1. Leave granted.

2. The present appeals arise from the common Impugned Judgment and Order dated 28.11.2023, passed by the High Court of Delhi at New Delhi (the “High Court”), whereby the High Court dismissed the petitions filed under Section 482 of the Code of Criminal Procedure, 1973 (the “ CrPC ”). The petitions sought the quashing of criminal proceedings initiated against the Appellant(s) under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 (the “ NI Act ”).

3. The Appellant(s) K.S. Mehta, and Basant Kumar Goswami, were appointed as directors of M/s Blue Coast Hotels & Resorts Ltd. (Accused No. 1/Company) at different times. K.S. Mehta was appointed as an additional director on 29.06.2001, while Basant Kumar Goswami was appointed as a director on 16.04.1998. Appellant(s) were designated as non-executive director in compliance with clause 49 of the Listing Agreement prescribed by the Securities and Exchange Board of India (the “SEBI”). Their role was confined to governance oversight SLP (Crl.) No. 4774 of 2024 etc. Page 2 of 13 without any executive authority or financial decision-making power in the company.

4. The dispute stems from an Inter-Corporate Deposit (“ICD”) agreement dated 09.09.2002, executed between the accused company and the Respondent to avail a financial facility of ₹5,00,00,000 (Rupees Five Crores) against certain securities for a period of 180 days. Notedly, the Appellant(s) were neither in attendance at the board meeting held on 09.09.2002, wherein the said transaction was approved, nor were they signatories to the agreement or any related financial instruments.

5. The liability towards repayment of the ICD culminated in the issuance of the following post-dated cheques:

6. Moreover, the executed ICD agreement contained an arbitration clause to be invoked in case of any dispute between SLP (Crl.) No. 4774 of 2024 etc. Page 3 of 13 the parties. The Appellant(s) were unaware of such clause(s) or the terms of the agreement at the time of execution and only came to know of them later. A memorandum of settlement was executed on 27.05.2003 between the Respondent and the accused company, Accused No. 2, Accused No. 6, and Morepen Laboratories Ltd., to resolve financial disputes. Pertinently, the Appellant(s) were not a party to this settlement.

7. The Appellant/K.S. Mehta resigned from the company on 10.11.2012, whereas Appellant/Basant Kumar Goswami continued as non-executive director until 2014. Notwithstanding, the Registrar of Companies (“ROC”) records and Corporate Governance Reports (“CGR(s)”) submitted to the stock exchange confirmed their non-executive status and indicated that they did not draw any remuneration apart from a nominal meeting fee. Notedly, neither Appellant ever submitted Form 25(C), which is mandatory for executive and managing director drawing remuneration, further substantiating their lack of involvement in financial affairs of the company.

8. The following complaints under Section 138 NI Act were filed against the Appellant(s) before the Court of Additional Chief Metropolitan Magistrate, New Delhi:

9. The High Court dismissed the Appellant(s)’ petition under Section 482 CrPC bearing Crl.M.C. No(s). 1643, 1645 and 1345 of 2019 seeking quashing of the proceedings pending before the Court of Additional Chief Metropolitan Magistrate, New Delhi.

SUBMISSION BY THE PARTIES

10. The learned counsel for the Appellant(s) submitted that they had no role in the company’s financial transactions and were not vested with any responsibility in as much as its financial affairs were concerned. Learned counsel contended that the Appellant(s) were not a signatory to any of the dishonored cheque(s) and did not authorize their issuance. The Appellant(s) directorship was non-executive and limited to corporate governance oversight in compliance with SEBI regulations.

11. The learned counsel for the Appellant(s) submitted that their non-executive status negates any basis for vicarious liability under Section 141 of the NI Act. The learned counsel further relied upon the CGR(s) and ROC record(s), which consistently reflected the Appellant(s) non-executive roles, reinforcing their lack of involvement in operational or financial matters. In the absence of any specific allegations linking them to the issuance SLP (Crl.) No. 4774 of 2024 etc. Page 5 of 13 or dishonor of the cheques, it was contended that the proceedings initiated against them were legally untenable.

