NI Act | Office Bearer Of Society Not Liable For Cheque Dishonour Unless Active Role In Conduct Of Business Shown : Supreme Court

The Supreme Court has observed that a mere designation of an individual holding a managerial position in a society would not be sufficient to invoke liability under Section 141 of the Negotiable Instruments Act, 1881.

“The law governing Section 141 of the NI Act is clear that there is no deemed liability merely by virtue of holding an office or position in the company or society. The complaint must disclose the factual basis showing that the person sought to be prosecuted was in-charge of and responsible for the conduct of the business of the entity at the relevant time.”, observed a bench of Justice Prashant Kumar Mishra and Justice NV Anjaria, while quashing a cheque dishonour case against an Executive Member of the company, against whom no documentary material demonstrating his participation in the transaction or responsibility for the society's affairs was shown to uphold his liability under Section 141 of the NI Act.

The dispute arose out of a financial transaction between the appellant finance company and Ravindra Bharathi Educational Society.

According to the complaint, the society borrowed approximately ₹4.5 crore between July 2 and July 27, 2018 through multiple tranches advanced by the finance company. Promissory notes were allegedly executed during this period by the President of the society along with certain office bearers, including the Vice-President, Treasurer and Executive Manager.

To discharge the liability, the society allegedly issued a cheque dated November 18, 2019 for ₹5,12,61,500. However, upon presentation, the cheque was dishonoured with the endorsement “Account Blocked”.

After statutory notice under Section 138 of the Negotiable Instruments Act elicited neither payment nor a response, the finance company initiated criminal proceedings against the society and several office-bearers under Sections 138 and 141 of the NI Act.

Aggrieved by the Madras High Court's decision to quash the proceedings against the Respondents, the finance company moved to the Supreme Court.

Partly allowing the appeal, the judgment authored by Justice Mishra found that, except against the Respondent No.3, who was an Executive Member, the Appellant-company was able to point out the responsibility of the conduct of other officer bearers, justifying their involvement in the day-to-day affairs of the company and invoking Section 141 of the NI Act to make them liable for their conduct.

However, with respect to the Respondent No.3, the Court rejected the Appellant's contention that his mere designation would make him liable for the claim, noting that “mere designation as office bearers of a Society, in the absence of specific allegations disclosing their active role in the conduct of its business affairs, would not justify continuation of criminal prosecution under Sections 138 and 141 of the NI Act.” [Refer S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Another, (2005) 8 SCC 89, Ashok Shewakramani V. State Of Andhra Pradesh, 2023 LiveLaw (SC) 622]

Resultantly, the appeal was partly allowed, while quashing the proceedings against the Respondent No.3, while allowing the same against other Respondents.

Cause Title: M/S MANSI FINANCE (CHENNAI) LTD. VERSUS M. LALITHA AND OTHERS

Citation : 2026 LiveLaw (SC) 559

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Appearance:

For Petitioner(s) :Mr. A. Ramesh, Sr. Adv. Mr. N. Sai Vinod, AOR Mr. R. Ashwin, Adv. Ms. Susila. V, Adv. Ms. Kanu Garg, Adv. Mr. Aniruddh. R, Adv.

For Respondent(s) :Mr. Balaji Srinivasan, AOR Ms. Kanishka Singh, Adv. Ms. Harsha Tripathi, Adv. Mr. Prajoy J, Adv.