Supreme Court & High Court Judgments - Section 138 NIA, 1881

 Supreme Court Judgments- Section 138 NIA, 1881

1. Sec 138 NI Act - Accused Relies On Income Tax Returns To Show Complainant Did Not Have Financial Capacity; Supreme Court Affirms Acquittal

Case Title: Rajaram Sriramulu Naidu (D) vs Maruthachalam (D), 2023 LiveLaw (SC) 46

Coram: Justices B R Gavai and M M Sundresh

The Supreme Court reiterated that the standard of proof for rebutting the presumption under Section 139 of the N.I. Act is that of preponderance of probabilities. Reliance was placed upon Basalingappa v. Mudibasappa.

The Court noted that the certified copies of the Income Tax Returns established that the complainant had not declared that he had lent Rs.3 lakh to the accused. Besides this, the Court also observed that the complainant(s) did not have the financial capacity to lend money as alleged. (Para 24-31)

2. Section 138 NI Act | Conviction Cannot Be Confirmed Overriding Agreement Between Parties To Compound The Offence : Supreme Court

Case Title: BV Seshaiah vs State of Telangana & B Vamsi Krishna vs State of Telangana., 2023 LiveLaw (SC) 75

Coram: Justices Krishna Murari and V Ramasubramanian 

The Supreme Court, while setting aside a conviction in a cheque dishonour case, held that when parties to a litigation proceeding have entered into an agreement to compound a compoundable offence, High Courts cannot override such compounding and impose their will on the parties. (Para 11)

3. NI Act | In Cheque Case Against Company, Persons Can't Be Made Accused Only Because They're Managing Company's Business : Supreme Court

Case Title: Ashok Shewakramani V. State Of Andhra Pradesh., 2023 LiveLaw (SC) 622

Coram: Justices Abhay S Oka and Sanjay Karol 

The Supreme Court held that under Section 141 of the N.I. Act, a person will become vicariously liable when a company is accused of the offence under Section 138  of the Act, only if such a person was "in charge of" and was "responsible to the company for the conduct of the business of the company" at the time the offence was committed.

Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company conduct of the business of the company, the Court said. (Para 19 and 20)

4. S.141 NI Act - Only That Person Who Was Responsible For Conduct Of Company's Affairs At The Time Of Cheque Dishonour Is Liable: Supreme Court

Case Title: Siby Thomas v. Somany Ceramics Ltd., 2023 LiveLaw (SC) 869

Coram: Justices CT Ravikumar and PV Sanjay Kumar 

The Supreme Court, while quashing a criminal complaint for cheque under Section 138 read with Section 141 N.I. Act, opined that: “A bare perusal of Section 141(1) of the NI Act, would reveal that only that person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.” Pertinently, the complaint was registered against the a partner of the partnership firm which issued the cheque. (Para 16)

5. S.138 NI Act | Availability Of Funds In Other Bank Accounts Not A Defence; Cheque Dishonour Relates To Specific Account: Supreme Court

Case Title: Harpal Singh Vs. The State of Haryana., 2023 LiveLaw (SC) 1046

Coram: Justices Hrishikesh Roy and Sanjay Karol.

The Supreme Court held that in proceedings initiated for bounced cheques, the defence that there are sufficient funds in the other bank accounts cannot be appreciated. The Court explained: “In a proceeding under Section 138 of the Negotiable Instruments Act, the accused cannot rely upon other bank accounts for the dishonoured cheque which relates to specific bank account of the accused.” (Para 6)

High Court Judgments- Section 138 NIA, 1881

6. Complainant U/S 138 NI Act Must Specifically Assert That Power Of Attorney Holder Has Knowledge Of Impugned Transaction: Kerala High Court

Case Title: Razak Mether v. State of Kerala and Anr., 2023 LiveLaw (Ker) 24

Coram: Justice A. Badharudeen 

The Kerela High Court, while placing its reliance upon A.C.Narayanan v. State of Maharashtra &anr, reiterated that a complaint filed under Section 138 of the Negotiable Instruments Act through power of attorney holder is perfectly legal and competent. However, it observed that the power of attorney holder can depose and verify on oath before the Court, for proving the contents of a complaint, only when he has witnessed the transaction as an agent of the payee/ holder in due course or possess due knowledge regarding the said transactions.

The Court further opined that the complainant has to make specific assertions as to the knowledge of the power of attorney in the said transaction explicitly in the complaint. (Para 11)

7. Holding Chairpersons Of Large Companies Liable For Dishonour Of Cheques Would Unfairly Expand 'Vicarious Liability' Under NI Act: Delhi High Court

Case Title: Yashovardhan Birla vs Cecil Webber Engineering Ltd & Ors., 2023 LiveLaw (Del) 320

Coram: Justice Anish Dayal 

The Delhi High Court, while quashing the proceedings under Section 138 of the N.I. Act, opined that holding Chairpersons of large conglomerates or companies liable for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Act.

The Court explained that the role of 'Chairman'/ 'Chairperson' is not typically of an executive nature since the Chairperson presides over the general meetings or the functioning of the company and guides its business policies, and need not interfere in the day-to-day affairs of the company. (Para 23-25).

8. Order XXIII Rule 3 CPC Cannot Be Imported To Deal With Complaints U/S 138 Negotiable Instruments Act: Jammu & Kashmir High Court

Case Title: Mohammad Ashraf Wani Vs Muzamil Bashir., 2023 LiveLaw (JKL) 89

Coram : Justice Javed Iqbal Wani

The Jammu and Kashmir and Ladakh High Court ruled that the provisions of Order XXIII Rule 3 of the CPC cannot be imported to deal with a complaint under Section 138 of the N.I. Act. The said provision of CPC prescribes that when the parties have made an arrangement to settle a dispute entirely or in part, the court, if it is satisfied, shall pass the decree to such effect and record the same.

