Madras High Court · 2025

Crl.OP.No.19417 of 2023For Respondent : Mr.A.Sivaji O R D E R This Criminal Original Petition is filed to quash the proceedings in STC.No.537 of 2022 on the file of Judicial Magistrate (Fast Track No.II Court) Coimbatore. 2. The petitioners are accused in the complaint lodged by the second respondent for the offence under Section 138 of Negotiable Instruments Act on the allegations that the first accused is an Educational Trust viz., '' Karur Saraswathi Vidhyalaya Educational and Charitable Trust '', running a school in the name and style of '' Karur Saraswathi Vidhyalaya'' at Thulaishikodumbu, Jegathabi Village, Karur District. The second accused is a Secretary, the seventh accused is a President and the fifteenth accused is a Treasurer of the first accused trust. 3. While being so, on 09.01.2022, the Secretary of the trust/A2 on behalf of the first accused trust with consent and knowledge of A3 to A24 had borrowed a sum of Rs.10,00,000/- from the respondent/ defacto 2/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023complainant as hand loan for the development of the trust/A1. Thereafter, towards the repayment of the said loan, the first accused has issued a cheque which was signed by the Secretary of the trust/A2. The complainant had presented the above cheque through his banker Bandhan Bank Ltd., Coimbatore Branch for collection. However, it was returned as dishonoured on the ground that '' Drawers Signature not as per mandate'' on 29.03.2022 and the same was intimated to the complainant on the same date itself by issuing return memo. After issuance of the legal notice, the defacto complainant had lodged a complaint. 4. The learned counsel appearing for the petitioners submits that the petitioners are arrayed as A3 to A8, A13, A19 to A22. The petitioners are only the Trustees of the first accused and they are not the signatory to the cheque issued by the first accused trust signed by the Secretary of the trust/A2 and they have not involved in the day to day affairs of the trust. Infact, the respondent who is none other than the employee of the first accused trust, who misused the cheque of the trust by presenting the cheque for collection. Even as per the complainant, there is no specific allegations alleged as against the petitioners so as to 3/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023attract the offence under Section 138 of Negotiable Instruments Act.5. The learned Counsel further submits that there is no averments in the complaint as to the role and responsibilities of the petitioners. Therefore, there is no cause of action to lodge the complaint as against the petitioners. The learned counsel in support of his contentions, relied upon several judgments passed by this Court. 6. By way of reply, the learned counsel appearing for the respondent submits that admittedly the petitioners are trustees of the first accused trust and they are also involved in the day to day affairs of the first accused trust. All the accused have jointly borrowed loan and issued cheque. Therefore, they cannot say that they were not involved in the day to day affairs of the first accused trust. That apart, the prayer to quash the proceedings against the petitioners can be considered only before the trial court and prayed for dismissal. 7. Heard the learned counsel appearing for the petitioners as well as the learned counsel appearing for the respondent and perused the materials available on record. 4/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 20238. A perusal of available materials revealed that the respondent has filed a complaint for the offence under Section 138 of Negotiable Instruments Act and the same been taken cognizance in S.C.No.537 of 2022 on the file of the Judicial Magistrate (Fast Track No.II Court) Coimbatore as against the 24 accused persons. 9. The first accused is the Trust called Karur Saraswathi Vidhyalaya Educational and Charitable Trust and others are its trustees. The trust represented by its Secretary is the second accused, the seventh accused is the President and the fifteenth accused is the Treasurer of the said trust. In so far as the petitioners are concerned, they are only the trustees of the first accused. 10. A perusal of the complaint further revealed that the Secretary of the trust/ second accused borrowed loan of Rs.10,00,000/- from the respondent on behalf of the first accused trust with the consent and knowledge of the other accused 3 to 24. Except these allegations, there is no other allegation against each and every trustee of the first accused. 5/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 202311. It is a settled law, in order to attract the offence under Sections 138 and 141 of Negotiable Instruments Act, there must be specific allegation as against all the persons of the company or partnership deed or the trust. The vicarious liability is attracted when the ingredients of Sub Section (1) of Section 141 of Negotiable Instruments Act are satisfied. The Section provides that every person who at the time of the offence was committed was in charge of, and was responsible to the company for the conduct of business of the Company, as well as the Company shall be deemed to be guilty of the offence under Section 138 of Negotiable Instruments Act. Further, the requirement of Sub Section (1) of Section 141 of Negotiable Instruments Act is something different and higher. Every person who is sought to be roped in by virtue of Sub Section (1) of Section 141 of Negotiable Instruments Act must be a person who at the the time of offence was in charge of and was responsible to the company for the conduct of the business. Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company for the conduct of 6/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023business of the company. 