Non-Signatory Directors Not Liable Under Section 138 NI Act
Hitesh Verma v. Health Care at Home India Pvt. Ltd. (2025)
Introduction
In a landmark ruling in Hitesh Verma v. Health Care at Home India Pvt. Ltd. (Criminal Appeal Nos. 462–468 of 2025), the Supreme Court of India has authoritatively clarified the limited scope of vicarious liability of company Directors under Section 141 of the Negotiable Instruments Act, 1881 (“NI Act”).
The Court held that a Director who is not the signatory of a dishonoured cheque cannot be prosecuted under Section 138 of the NI Act unless the complaint specifically and clearly alleges that such Director was in charge of and responsible for the conduct of the company’s business at the relevant time.
The judgment reiterates long-standing judicial safeguards against the indiscriminate prosecution of non-executive, independent, or non-signatory Directors in cheque dishonour cases.
1. Factual Background and Procedural History
The appellant, Hitesh Verma, was arrayed as Accused No. 3 in multiple complaints filed under Section 138 of the NI Act by M/s Health Care at Home India Pvt. Ltd. before the trial court in Delhi. The complaints arose from the alleged dishonour of cheques issued by the accused company.
Notably, the appellant was not the signatory to the disputed cheque (Cheque No. 214804). Nevertheless, he was impleaded solely on the basis of his designation as a Director. The complaints contained a broad allegation that Accused Nos. 2 and 3 were responsible for the day-to-day affairs of the company and that the cheque was issued by Accused No. 2 under the instructions of Accused No. 3.
The Delhi High Court declined to quash the complaints under Section 482 of the Code of Criminal Procedure, 1973. Aggrieved, the appellant approached the Supreme Court by way of Special Leave Petitions, which were subsequently granted and converted into Criminal Appeals.
2. Legal Issues for Consideration
The Supreme Court examined the following pivotal issues:
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Whether a Director who is not the signatory to a dishonoured cheque can be prosecuted under Section 138 of the NI Act.
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What are the mandatory prerequisites for fastening vicarious liability under Section 141 of the NI Act.
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Whether a general allegation of being a Director is sufficient to sustain prosecution under Section 141(1).
3. Submissions of the Parties
Appellant (Hitesh Verma)
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Asserted that he was not the signatory to the cheque and therefore could not be prosecuted under Section 138 of the NI Act.
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Contended that the complaints lacked the mandatory and specific averments required under Section 141, namely that he was in charge of and responsible for the conduct of the company’s business at the relevant time.
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Sought quashing of the criminal proceedings on the ground of non-compliance with statutory requirements.
Respondent (Health Care at Home India Pvt. Ltd.)
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Argued that the appellant, being a Director, was responsible for the affairs of the company.
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Alleged that the cheque was issued by another Director under the appellant’s instructions.
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Relied upon general assertions in the complaint regarding the appellant’s role without furnishing specific particulars.
4. Court’s Analysis and Reasoning
a. Non-Signatory Cannot Be Directly Liable Under Section 138
The Supreme Court reaffirmed that liability under Section 138 is attracted only against the drawer or signatory of the cheque. A person who has not signed the cheque cannot be prosecuted under Section 138 unless vicarious liability is validly attracted under Section 141.
b. Twin Mandatory Conditions Under Section 141(1)
The Court reiterated that for invoking vicarious liability under Section 141(1), the complaint must contain specific averments that:
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The accused was in charge of the business of the company; and
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The accused was responsible for the conduct of the business of the company
at the time when the offence was committed.
In the present case, the Court found that the complaints failed to satisfy these twin statutory requirements insofar as the appellant was concerned.
c. Mere Designation as ‘Director’ Is Insufficient
Drawing a clear distinction between a “Director” and a “person in charge of the company’s affairs,” the Court held that mere directorship does not automatically attract criminal liability. The complaint must disclose specific factual allegations demonstrating active participation in the day-to-day business of the company.
d. Inapplicability of Section 141(2)
Section 141(2) extends liability where the offence is committed with the consent, connivance, or due to the neglect of a company officer. The Court noted that no such allegations were pleaded against the appellant. Consequently, this provision was held to be inapplicable.
e. Justification for Quashing the Proceedings
On a plain and meaningful reading of the complaints, the Court concluded that the essential statutory requirements were not met. In the absence of specific averments, continuation of the criminal proceedings against the appellant would amount to an abuse of the process of law.
5. Final Holding
The Supreme Court allowed the criminal appeals and quashed the proceedings against the appellant (Accused No. 3) in all connected complaints. The orders taking cognizance were set aside to the extent they related to Hitesh Verma.
The Court clarified that:
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It had not examined the merits of the case against the remaining accused.
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The trial against the other co-accused, including the signatory of the cheque, would continue unaffected.
Frequently Asked Questions (FAQs)
1. Can a Director be held liable for cheque dishonour if they did not sign the cheque?
No. A non-signatory Director cannot be prosecuted under Section 138 unless the complaint specifically alleges compliance with Section 141 of the NI Act.
2. What are the mandatory requirements under Section 141 of the NI Act?
The complaint must clearly state that the Director was both in charge of and responsible for the conduct of the company’s business at the time of the offence.
3. Is mere designation as a Director sufficient for prosecution?
No. Directorship alone does not attract criminal liability. Specific factual allegations are mandatory.
4. What does Section 141(2) provide?
It fastens liability where the offence is committed with consent, connivance, or due to neglect—but such elements must be expressly pleaded.
5. Can proceedings under Section 138 NI Act be quashed?
Yes. Courts may quash proceedings where statutory requirements, particularly under Section 141, are not satisfied.