Can an independent director be held liable?

Answer

A:

Generally, an independent director is not held liable in a cheque bounce case under Section 138 and Section 141 of the Negotiable Instruments Act, 1881, unless it can be proven that he or she was directly involved in the conduct of the company’s day-to-day business at the time the cheque was issued and dishonoured.

• Section 141 NI Act states that when a company commits an offence under Section 138, every person who was in charge of and responsible for the conduct of business at the time of the offence can be held liable.

• The Supreme Court has clarified in several judgments that independent and non-executive directors cannot be prosecuted merely because they hold the title of director.

• Liability arises only when there are specific allegations that the independent director was part of the decision-making or directly responsible for issuing the cheque.

• If an independent director only attends board meetings in an advisory capacity and has no role in financial transactions, he or she cannot be prosecuted.

• If evidence shows that the independent director actively participated in cheque issuance or financial management, liability may be considered.

An independent director is not automatically liable for a cheque bounce case. Liability under Section 138 NI Act applies only if it is proven that the director was actively responsible for the company’s financial operations at the time of the offence.