Mere Directorship Not Enough To Fasten Criminal Liability Under Section 138 NI Act Without Specific Averments: Karnataka High Court

"Simply because a person is a Director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a Director a person can be in charge of and responsible to the company for the conduct of its business." High Court of Karnataka, in a significant ruling, held that a Director of a company cannot be held vicariously liable for the dishonour of cheques under Section 138 of the Negotiable Instruments Act (NI Act) unless the complaint contains specific averments demonstrating that they were in charge of and responsible for the company's day-to-day affairs.

A bench of Justice M. Nagaprasanna observed that merely naming a person as a Director in the array of accused is insufficient to satisfy the twin requirements of Section 141 of the Act. The court emphasized that criminal liability under the NI Act is a departure from the general rule against vicarious liability and must be strictly construed.

The matter arose from five criminal petitions filed by Kavitha Chopra and Dhirendra Chopra, who were Directors of OSIA Hyper Retail Limited. The respondent, M/s. 63Ideas Infolabs Private Limited (Ninjacart), had supplied agricultural produce to the company, against which cheques were issued and subsequently dishonoured for insufficient funds. While the husband was the Managing Director and signatory, the wife was a Director and a non-signatory to most cheques, though one cheque was issued from a joint account. The petitioners sought to quash the proceedings initiated under Section 138 of the NI Act read with Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS).

The primary question before the court was whether a Director can be prosecuted under Section 138 of the NI Act in the absence of specific averments regarding their role in the day-to-day business of the company. The court was also called upon to determine if a joint account holder can be held liable for a dishonoured cheque they did not sign, especially when the company is the primary debtor.

The court began its analysis by examining the scope of Section 141 of the NI Act, which creates vicarious liability for persons in charge of a company's affairs. It noted that for a prosecution to be maintainable against a Director, the complainant must specifically allege the part played by them in the transaction and how they were responsible for the conduct of the business at the relevant time.

Twin Requirements For Fastening Vicarious Liability

The bench reiterated that there are twin requirements under Section 141(1) of the NI Act: the person must be "in charge of" and "responsible to the company for the conduct of the business." It observed that these are two different aspects and both must be incorporated into the complaint to proceed against a Director. The court found that in the present case, the complaint against the wife was a "bald cursory statement" lacking the necessary factual foundation to establish her active involvement.

"The requirement of law is that both the ingredients of sub-section (1) of Section 141 of the 1881 Act must be incorporated in the complaint. Substance will prevail over form."

Distinction Between Managing Directors And Non-Executive Directors

Drawing a distinction between different categories of officers, the court noted that while a Managing Director or a Joint Managing Director is presumed to be in charge of the business by virtue of their office, other Directors require specific allegations. The court relied on the Supreme Court's decision in SMS Pharmaceuticals Ltd. v. Neeta Bhalla, which held that the role of a Director is a question of fact depending on the peculiar circumstances of each case.

Court Rejects Mechanical Parroting Of Statutory Language

The bench clarified that while it is not necessary to reproduce the exact words of Section 141 like a "mantra or magic incantation," the substance of the accusation must disclose the necessary averments. It held that the administrative role of each Director is within the special knowledge of the company, but the primary responsibility lies with the complainant to make specific averments to make the accused vicariously liable.

"The complainant is supposed to know only generally as to who were in charge of the affairs of the company or firm. The other administrative matters would be within the special knowledge of the company."

Liability In Case Of Joint Account Holders

Regarding the cheque issued from a joint account of the husband and wife, the court referred to the apex court's ruling in Aparna A. Shah v. Sheth Developers (Private) Limited. It held that a joint account holder cannot be prosecuted unless the cheque has been signed by each person who is a joint account holder. Since the wife was not a signatory to the joint account cheque in the specific petition, she could not be drawn into the "web of proceedings."

Husband Liable As Managing Director And Signatory

In contrast to the wife’s position, the court found that Dhirendra Chopra, being the Managing Director, was obviously the person in charge of the company's affairs. Furthermore, as the authorized signatory who signed the cheques, he was directly liable for the incriminating act. Consequently, the court found no grounds to exercise its jurisdiction under Section 528 of the BNSS to quash the proceedings against him.

"It is for the husband/Dhirendra Chopra who is shown to be the Managing Director of the Company to answer the allegations that is brought before the Court."

The High Court allowed the petitions filed by Kavitha Chopra, quashing the criminal proceedings against her in three cases. However, it dismissed the petitions filed by Dhirendra Chopra, ruling that the prosecution against him must proceed to trial. The judgment underscores the principle that criminal liability under the NI Act cannot be fastened automatically by mere virtue of a person's designation in a company.

Date of Decision: 01 July 2026