Section 141 of the NI Act provides for vicarious liability on every person 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.

A three-Judge Bench of the Hon’ble Supreme Court in Aneeta Hada v. Godfather Travels and Tours Private Limited held that directors cannot be held vicarious liable unless there is prosecution against the Company.

A three-Judge Bench of the Hon’ble Supreme Court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. referred to Section 138 and 141 of the Act and Sections 203 and 204 of Cr.P.C. and observed that the the liability arises from being in charge of and responsible for the conduct of the business of the Company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a Company. 

Section 141 (2) of the Act envisages direct involvement of the Director in the commission of the offence. It is because a person who is in charge of and responsible for the conduct of the business of the Company would naturally know why a cheque in question was issued and why it got dishonoured. The liability arises on account of conduct, act or omission on the part of an Officer and not merely on account of holding office or position in a Company.  Therefore, in order to bring a case within Section 141 of the Act, the complaint must disclose the necessary facts which makes a person liable.

The Courts have further held that this averment is an essential requirement of Section 141 and has to be made in the complaint. Without this averment being made in the complaint, the requirements of Section 141 cannot be said to be satisfied. 

However, owing to the inherently Instrumental position of a Director in managing the affairs of a company, the Court enumerated some distinctions.

In K.K. Ahuja v. V.K. Vora & Anr the Court summarized the position under s. 141 thus:

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix “Managing” to the word “Director” makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii)  In the case of a Director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under s. 141(2)

(iii)  In the case of a Director, secretary or manager [as defined in Section 2(24) of the Companies Act] or a person referred to in clauses (e) and (f) of Section 5 of Companies Act, an averment in the complaint that he was in charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under Section 141(1) of the Act. No further averment would be necessary in the complaint, though some particulars will be desirable. They can also be made liable under Section 141(2) by making necessary averments relating to consent and connivance or negligence, in the complaint, to bring the matter under that sub-section.

(iv) Other officers of a company cannot be made liable under sub-section (1) of Section 141 but can be made liable only under sub-section (2) of Section 141, by averring in the complaint their position and duties in the company and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.”