12. In this regard, it is relevant to rely upon the Judgment of Hon'ble Supreme Court of India in the case of K.S.Mehta Vs. M/s.Morgan Securities and Credits Pvt Ltd., reported in 2025 Livelaw (SC) 286. The relevant portion of the said Judgment is extracted here under:“ .... ANALYSIS AND FINDINGS 16. This Court has consistently held that non-executive and independent director(s) cannot be held liable under Section 138 read with Section 141 of the NI Act unless specific allegations demonstrate their direct involvement in affairs of the company at the relevant time. 16.1. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal & Anr., (2010) 3 SCC 330 observed: “13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in 7/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. 22. Therefore, this Court has distinguished the case of persons who are incharge of and responsible for the conduct of the business of the company at the time of the offence and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company. 39. From the above discussion, the following principles emerge: (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the 8/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred. (v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with. (vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint. (vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.” 16.2. In N. K. Wahi v. Shekhar Singh & Ors., (2007) 9 SCC 481 this Court in Para 8 observed: 9/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023“To launch a prosecution, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still, in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable.” 16.3. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89, this Court laid down that mere designation as a director is not sufficient; specific role and responsibility must be established in the complaint. 16.4. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr., (2014) 16 SCC 1, this Court while taking into consideration that a non-executive director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company’s business at the relevant time. Mere directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the dayto-day conduct of business can be held accountable. 10/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 202316.5 In Ashok Shewakramani & Ors. v. State of Andhra Pradesh & Anr., (2023) 8 SCC 473, this Court held: “8. After having considered the submissions, we are of the view that there is non-compliance on the part of the second Respondent with the requirements of Sub-section (1) of Section 141 of the NI Act. We may note here that we are dealing with the Appellants who have been alleged to be the Directors of the Accused No. 1 company. We are not dealing with the cases of a Managing Director or a whole-time Director. The Appellants have not signed the cheques. In the fact of these three cases, the cheques have been signed by the Managing Director and not by any of the Appellants.''16.6. In Hitesh Verma v. M/s Health Care At Home India Pvt. Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held: “4. As the appellant is not a signatory to the cheque, he is not liable under Section 138 of the 1881 Act. “As it is only the signatory to the cheque who is liable under Section 138, unless the case is brought within the four corners of Section 141 of the 1881 Act, no other person can be held liable….” 5. There are twin requirements under sub-Section (1) of Section 141 of the 1881 Act. In the complaint, it must be alleged that the person, who is sought to be held liable by virtue of vicarious liability, at the time when the offence was committed, was in charge of, and was responsible to the company for the conduct 11/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023of the business of the company. A Director who is in charge of the company and a Director who was responsible to the company for the conduct of the business, are two different aspects. The requirement of law is that both the ingredients of sub-Section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Admittedly, there is no assertion in the complaints that the appellant, at the time of the commission of the offence, was in charge of the business of the company. Therefore, on a plain reading of the complaints, the appellant cannot be prosecuted with the aid of sub-Section (1) of Section 141 of the 1881 Act''.Thus it is clear that lack of specific allegations should vitiate the entire case filed under Sections 138 and 141 of Negotiable Instruments Act. Therefore, in order to fasten the vicarious liability on all the petitioners, the complainant should specifically show as to how and in what manner the accused were responsible persons, simply because the petitioners are the trustees of the first accused trust does make them liable under Negotiable Instruments Act. Hence, the complaint lodged by the second respondent cannot be sustained as against the petitioners and it is liable to quashed . 12/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 202313. Accordingly, the proceedings in STC.No.537 of 2022 on the file of Judicial Magistrate (Fast Track No.II Court) Coimbatore as against the petitioners are hereby quashed. 14. In the result, the Criminal Original Petition stands allowed. Consequently, the connected miscellaneous petitions are closed.15. However, the respondent is directed to proceed the complaint as against the other accused persons who actually involved in the day to day activities of the trust. The trial Court is directed to proceed with the trial as against the other accused persons and complete the same within a period of six months from the date of receipt of a copy of this order 17.03.2025VvTo1. The Judicial Magistrate (Fast Track No.II Court) Coimbatore.2. The Public Prosecutor, High Court of Madras, Chennai.13/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 2023G.K.ILANTHIRAIYAN, J. Vv Crl.O.P.No.19417 of 2023andCRL.MP.Nos.13068 & 13069 of 2023 14/15 https://www.mhc.tn.gov.in/judis Crl.OP.No.19417 of 202317.03.202515/15