no averment that they were in charge of day-to-day affairs. There was no allegation of consent, connivance, or negligence. They were independent non-executive directors — a category specifically protected under Section 149 of the Companies Act, 2013, which defines an independent director as someone who “does not have any pecuniary relationship with the company” and is not involved in day-to-day management.

THE TEST: To fasten vicarious liability under Section 141 NI Act on a non-executive independent director, the complaint must contain specific averments with particulars showing how that director was in charge of and responsible for the conduct of the company’s business. A general recital copied from a template will not do.

Why the trial court and High Court got it wrong

The Supreme Court did not mince words. It cited Pepsi Foods Ltd. v. Special Judicial Magistrate (1998) 5 SCC 749, which held that summoning an accused cannot be a matter of course. The order must show application of mind. The trial court had mechanically issued summons to all directors based on a boilerplate complaint. The High Court had rubber-stamped that decision.

Justice Banerjee observed that it would be “a travesty of justice” to drag directors like a Director (Personnel) or Director (HRD) into NI Act proceedings only because of their designation. The same logic applied to independent non-executive directors who had no role in financial affairs.

The Court also noted a curious fact: the accused company was undergoing Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. The complainant had filed a claim before the Interim Resolution Professional, which formed part of the Approved Resolution Plan. This raised an open question — not decided in this case — about whether criminal proceedings under the NI Act survive a resolution plan. But that was not the basis of the decision.

The operative order

The Supreme Court allowed the appeal. It set aside the Calcutta High Court judgment dated September 11, 2019, in CRR 2835/2018. It quashed Criminal Case AC/121/2017 insofar as the three appellants — Sunita Palita and the other two directors — were concerned. The proceedings were allowed to continue against the company and the Managing Director.

The Court also held that there was no justification for the trial court’s refusal to dispense with the personal appearance of the directors under Section 205 CrPC, especially when the company had already entered appearance through an authorised officer. This was an obiter observation, but it strengthens the argument for dispensation in corporate cheque dishonour cases.

What this means for practitioners

This judgment is a powerful tool for defence lawyers representing non-executive and independent directors in cheque bounce cases. The ratio is clear: a complaint that merely copies a statutory phrase without particularising the director’s role will not survive a quashing petition under Section 482 CrPC.

For prosecutors and complainants, the message is equally clear. If you want to implead directors who are not the Managing Director or cheque signatory, you must plead specifics. Which director handled finances? Who authorised the transaction? Who was responsible for maintaining the bank account? Without these particulars, the complaint is vulnerable.

For company secretaries and compliance officers, the judgment reinforces the importance of maintaining clear records of board roles and responsibilities. An independent director who can demonstrate that they had no role in financial management has a strong defence.

For founders and CFOs who serve as non-executive directors on multiple boards, this judgment provides a measure of protection. You are not automatically liable for every bounced cheque issued by every company you sit on. But the protection is not absolute. If you are named in a complaint with specific allegations, you will still have to defend yourself.

The bottom line

If you are a non-executive independent director facing a Section 138 complaint that contains nothing more than a generic recital that you were “in charge of and responsible for the conduct of the business,” move an application under Section 482 CrPC to quash the proceedings — and cite Sunita Palita & Others v. M/s Panchami Stone Quarry, 2022 LiveLaw (SC) 647.