138 NI Act | Directors Cannot Be Prosecuted If Company Is Not Made Accused: Allahabad High Court Quashes Cheque Bounce Cases

“Commission Of Offence By Company Is A Condition Precedent To Fasten Vicarious Liability On Its Officers”, Allahabad High Court, Lucknow Bench, has held that criminal proceedings under Sections 138 and 141 of the Negotiable Instruments Act cannot be maintained against directors or managing directors if the company issuing the cheque is not arraigned as an accused in the complaint. The Court reiterated that commission of the offence by the company itself is a mandatory precondition for fastening vicarious criminal liability on its officers.

Justice Brij Raj Singh quashed multiple cheque dishonour proceedings against the applicants after finding that the company whose cheques were dishonoured had not been impleaded as an accused.

Background of the Case

The applications were filed under Section 482 of the Code of Criminal Procedure seeking quashing of criminal proceedings initiated under Section 138 of the Negotiable Instruments Act for dishonour of cheques.

The complainant alleged that he was engaged in advertising work under the name Approach Advertising and Exhibitors Pvt. Ltd. and had advertised products of the accused company. According to the complaint, payments were issued through cheques towards discharge of liabilities, including a cheque of Rs.1 lakh issued through Vijaya Bank, which was later dishonoured due to insufficient funds.

After the dishonour of several cheques, legal notices were issued to the accused demanding payment within fifteen days. Upon non-payment, complaint cases were filed and the Additional Chief Judicial Magistrate, Lucknow took cognizance and issued summons to the applicants, who were directors or managing directors of the company.

The applicants approached the High Court contending that the cheques were issued by the company from its account and were signed by authorised signatories on behalf of the company, yet the company itself had not been made an accused in the complaints.

Legal Issues And Court Observation

The central question before the Court was whether directors or managing directors of a company can be prosecuted for cheque dishonour when the company itself is not impleaded as an accused.

The Court examined the scheme of Sections 138 and 141 of the Negotiable Instruments Act, which deal with dishonour of cheque and vicarious liability of persons responsible for the affairs of a company.

Relying heavily on the Supreme Court’s landmark decision in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. (2012) 5 SCC 661, the Court reiterated that the statutory language of Section 141 makes it clear that both the company and the persons in charge of its affairs must be prosecuted together.

Quoting the Supreme Court, the Court observed:

“Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others.” (Para 13)

The Supreme Court had further clarified:

“The words ‘as well as the company’ appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence.” (Para 13)

The High Court emphasized that vicarious liability under Section 141 is a statutory fiction, and therefore the conditions for invoking it must be strictly complied with.

Distinction From Cases Where Complaint Is Filed Through Managing Director

The complainant relied on the Supreme Court judgment in Bhupesh Rathod v. Dayashankar Prasad Chaurasia (2022) 2 SCC 355, arguing that technical defects in the complaint should not defeat prosecution.

However, the High Court distinguished the said judgment and clarified that the principle laid down in Bhupesh Rathod applies to situations where a company files a complaint through its managing director or authorised representative.

The Court observed that in such cases the company is already the complainant and acts through its authorised officer.

However, in the present case the company was the alleged offender but had not been made an accused, which made the prosecution legally unsustainable.

The Court noted:

“In the present case, the company is the accused but the same is not given legal notice or made party in the complaint.” (Para 19)

Liability For Cheques Issued From Company Account

The Court also observed that the dishonoured cheques were issued from the company’s bank account and signed by authorised signatories on behalf of the company.

Therefore, the primary criminal liability lies upon the company as the drawer of the cheque, and only thereafter can liability extend to directors or officers responsible for its affairs.

The Court held that the applicants could not be prosecuted in their personal capacity when the company itself had not been impleaded as an accused.

The Court concluded:

“The complaints filed against the applicants cannot sustain because the company is not made an accused and no vicarious liability can be imposed upon the applicants.” (Para 21)

Conclusion

The Allahabad High Court allowed the applications under Section 482 Cr.P.C. and quashed the entire criminal proceedings as well as the summoning orders in multiple complaint cases pending before the trial court.

However, the Court clarified that the complainant would remain free to pursue appropriate legal remedies for recovery of the amount in accordance with law.

Date of Decision: 11 March 2026