In the Absence of Company Being Arraigned as an Accused, Complaint Against Director Not Maintainable: Calcutta High Court Sets Aside Conviction Under Section 138 NI Act

In a significant judgment, the Calcutta High Court has set aside a conviction under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The court, presided over by Hon’ble Justice Shampa Dutt (Paul), held that in the absence of the company being arraigned as an accused, the complaint against the director of the company was not maintainable. This decision, dated 09.04.2024 in the case of Madhusudan Chakraborty Vs The State of West Bengal & Anr, revolves around the complexities involved when a cheque is dishonored.

The core legal point in this judgment concerns the interpretation of Section 138 of the NI Act. This provision penalizes the dishonor of cheques due to insufficient funds. The court explored whether a director can be held liable under this section if the company itself is not made a party to the proceedings.

The petitioner, Madhusudan Chakraborty, was convicted for dishonoring a cheque issued as security. He contended that the cheque was issued for another person’s liability and not his own, arguing that it was meant to be presented only with his consent. The company associated with the petitioner was not made a party in the case, which formed a crucial aspect of the legal debate.

Vicarious Liability and Company’s Non-Participation: The court cited precedents, including Sharad Kumar Sanghi Vs Sangita Rane, to highlight that if a company is not made a party, no proceedings can be initiated against its directors under certain statutes, including the NI Act.

Averments in Complaint Insufficient: Referencing Siby Thomas vs M/s. Somany Ceramics Ltd., the court noted that merely being in charge of a company does not automatically make one liable under Section 138 of the NI Act. Specific allegations and the role in the offense must be detailed.

Abuse of Process of Law: The judgment emphasized that the proceedings against the petitioner were an abuse of the process of law and not maintainable, as the necessary parties (i.e., the company) were not included.

Consequently, the High Court set aside the order of conviction and sentence, acquitting the petitioner. The court declared that the earlier judgment and proceedings were not in accordance with the law due to the noted irregularities.

Date of Decision: 09.04.2024

Madhusudan Chakraborty Vs The State of West Bengal & Anr