In a recent ruling, the Supreme Court clarified directors’ vicarious liability in company offenses, emphasizing stringent requirements for their accountability.
- In the case of Bharti Airtel Limited (“Airtel”) and Fitbel Telecom Solutions Private Limited (“Company”), the Supreme Court of India provided crucial insights into the vicarious liability of directors. The judgment emphasized the stringent requirements for holding directors accountable for offenses committed by their companies.
- The case originated from complaints filed under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881 (“NI Act”), relating to the dishonor of cheques issued by the Company (“Complaints”). The Company along with its director and authorized signatory, Manju Sukumaran Lalitha (“Manju”), and its director, Susela Padmavathy Amma (“Susela”), were accused in the Complaints.
- Initially, the Complaints were filed before XVIII Metropolitan Magistrate Court, Saidapet, Chennai, Susela filed petitions before the Madras High Court (“High Court”) seeking to quash the proceedings against her, however, the High Court dismissed her petitions. Dissatisfied with the decision of the High Court, Susela filed an appeal in the Supreme Court. The crux of her argument was the insufficiency of specific allegations detailing her role in the conduct of Company’s business, as required under Section 141 of the NI Act.
- The Supreme Court referenced and relied upon various judgements to conclude the matter, including the following:
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- State of Haryana vs. Brij Lal Mittal and others (1998), wherein it was held that being a director of the company does not necessarily mean that one fulfills the requirements to attract vicarious liability for offenses committed by the company. A person cannot be held liable unless, at the material time, he is in charge of and is responsible for the conduct of the company’s business.
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- S.M.S. Pharmaceuticals Limited vs. Neeta Bhalla and Another (2005), holding that merely being a director does not imply awareness of or responsibility for a company’s day-to- day operations. It is necessary to specify how a director was in charge of daily affairs. However, managing or joint managing directors are presumed to be in charge and responsible for the company’s conduct. To escape liability, they must prove they had no knowledge of the offence or exercised due diligence to prevent it.
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- Referring to Pooja Ravinder Devidasani vs. State of Maharashtra (2014) and National Small Industries Corporation Limited vs. Harmeet Singh Paintal (2010), the Apex Court reaffirmed the need for complaints to clearly establish directorial liability through specific allegations.
- Further, the Supreme Court examined the averments in the Complaints and observed that the only allegation against Susela was that she and Manju had no intention of paying the dues they owed to the Airtel. It was stated that both were directors and promoters of the Company, with Manju being the authorized signatory and in charge of the day-to-day affairs. However, there was no allegations that Susela was responsible for the day-to-day operations, nor was she the managing director or joint managing director. Thus, the allegations were insufficient to invoke the provisions of Section 141 of the NI Act against her.
- The Supreme Court allowed the appeal by Susela and the order passed by the High Court, was quashed and set aside. The proceedings in connection with the Complaints were quashed and set aside qua Susela.
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Susela Padmavathy Amma vs. M/S Bharti Airtel Limited – Criminal Appeal No.s 1577-1578 of 2024
