Cheque bounce cases: SC explains when company directors can be summoned

NEW DELHI: Supreme Court on Friday said merely being the director of a company that has issued a bounced cheque is not sufficient to make the person liable, while relying on the three-Judge Bench ruling in SMS Pharmaceuticals Ltd vs Neeta Bhalla and another.

The Court went on to explain that in order for the process to be initiated against a company director, "it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company."

The Court added that such an averment assumes importance because it is "the basic and essential averment which persuades the Magistrate to issue process against the Director," according to Bar & Bench. If this basic averment is missing, the Magistrate would be legally justified in not issuing process, the Bench of Justices Ajay Rastogi and Abhay S Oka explained.

The apex court, however, added that even if such basic averment is there in the complaint, the court concerned may later come to a conclusion that no case is made out against the accused Director for various reasons.

The top court was dealing with an appeal filed against a 2014 High Court order which dismissed petitions challenging a 2012 trial court order summoning the directors of a company in a cheque bouncing case. The appellant-Directors were not signatories to the cheques and the appellants also contended that they were non-executive Directors. Supreme Court observed that on a reading the complaint, "it is clear that at the time that cheques were issued and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business."