NI Act | College Cannot Be Equated To A Company, Principal Not Vicariously Liable For Signing Cheque: Madras High Court

The Madras High Court recently quashed the proceedings initiated against a Principal of a college under Section 138 of the Negotiable Instruments for signing a cheque that was returned for “insufficient funds”. While doing so, Justice Anand Venkatesh held that the Principal had not signed the cheque in his individual capacity, and since a college could not be equated to a company, vicarious liability under Section 141 of the Act would not come into effect in the present case. “A1 (Principal) did not give this cheque in his individual capacity or towards the debt or liability that was owed by A1 towards the respondent. Ex consequenti it must be seen as to whether A1 will come within the ambit of Section 141 of the Negotiable Instruments Act. The college cannot be equated to a company or a partnership firm in order to hold A1 vicariously liability on behalf of the college,” the court said. The court was hearing a petition filed by the Principal to quash the proceedings against him. A contract was entered into with the respondent, a building contractor, for constructing the ground floor and a computer hall for the college. A cheque was issued as part-payment towards the total expenditure, which was returned for insufficient funds. Following this complaint was registered against the Principal and the Managing Trustee of the College. The court explained that the concept of vicarious liability under Section 141 of the Act could not be applied in cases that did not fall under the ambit of a Company or a Partnership firm. The court noted that the Principal was only an authorised signatory and had signed the cheque in connection with the liability of the college. Thus, the court was inclined to quash the case against the Principal. As regards the Managing Trustee, though she submitted that she had already demitted office at the relevant point of time due to old age and that the affairs of the College were managed by the respondent, who also happened to be her brother, the court observed that the contentions were factual and had to be looked into at the time of trial. The court observed that the Managing Trustee was responsible for the day-to-day affairs of the institution and was responsible for settling the debt/liability of the contractor. The court added that the college was not a legal persona and thus could not be seen as an independent person, separate from the Managing Trustee. Thus, the court opined that the Managing Trustee had to face the trial and establish her case. “A2 having been shown as the managing trustee must be held to be responsible for settling the debt/liability incurred to the respondent. This is in view of the fact that the managing trustee is the one who runs the institution and takes care of the day-to-day affairs of the institution. There is no question of importing the concept of vicarious liability under Section 141 of the Negotiable Instruments Act. It is alleged that the college was under the direct control of A2 and therefore, the debt/liability has to be satisfied only by A2. The college is not a legal persona to look at it independently from the managing trustee. Hence, A2 has to necessarily face the trial and establish the defense,” the court observed. However, considering that the Trustee was an old woman who was 70 years old, the court dispensed her appearance and ordered accordingly. Counsel for the Petitioner: Mr. V. Kathirvel Senior Counsel for Mr. K. Appadurai, Mr. G. Karuppasamy Pandian Counsel for the Respondent: Ms. G. Dhanalakshmi Citation: 2024 LiveLaw (Mad) 480 Case Title: K. Sundari v. C. A. R. P. Mari Case No: Crl. O.P (MD) Nos.1293 and 2281 of 2021Click Here To Read/Download the Judgment

NI Act | College Cannot Be Equated To A Company, Principal Not Vicariously Liable For Signing Cheque: Madras High Court

Upasana Sajeev

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