Section 141 creates vicarious liability, and it is one of the most litigated provisions in the Act because complainants routinely name every director on the register.
The provision
Where the offence is committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of its business, as well as the company itself, is deemed guilty. A proviso protects a person who proves the offence was committed without their knowledge, or that they exercised all due diligence to prevent it.
Two requirements complainants get wrong
- The company must be arraigned. Following Aneeta Hada v. Godfather Travels & Tours (2012), prosecution of a director is not maintainable unless the company itself is an accused. If the complaint omits the company, the case against the directors fails.
- A specific averment is essential. Following S.M.S. Pharmaceuticals v. Neeta Bhalla (2005), the complaint must state clearly that the accused was, at the time of the offence, in charge of and responsible for the conduct of the business. Merely describing someone as a director is not enough.
Who is protected in practice
A non-executive or independent director, a nominee director, or a director who had resigned before the cheque was issued, is generally not liable, and can seek quashing under Section 528 BNSS by producing the resignation and the Form DIR-12 filing. A managing director or signatory of the cheque stands on a different footing and is liable by virtue of the position held.
A non-executive or independent director, a nominee director, or a director who had resigned before the cheque was issued, is generally not liable, and can seek quashing under Section 528 BNSS by producing the resignation and the Form DIR-12 filing. A managing director or signatory of the cheque stands on a different footing and is liable by virtue of the position held.
If you are a director who has been named
- Check whether the company is an accused. If not, that is a complete answer.
- Read the complaint for a specific averment about your role, not just your designation.
- Assemble the incontrovertible documents: resignation, DIR-12, board minutes, the mandate showing who was authorised to sign cheques.
- Where those documents are unimpeachable, file a quashing petition rather than sitting through the trial.
If you are the complainant
Do not name every director reflexively. Name the company, the signatory, and those you can genuinely aver were in charge. Over-naming invites quashing petitions that delay the whole case by a year.