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

Citation: [2005] SUPP. 3 S.C.R. 371 · Decided: 20-09-2005 · Supreme Court of India · Bench: Y.K. SABHARWAL · Disposal: Reference answered

Judgment (excerpt)

S.M.S. PHARMACEUTICALS LTD. 
V. 
NEETA BHALLA AND ANR. 
SEPTEMBER 20, 2005 
[Y.K. SABHARWAL, ARUN KUMAR AND B.N. SRIKRISHNA, JJ.] 
Negotiable Instruments Act, 1881-Sections 138 and 141-Dishonour 
of cheques-Offences by companies-Prosecution against officers who were 
A 
B 
in charge of and responsible for conduct of business-Reference to Larger C 
Bench-Whether specific averments are necessary in a complaint against a 
person accu~ed that he was in charge of and responsible for the conduct of 
business of the company-Whether a Director of a company can be deemed 
to be held liable-Whether a signatory of a cheque and/or Managing Director 
of the Company can be deemed to be held liable-Held, specific averments 
against a person are necessary in a complaint-Director of a company cannot D 
be deemed to be liable unless there is specific averment in the complaint-
Signatory of a cheque and/or the Managing Director of the company are 
deemed to be liable for prosecution. 
A two Judge Bench of this Court made a reference for determination 
of the following questions. by a larger Bench: 
E 
"(a) whether for purposes of Section 141 of the Negotiable 
Instruments Act, 1881, it is sufficient if the substance of the allegation read 
as a whole fulfil the requirements of the said section and it is not necessary 
to specifically state in the complaint that the persons accused was in charge F 
of, or responsible for, the conduct of the business of the company. 
(b) Whether a director of a company would be deemed to be in 
charge of, and responsible to, the company for conduct of the business of 
the company and, therefore, deemed to be guilty of the offence unless he 
proves to the contrary. 
G 
(c) even if it is held that specific averments are necessary, whether 
in the absence of such averments the signatory of the cheque and or the 
Managing Directors of Joint Managing Director who admittedly would 
be in charge of the company and responsible to the company for conduct 
371 
H 
372 
SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R. 
A of its business could be proceeded against." 
Answering the Reference, the Court 
HELD: 1.1. Liability under Section 141 of the Negotiable Instrument 
Act, 1881 is cast on persons who may have something to do with the 
B transaction complained of. A person, who is in charge of and responsible 
for conduct of business of a company, would know why the cheque in 
question was issued and why it got dishonoured. Analysing Section 141 of 
the Act, it is seen that it operates in cases where an offence under Section 
138 of the Act is committed by a company. The key words which occur in 
the Section are "every person". These are general words and take every 
C person connected with a company within their sweep. These words have 
been qualified by use of the words "who, at the time the offence was 
committed, was in charge of, and was responsible to the company for the 
conduct of the business of the company, as well as the company, shall be 
deemed to be guilty of the offence etc". What is required is that the 
D persons who are sought to be made criminally liable under Section 141 of 
the Act should be at the time the offence was committed, in charge of and 
responsible to the company for the conduct of the business of the company. 
Every person connected with the company shall not fall within the ambit 
of the provision. It is only those persons who were in charge of and 
responsible for conduct of business of the company at the time of 
E commission of an offence, who will be liable for criminal action. It follows 
from this that a director of a company, who was not in charge of and was 
not responsible for the conduct of the business of the company at the 
relevant time, is not be liable under the provision. The liability arises from 
being in charge of and responsible for conduct of business of the company 
at the relevant time when the offence was committed and not on the basis 
F of merely holding a designation or office in a company. Conversely, a 
person not holding any office or designation in a company may be liable 
if he satisfies the main requirement of being in charge of and responsible 
for conduct of business of a company at the relevant time. Liability 
depends on the role one plays in the affairs of a company and not on 
G designation or status. If being a Director or Manager or Secretary was 
enough to cast criminal liability, the Section would have said so. 
[381-D-E; 382-A-E] 
1.2, The .Le

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