12. The learned counsel for the Appellant relied on judicial precedents including Kamalkishor Shrigopal Taparia v. India Ener-Gen Private Limited & Anr. , 2025 SCC Online SC 321; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. , (2005) 8 SCC 89; and Pooja Ravinder Devidasani v. State of Maharashtra & Anr. , (2014) 16 SCC 1 to substantiate that mere designation as a director does not create vicarious liability under Section 141 NI Act. There must be specific allegations of active participation in the conduct of business at the relevant time.

13. On the contrary, the learned counsel for the Respondent contended that the Appellant(s) name appeared as a director in the company at the relevant time, and was presumed to be involved in the company’s affairs.

14. The learned counsel for the Respondent contended that the mere resignation of the Appellant(s) does not automatically absolve a director from liability under Section 141 NI Act and that the onus lies upon them to establish their non-involvement in the company’s financial transactions. The learned counsel placed reliance on Ashutosh Ashok Parasrampuriya & Anr. v. Gharrkul Industries Pvt. Ltd. & Ors. , (2023) 14 SCC 770, to contend that the question of the Appellant(s) status as an SLP (Crl.) No. 4774 of 2024 etc. Page 6 of 13 independent and non-executive director is a matter that should be determined during trial rather than at the quashing stage.

15. The learned counsel for the Respondent also emphasized on the Appellant(s) attendance at board meetings, asserting that it indicated knowledge of financial dealings, including the issuance of cheques towards repayment of the ICD.

ANALYSIS AND FINDINGS

16. This Court has consistently held that non-executive and independent director(s) cannot be held liable under Section 138 read with Section 141 of the NI Act unless specific allegations demonstrate their direct involvement in affairs of the company at the relevant time.

16.1. This Court in National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal & Anr. , (2010) 3 SCC 330 observed:

16.4. In Pooja Ravinder Devidasani v. State of Maharashtra & Anr. , (2014) 16 SCC 1, this Court while taking into consideration that a non-executive director plays a governance role, they are not involved in the daily operations or financial management of the company, held that to attract liability under Section 141 of the NI Act, the accused must have been actively in charge of the company’s business at the relevant time. Mere directorship does not create automatic liability under the Act. The law has consistently held that only those who are responsible for the day- to-day conduct of business can be held accountable.

16.5 In Ashok Shewakramani & Ors. v. State of Andhra Pradesh & Anr. , (2023) 8 SCC 473, this Court held:

Ltd. & Ors., Crl. Appeal No. 462 of 2025, this Court held:

17. Upon perusal of the record and submissions of the parties, it is evident that the Appellant(s) neither issued nor signed the dishonoured cheques, nor had any role in their execution. There is no material on record to suggest that they were responsible for the issuance of the cheques in question. Their involvement in the company’s affairs was purely non-executive, confined to governance oversight, and did not extend to financial decision- making or operational management.

18. The complaint lacks specific averments that establish a direct nexus between the Appellant(s) and the financial transactions in question or demonstrate their involvement in the company’s financial affairs. Additionally, the CGR(s) and ROC records unequivocally confirm their non-executive status, underscoring their limited role in governance without any executive decision-making authority. The mere fact that Appellant(s) attended board meetings does not suffice to impose financial liability on the Appellant(s), as such attendance does not automatically translate into control over financial operations.

19. Given the lack of specific allegations and in view of the aforesaid observations, the Appellant(s) cannot be held vicariously liable under Section 141 of the NI Act.

20. Accordingly, the Impugned Judgment and Order dated 28.11.2023 of the High Court is set aside, and the criminal proceedings against the Appellant(s) in Complaint No(s). 15858 and 15857 of 2017 pending before the Court of Additional Chief Metropolitan Magistrate, New Delhi are hereby quashed.

21. The appeals are allowed. No order as to costs.

……………………………………J. [B. V. NAGARATHNA] ……………………………………J. [SATISH CHANDRA SHARMA] NEW DELHI March 04, 2025 SLP (Crl.) No. 4774 of 2024 etc. Page 13 of 13