The Supreme Court has asserted that, for purposes of Section 141 of the Negotiable Instruments Act, vicarious liability cannot be fastened merely on account of office or designation; the complaint must disclose sufficient foundational facts showing the role of each accused in the conduct of the business of the company or society at the relevant time.
However, it is clarified that while testing the complaint at the quashing stage, the Court must read it as a whole along with the documents forming part of it, and if such material prima facie reveals participation in the underlying transaction giving rise to the legally enforceable debt, continuation of prosecution is justified. Accordingly, quashing is warranted where the complaint contains only general assertions unsupported by transaction-specific material, but not where documentary material prima facie links the accused to the antecedent financial arrangements forming the substratum of the dishonoured cheque.
A Two-Judge Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria reiterated that Section 141 of the NI Act creates vicarious criminal liability and therefore requires the complaint to disclose that the person sought to be prosecuted was in-charge of, and responsible to, the company or society for the conduct of its business at the relevant time.
Mere designation as an office bearer is insufficient, and a bald reproduction of statutory language without factual foundation cannot sustain prosecution. At the same time, the complaint must be read as a whole, and the Court is not required to insist on mechanical reproduction of the exact phraseology of Section 141 if the substance of the allegations and accompanying material disclose the factual basis for liability.
Applying this principle, the Bench held that respondent nos. 1, 2 and 4 stood on a different footing because the complaint and accompanying documents prima facie connected them with the underlying transaction: the MoU bore the signature of respondent no. 1, the dishonoured cheque bore the signature of respondent no. 2, and the promissory notes and allied documents showed participation of respondent nos. 1, 2 and 4.
By contrast, as against respondent no. 3, there was no specific factual foundation beyond a general assertion based on his status as Executive Member, and no financial document bore his signature or otherwise indicated his participation in the transaction, added the Bench.
Briefly, the appellant finance company advanced an aggregate sum of Rs. 4.50 crore to the accused society during July 2018 for development of the educational institution and business requirements. Promissory notes were executed in acknowledgement of the borrowings, and on July 31, 2018 a memorandum of understanding was entered into between the appellant and the society, represented by its President and Vice-President, stipulating repayment terms and interest at 30% per annum.
Towards discharge of the alleged outstanding liability with interest, a cheque dated Nov 18, 2019 for Rs. 5.12 crores was issued on behalf of the society, but on presentation it was dishonoured with the endorsement “Account Blocked”. Statutory notice was issued to the society and its office bearers, and upon non-payment, a complaint under Sections 138 and 141 of the Negotiable Instruments Act, 1881 was filed against the society and several office bearers, including the present respondents.
The High Court quashed the proceedings against respondent nos. 1 to 4 on the ground that the complaint contained only omnibus averments and lacked the specificity necessary to attract vicarious liability under Section 141 of the NI Act.
