M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha

Background & Facts

The appellant finance company lent Rs. 4.50 crores to the first accused Society between 2 July 2018 and 27 July 2018. Promissory notes were executed by the Society's President (accused No. 2) and some office bearers including respondent Nos. 1 (Vice President) and 4 (Manager). A Memorandum of Understanding dated 31 July 2018 was executed between the appellant and the Society, represented by its President and Vice President (respondent No. 1). A cheque for Rs. 5,12,61,500 drawn on the Society's account was issued on 18 November 2019, signed by the President (accused No. 2). The cheque was dishonoured with the endorsement 'Account Blocked'. The appellant filed a complaint under Sections 138 and 141 of the NI Act against the Society and its office bearers, including the four respondents. The High Court quashed the proceedings against all four respondents under Section 482 CrPC, holding that the averments were omnibus and lacked specificity. The appellant appealed to the Supreme Court.

Statutes Involved

• Section 138, Negotiable Instruments Act, 1881 — Penalises dishonour of cheque for insufficiency of funds or exceeding arrangement, punishable with imprisonment up to two years or fine or both
• Section 141, Negotiable Instruments Act, 1881 — Extends vicarious criminal liability to persons in charge of and responsible for the conduct of the business of a company or society at the time the offence was committed
• Section 482, Code of Criminal Procedure, 1973 — Saves inherent powers of High Court to prevent abuse of process of any court or to secure ends of justice
• Societies Registration Act, 1860 — Governs registration and functioning of societies (the first accused Society was registered under this Act)

Full Analysis

Cases Cited

• S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89 — Three-Judge Bench held that for invoking vicarious liability under Section 141 of the NI Act, it is necessary to aver in the complaint that the accused was in charge of and responsible for the conduct of the business of the company; mere designation as director is insufficient.
• National Small Industries Corporation Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330 — Held that the complaint must spell out how and in what manner the accused was in charge of or responsible to the company for the conduct of its business; vicarious liability cannot be inferred merely from holding an office.
• Ashok Shewakramani v. State of Andhra Pradesh (2023) 8 SCC 473 — Quashed proceedings where the complaint contained only a reproduction of statutory requirements without disclosing factual nexus between the accused and the transaction.
• S.P. Mani and Mohan Dairy v. Dr. Snehalatha Elangovan (2023) 10 SCC 685 — Reiterated the requirement of foundational averments but also emphasised that a hyper-technical approach ought not to be adopted; where the factual foundation for the offence has been laid, quashing should be exercised sparingly.
• HDFC Bank Limited v. State of Maharashtra (2025) 9 SCC 653 — Clarified that the complaint need not mechanically reproduce the exact phraseology of Section 141 if the substance of the allegations, read as a whole, discloses the factual basis for vicarious liability.

Courtroom Arguments