Mere Signing of Board Resolution Not Enough to Prosecute Director

Why in News? 

The Supreme Court in Saroj Pandey v. Govt of NCT of Delhi (2026) held that merely signing a Board Resolution does not establish that a director was in charge of the company’s day-to-day affairs. 

• Accordingly, the Court quashed criminal proceedings initiated against a director under Sections 138 and 142 of the Negotiable Instruments Act, 1881 (NI Act) reiterating the strict requirements for fastening vicarious liability under Section 141 NI Act.

What was the Background of Saroj Pandey v. Govt of NCT of Delhi (2026) Case? 

The case arose from a cheque dishonour dispute involving a company: 

• The company issued three cheques towards payment for iron and steel.  
• The cheques were dishonoured due to:  
  • Signature mismatch. 
  • Alterations in the cheques. 
• A legal notice was issued, followed by:  
  • Filing of complaint under Sections 138 & 142 NI Act. 
  • Summoning of the company and its directors. 

Proceedings before Courts: 

• The Magistrate issued summons against the director (appellant).  
• The Revisional Court refused to interfere.  
• The High Court upheld proceedings, reasoning that:  
  • Signing a Board Resolution indicates involvement in company affairs.  

The director then approached the Supreme Court.

What were the Court’s Observations? 

The Supreme Court made the following key observations: 

1. Requirement of Specific Averments (Section 141 NI Act):

• For prosecuting a director, it must be specifically pleaded that:  
  • The person was in charge of and  
  • Responsible for conduct of business at the relevant time. 
• Mere designation as a director is not sufficient.

2. Mere Signing of Board Resolution is Insufficient:

• A Board Resolution generally relates to:  
  • Policy decisions  
  • Strategic matters  
  • Major corporate actions  
• It does not imply:  
  • Knowledge of daily transactions  
  • Participation in routine business operations  
• Therefore, signing such a resolution cannot automatically create criminal liability.

3. Section 482 CrPC / Inherent Powers Not Barred After Revision:

• The High Court erred in holding that:  
  • Filing of revision bars petition under Section 482 CrPC. 
• Supreme Court clarified:  
  • Inherent powers remain available. 
  • Can be exercised to prevent miscarriage of justice. 

Final Outcome: 

• The Supreme Court allowed the appeal. 
• Criminal proceedings against the director were quashed. 
• Clarified that:  
  • Observations apply only to the appellant.  
  • Proceedings against other accused may continue.

What are Sections 138 & 142 of the NI Act? 

Section 138 - Elements of the Offence: 

About: 

• Section 138 creates a statutory offence for dishonour of cheques due to insufficient funds or exceeding the arranged amount. 
• The essential elements that must be satisfied for constituting an offence under this section are: 
  • Primary Requirement: A cheque drawn by a person on his account with a banker for payment of money to another person must be returned unpaid by the bank due to insufficient funds or exceeding the arranged overdraft limit. 

Three Mandatory Conditions under the Proviso: 

• The cheque must be presented to the bank within six months from the date it was drawn or within its validity period, whichever is earlier. 
• The payee or holder in due course must issue a written demand notice to the drawer within thirty days of receiving information from the bank about the cheque being returned unpaid. 
• The drawer must fail to make payment of the cheque amount within fifteen days of receiving the demand notice. 
• Penalty Provision: Upon satisfaction of these conditions, the drawer commits an offence punishable with imprisonment up to two years, or fine up to twice the cheque amount, or both. 
• Scope Limitation: The debt or liability must be legally enforceable as clarified in the Explanation to the section. 

Section 142 - Procedural Requirements for Cognizance: 

• Section 142 prescribes the mandatory procedural framework for taking cognizance of offences under Section 138: 
• Complaint-Based Jurisdiction: Courts can only take cognizance upon a written complaint filed by the payee or holder in due course of the cheque. 
• Limitation Period: The complaint must be filed within one month of the cause of action arising under clause (c) of Section 138's proviso, which means within one month from the expiry of the fifteen-day notice period. 
• Condonation Provision: The proviso to Section 142(b) empowers courts to take cognizance of complaints filed beyond the prescribed one-month period, provided the complainant satisfies the court of sufficient cause for the delay. 
• Court Hierarchy: Only Metropolitan Magistrates or Judicial Magistrates of first class have jurisdiction to try such offences. 
• Territorial Jurisdiction: Section 142(2) specifies that the offence shall be tried only by courts within whose jurisdiction either the payee's bank branch (for collection through account) or the drawee bank branch (for direct presentation) is situated.