2025 (2) TMI 250 - HC - Indian Laws

Dishonour of cheque - vicarious liability of Managing Director of M/s. Kwality Limited u/s 138 of the Negotiable Instruments Act 1881 - the cheque dishonored was not drawn by him or the company he represents but was handed over by him to the complainant - HELD THAT - The petitioner is being sought to made an accused on account of being the Managing director of M/s. Kwality Limited the borrower of the subject loan. It is not in doubt that when the principal offender under Section 138 of the NI Act is a company then every person who is in charge of the affairs of the company at such time when the subject cheque is dishonoured would be liable. However it is evident from a perusal of the record that the petitioner is a Managing Director of M/s. Kwality Limited admittedly the borrower of the loan. The subject cheque was admittedly issued by DRTPL and signed by Makardhwaj Kumar director of DRTPL. The only role attributed to the petitioner in the instant case is that the petitioner had handed over the cheque admittedly issued by DRTPL to the complainant. However merely because the subject cheque was handed over by the petitioner the same does not shift the onus from the drawer in terms of Section 138 of the NI Act. From a plain reading of Section 138 of the NI Act it materialises that liability is imputed on the person who draws the cheque on an account maintained by them. In the present case even though the cheque was handed over by the petitioner who is the director of M/s. Kwality Limited the same was not drawn by the M/s. Kwality Limited. The subject cheque was duly executed and issued by DRTPL. Considering that the petitioner is not the director of the accused company who is the drawer of the subject cheque he cannot be made liable for the offence under Section 138 of the NI Act. Conclusion - The petitioner as the Managing Director of M/s. Kwality Limited cannot be held liable under Section 138 of the NI Act for the dishonored cheque issued by DRTPL. Petition allowed.

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the petitioner, as the Managing Director of M/s. Kwality Limited, can be held liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), for a cheque that was dishonored, which was not drawn by him or the company he represents but was handed over by him to the complainant.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves Section 138 of the NI Act, which deals with the dishonor of cheques, and Section 141, which addresses offenses by companies and the vicarious liability of individuals in charge of the company at the time of the offense. The Court also refers to the inherent jurisdiction under Section 482 of the CrPC to quash complaints at the pre-trial stage. The precedent set in Rathish Babu Unnikrishnan v. State (NCT of Delhi) emphasizes the cautious approach required when quashing complaints at a pre-trial stage, particularly when factual controversies exist.

Court's Interpretation and Reasoning

The Court interprets Section 138 of the NI Act as imposing liability on the drawer of the cheque, which is the person who has drawn the cheque on an account maintained by them. Section 141 extends this liability to individuals responsible for the conduct of the company's business when the company is the drawer. The Court emphasizes the need for strict interpretation of penal provisions creating vicarious liability, as established in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal.

Key Evidence and Findings

The evidence presented shows that the cheque in question was issued by Devidayal Radheshyam Traders Private Limited (DRTPL) and signed by its director, Makardhwaj Kumar. The petitioner's involvement was limited to handing over the cheque to the complainant. There is no evidence that the petitioner was involved in drawing the cheque or that M/s. Kwality Limited, the company he represents, maintained the account from which the cheque was drawn.

Application of Law to Facts

Applying the law to the facts, the Court finds that the petitioner cannot be held liable under Section 138 of the NI Act, as he did not draw the cheque, nor was it drawn on an account maintained by M/s. Kwality Limited. The petitioner's act of handing over the cheque does not fulfill the statutory requirements necessary for liability under Section 138.

Treatment of Competing Arguments

The petitioner argued that he was neither the director of DRTPL nor the signatory of the cheque, and thus the summons were issued mechanically without the requisite grounds for liability under Section 138. The complainant contended that the petitioner's role in handing over the cheque implicated him in the fraudulent transaction. The Court favored the petitioner's argument, emphasizing the necessity of strict construction of penal statutes and the absence of any legal basis to hold the petitioner liable under the NI Act.

Conclusions

The Court concludes that the petitioner cannot be held liable under Section 138 of the NI Act, as the statutory requirements for liability are not met. The petitioner did not draw the cheque, nor was it drawn on an account maintained by him or M/s. Kwality Limited.

SIGNIFICANT HOLDINGS

The Court holds that the impugned order summoning the petitioner is quashed, as the petitioner cannot be held liable under Section 138 of the NI Act. The Court emphasizes that liability under Section 138 is strictly tied to the drawer of the cheque, and vicarious liability under Section 141 requires clear evidence of responsibility for the conduct of the company's business at the time of the offense.

Core Principles Established

The judgment reinforces the principle that penal provisions creating vicarious liability must be strictly construed. It underscores the necessity of clear evidence linking the accused to the conduct of the business at the time of the offense for liability under Section 141 of the NI Act.

Final Determinations on Each Issue

The Court determines that the petitioner, as the Managing Director of M/s. Kwality Limited, cannot be held liable under Section 138 of the NI Act for the dishonored cheque issued by DRTPL. The proceedings against the petitioner are quashed, and the petition is allowed in these terms.

← Previous Next →