S.M.S. PHARMACEUTICALS LTD. versus NEETA BHALLA AND ANR.

Citation: [2007] 2 S.C.R. 862 · Decided: 20-02-2007 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Dismissed
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Judgment (excerpt)

A 
S.M.S. PHARMACEUTICALS LTD. 
-- -
' 
v. 
NEETA BHALLA AND ANR. 
FEBRUARY 20, 2007 
B 
(S.B. SINHA AND MARKANDEY KA TJU, JJ.] 
Negotiable Instruments Act, 1881-Sections 138 and 141-Dishonor of 
'r 
cheque-Offence by Company-Liability of Director-Director resigning two 
c years prior to issuance of cheque by Company-Held: Sufficient averment 
should be made against the Director in the complaint petition that the 
Director was incharge of and was responsible for the conduct of the business 
of the Company-Merely being a party to a purported resolution does not 
show that the Director was actively associated with the management of the 
affairs of the Company-Only the Managing Director was authorized to do 
D certain acts on behalf of the Company-Thus statutory requirements under 
' section 141 not being satisfied, complaint against the DirectOr not 
maintainable. 
"-( 
Respondent No. 1 Director ofa Company resigned on 15.04.1994. The 
E 
Company represented by its Managing Director issued cheques to the 
appellant company Dn 19.08.1996 for certain amount towards discharge of 
its liability. The cheque was dishonoured for insufficient funds upon 
presentation. Appellant issued notice to the company and its Directors. 
Appellant filed a complaint petition against the Company, the Managing 
Director, Respondent No. I and another Director alleging that its Directors 
F are actively involved in the Managment of the affairs of the Company as evident 
> 
from the resolution dated 15.02.1995. Respondent no. I filed a petition for 
discharge which was dismissed. Revision petition was also dismissed. 
Application under section 482 Cr.P.C. was filed and the same was permitted 
to be withdrawn. Another discharge application was filed and the same was 
G 
dismissed. Thereafter, application was filed for quashing of the criminal 
proceedings. High Court held that the ali·:gations in the complaint petition 
against respondent No. I were vague and indefinite and did not satisfy the 
requirements of section 141 of the Negotiable Instruments Act, 1881; and 
>,... 
thus, quashed the complaint against respondent no. I Hence the present appeal. 
H 
Division Bench of this Court referred the question with regard to the 
862 
) 
S.M.S. PHARMACEUTICALS LTD. v. NEET A BHALLA 
863 
requirements of law for proceedings against the Directors of the Company A 
for their purported constructive liability to the three Judge Bench of this 
Court. Three Judge Bench answered the reference and referred the matter to 
the Division Bench for determination on merit. 
Dismissing the appeal, the Court 
HELD: 1.1. Section 141 of the Negotiable Instruments Act, 1881 does 
not say that a Director of a Company shall automatically be vicariously liable 
for commission of an offence on behalf of the Company. What is necessary is 
that sufficient averments should be made to show that the person who is sought 
B 
to be proceeded against on the premise of his being vicariously liable for C 
commission of an offence by the Company must be incharge and shall also be 
responsible to the Company for the conduct of its business. By reason of the 
provision, a legal fiction has been created. (Paras 16 and 171 (869-E-F) 
1.2. The liability of a Director must be determined on the date on which 
the offence is committed. Only because respondent No. 1 was a party to a D 
purported resolution dated 15.02.1995 by itself does not lead to an inference 
that she was actively associated with the management of the affairs of the 
Company. This Court in this case has categorically held that there may be a 
large number of Directors but some of them may not associate themselves in 
the mangement of the day to day affairs of the Company and, thus are not E 
responsible for conduct of the business of the company. The averments must 
state that the person who is vicariously liable for commission of the offence 
of the Company both was iitcharge of and was responsible for the conduct of 
the business of the Company. Requitrements laid down therein must be read 
conjointly and not disjunctively. When a legal fiction is raised, the ingredients 
therefor must be satisfied. [Para 20) (871-B-D) 
F 
1.3. If the complaint petition is read in its entirety, the same would show 
that the only person who actively associated in the matter of obtaining loan, 
signing cheques and other affairs of the company which would lead to 
commission of the alleged offence was the Managing Director. By reason of G
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