The Supreme Court has ruled that non-executive directors/independent directors of a company cannot be prosecuted for criminal offences if a cheque issued by the company bounces at the bank.
The apex court said no vicarious liability can be fastened on such officials under Section 141 of the Negotiable Instruments Act, 1881 as long as they are not vested with financial control of the organisation.
The court said although a non-executive director plays a governance role, they are not involved in the daily operations or financial management of the company.
A bench of Justice B.V. Nagarathna and Justice Satish Chandra Sharma passed the judgment while allowing the appeal filed by two non-executive directors of a company challenging the registration of criminal cases against them under the NI Act on the basis of a complaint lodged by M/s Morgan Securities and Credits after the cheque issued in the latter’s favour for ₹5 crore was dishonoured at the bank.
In this case the Appellants K.S. Mehta and Basant Kumar Goswami were appointed as directors of M/s Blue Coast Hotels & Resorts Ltd. (Accused No. 1/Company) at different times. K.S. Mehta was appointed as an additional director on June 29, 2001, while Basant Kumar Goswami was appointed as a director on April 16, 1998.
The appellant(s) were designated as non-executive directors in compliance with clause 49 of the Listing Agreement prescribed by Sebi.
Their role was confined to governance oversight without any executive authority or financial decision-making.
While Mehta had resigned from the company on November 10, 2012, Goswami continued as non-executive director until 2014.
The Registrar of Companies’ records and corporate governance reports submitted to the stock exchange confirmed their non-executive status and indicated that they did not draw any remuneration apart from a nominal meeting fee. The complaint of cheque bounce was filed in 2017.