Director's Liability Depends On Connivance, Knowledge, SC Reiterates

The Supreme Court of India recently reiterated that a Director of a company, once retired, can be held liable in a cheque bounce case only if it was established that the act was done with his connivance and knowledge. 

Bench comprising Justice BR Gavai and Justice Sanjay Karol heard a criminal appeal preferred against the High Court's refusal to quash proceedings under Section 138 of the Negotiable Instruments Act 1881.

The Court observed that,"Section 141 of the N.I. Act, which states that every person who at the time of the offence was responsible for the affairs/conduct of the business of the company, shall be held liable and proceeded against under Section 138 of the N.I. Act, with exception thereto being that such an act, if done without his knowledge or after him having taken all necessary precautions, would not be held liable."

"However, if it is proved that any act of a company is proved to have been done with the connivance or consent or may be attributable to (i) a director; (ii) a manager; (iii) a secretary; or (iv) any other officer – they shall be deemed to be guilty of that offence and shall be proceeded against accordingly," the Court added.

The Court noted that the complainant had not placed any materials on record indicating complicity of the appellants in the alleged crime.

The Court quashed the complaint and proceedings against the former Director.