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Synopsis

Justice Hemant Chandangoudar of Karnataka High Court recently observed that directors of a company cannot be held to be vicariously liable if a cheque issued by the company gets dishonored.

The above was held in a case where a private complaint was filed alleging that a cheque issued by a company towards legal recovery of some dues, was dishonored. The complainant alleged that it was dishonored for want of funds.

The complaint was filed under Section 200 of Cr.P.C. for the offence punishable under Section 138 of the Negotiable Instruments Act. When the matter came before the Magistrate, he recorded the sworn statement of the complainant and issued summons. The directors of the company filed a plea before the High Court for quashing the summons.

The counsel for the directors argued that the complainant having not made company as an accused, the directors cannot be held vicariously guilty of the offence punishable under Section 138 of the Negotiable Instruments Act. He argued that the complaint is not maintainable for this reason.

Court, on hearing his submissions, observed that the cheque indicated that it was issued by the company in favour of the complainant. Court further observed that the complainant had not arrayed the company as an accused. Thus it was held that the complaint filed by the respondent without arraying the Company as an accused was not maintainable under Section 141 of the Negotiable Instrument Act.

It was further held that since the company itself had not been made an accused in the complaint, the directors could not be held vicariously guilty of the offence punishable under Section 138 of N.I. Act as specified under Section 141 of the Act.

The court thus allowed the plea, quashing the summons.

Case Title:  Ronaldo Rebello Vs Narayan