Section 141 NI Act | Executive Director Can't Be Prosecuted For Cheque Dishonour If Company Isn't Made An Accused: Orissa HC Reaffirms

The Orissa High Court has reiterated that the Executive Director of a company is not vicariously liable and cannot be prosecuted under Section 138 of the Negotiable Instruments Act ('NI Act') for dishonour of cheque, issued by him in his official capacity on behalf of the company, if the company itself is not arraigned as an accused.Highlighting the non-compliance of the statutory mandate of Section 141 of the NI Act, the Single Bench of Dr. Justice Sanjeeb Kumar Panigrahi held –“In the present case, the accused, an Executive Director, had signed the cheque in question. The prosecution, however, was instituted solely against him, without impleading the company. This raises a substantial legal infirmity. The accused was not the drawer of the cheque in his personal capacity, but rather as an agent of the corporate entity.”Case BackgroundThe complainant (the opposite party herein) is the sole proprietor of M/s. Maa Gayatri Transport & Supplier, a business engaged in supplying building materials such as chips, metal, boulders, sand and stone products in Balasore. The accused/petitioner is the Executive Director of CCC Builders Merchant Pvt. Ltd., Gurgaon, Haryana, a company engaged in construction work. The dispute arose from a business transaction involving the supply of building materials for the construction of a concrete road for S.E. Railways at Balasore under the direct supervision of the petitioner. The complainant supplied metal and sand on credit to the petitioner's company between October and November 2010.The total outstanding amount payable by the petitioner to the complainant was ₹12,92,345/-. A partial payment of ₹5,00,000/- was made through a bank transfer from the company's account to the complainant's account. The remaining balance of ₹7,92,345/- was due. The petitioner issued a cheque for ₹4,00,000/- and when the complainant deposited the same, it was dishonored due to “Payment Stopped by Drawer.”A demand notice was issued on 27.01.2011 through registered post with acknowledgment due (A.D.). The petitioner received the notice on 04.02.2011, but failed to respond or make payment within the statutory period. Consequently, the complainant filed a complaint case alleging commission of offence under Section 138 of the NI Act against the petitioner. The trial was held by the JMFC, Balasore. The petitioner did not raise any objection about non-inclusion of the company as an accused during the early stages of the trial. On 02.07.2013, at an advanced stage of the trial, the petitioner filed a petition before the trial Court arguing that the case was not maintainable because the company was not arraigned as an accused, as required under Section 141 of the NI Act. The JMFC Court rejected the petition on 05.05.2014, stating that the case had already substantially progressed and raising such objection at this stage was with a motive to delay the trial proceedings.Court's ObservationsThe issue which cropped up for consideration was whether proceedings under Section 138 of the NI Act can be maintained against the petitioner, i.e. the Executive Director of the company, when the company itself has not been arraigned as an accused.To answer the question, Justice Panigrahi examined the provision under Section 141 of the Act which says that if the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.He held that the aforesaid provision imposes the primary criminal liability for the dishonor of a cheque upon the drawer, which, in the present case, is the company. The liability of its officers/authorities arises only when the conditions stipulated under Section 141 of the Act are duly fulfilled. Reliance was placed, inter alia, on a recent decision of the Apex Court in Bijoy Kumar Moni v. Paresh Manna, 2024 LiveLaw (SC) 1035, in which it was held –“It is the drawer company which must first be held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in charge of and responsible to the Company for the conduct of its business. In the absence of liability of the drawer company, there would naturally be no requirement to hold other persons vicariously liable.”Taking into account the aforesaid observation, the Court held that in the absence of the company as a party to the proceedings, the prosecution against the petitioner is legally unsustainable. Since CCC Builders Merchant Pvt. Ltd. has not been made an accused, the prosecution against its Executive Director alone cannot be allowed keeping in view the provision under Section 141, NI Act.Resultantly, the criminal proceeding against the petitioner was quashed, giving...

Section 141 NI Act | Executive Director Can't Be Prosecuted For Cheque Dishonour If Company Isn't Made An Accused: Orissa HC Reaffirms

Jyoti Prakash Dutta

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