SC Rules Non-Executive & Independent Directors Are Not Liable for Cheque Bounce Cases

The Supreme Court quashed criminal proceedings against two non-executive directors of Blue Coast Hotels & Resorts Ltd., ruling they cannot be held liable under Sections 138 and 141 of the NI Act for a cheque bounce.

The company had issued ₹1 crore in post-dated cheques for a ₹5 crore loan from Morgan Securities, which bounced in 2005.

The directors argued they had no financial role and were not signatories to the cheques.

The Court citing S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. (2005), ruled that non-executive directors and independent directors cannot be vicariously liable for bounced cheques without direct involvement in financial decisions.

Only those in charge of the company's affairs can be prosecuted under the NI Act 1881.