“Magistrate could not have relied upon the aforesaid provisions of CPC while dealing with the case of a criminal offence under Section 138 of the Act which proceedings are regulated by the Code of Criminal Procedure”, the bench underscored. (Para 10)

9. Complainant U/S 138 NI Act Does Not Come Within Ambit Of 'Victim' U/S 2(wa) CrPC: Kerala High Court

Case Title: Paulose v. Baiju & Anr., 2023 LiveLaw (Ker) 328

Coram: Justice V.G. Arun

The Kerala High Court, while placing its reliance upon Mallikarjun Kodagali (Dead) represented through Legal Representatives v. State of Karnataka & Ors., held that the complainant in a prosecution under Section 138 of the Negotiable Instruments Act would not fall within the ambit of the word 'victim', as defined under Section 2(wa) Cr.P.C. (Para 5)

Section 2(wa) Cr.P.C. defines victim as "a person who has suffered any loss or injury caused by reason of the act or omission for which the accused person has been charged and the expression “victim” includes his or her guardian or legal heir".

10. S.142 NI Act | Third Party Cannot Prosecute Drawer For Dishonour Of Cheque: Kerala High Court

Case Title: Arvind Singh Rajpoot v. M/S Intersight Holidays Pvt. Ltd. & Ors., 2023 LiveLaw (Ker) 445

Coram: Justice A. Badharudeen 

The Kerala High Court observed that a third party cannot prosecute the drawer of cheque for the offence punishable under Section 138 of the N.I. Act. It opined that a complaint alleging the commission of offence punishable under Section 138 of the NI Act shall be filed either by the 'payee' or by the 'holder in due course' of the said cheque, and no other person is entitled to lodge a complaint.  (Para 8)

11. Illegal Fee Of Advocate Is Not A Legal Claim: Madras High Court Quashes Proceedings Against Client For Dishonour Of Cheque Paid To Advocate

Case Title: Davidraj v Pavel., Crl.OP(MD)No.19190 of 2019

Coram: Justice G Ilangovan 

The Madras High Court, while quashing a complaint under Section 138 of the N.I. Act, registered against a client by his lawyer for dishonor of cheque, observed that a fee, which is per se illegal as per the Legal Practitioners Rules, will not be a legal claim and a legal liability could not be fastened upon the client to pay the same. (Para 13-15)

12. S.138 NI Act | Courts Should Grant Compensation To Complainant "Commensurate To Cheque Amount" While Sentencing Accused: Kerala High Court

Case title: Sasikumar V Ushadevi., 2023 LiveLaw (Ker) 567

Coram: Justice C.S. Dias 

The Kerela High Court observed that the Court, while sentencing an accused for the offence under Section 138 of the N.I. Act, has to keep the compensatory part in mind. The Court added that the compensation should be proportional to the cheque amount, and it must not exceed twice the cheque amount. (Para 13)

13. Company Executive Director Not Shielded From NI Act Proceedings Merely Because His Name Not In ROC: Telangana High Court

Coram: Justice E.V. Venugopal

The Telangana High Court has held that an Executive Director of a company will not be shielded from proceedings under the N.I. Act merely because his/her name is not reflected in the record of the Registrar of Company Affairs. (Para 14)

14. Before Issuing Summons U/S 138 NI Act, Only Prima Facie View On Presence Of Basic Ingredients Of The Offence Necessary: Delhi High Court

Case Title: Northern India Paint Colour and Varnish Co. LLP v. Sushil Chaudhary., 2023 LiveLaw (Del) 1116

Coram: Justice Amit Bansal

The Delhi High Court observed that at the stage of issuance of summons, for the purpose of Section 202 of the CrPC read with Section 145 of the N.I. Act; the MM is only required to examine whether the basic ingredients of an offence under Section 138 of the N.I. Act have been prima facie made out by the complainant. Further, the same has to be supported by the pre-summoning evidence led on behalf of the complainant. (Para 20)

15. Cheque Dishonour | No Vicarious Liability On Directors If Company Acquitted Of Offence Under NI Act: Kerala High Court 

Case Title: Afsal Hussain v. K.S. Muhammed Ismail & Anr., 2023 LiveLaw (Ker) 693

Coram: Justice Sophy Thomas

The Kerala High Court held that the directors of a company are not liable to be convicted for an offence under Section 138 of the N.I. Act when the company itself is not found to have committed the offence.

The liability of persons referred to in Section 141 of the N.I Act is co-extensive with that of the company, firm or association of individuals, in a prosecution under Section 138 of the N.I Act., the Court explained. (Para 20)

16. Negotiable Instruments Act | Arbitration Proceedings And Section 138 NI Act Proceedings Can Continue Simultaneously: Delhi High Court 

Case Title: Newton Engineering and Chemicals Limited and Ors v. Uem India Pvt Ltd, CRL.M.C. 5931/2023., 2023 LiveLaw (Del) 1189

Coram: Justice Amit Bansal

The Delhi High Court, while placing its reliance upon Sri Krishna Agencies v. State of A.P. & Anr., ruled that arbitration proceedings and proceedings under Section 138 of the N.I. Act arise from separate causes of action and pendency of one does not affect the other.

While holding so, the Court did not find any merit in the contention of the petitioners that the complaint under Section 138 is not maintainable in view of the ongoing arbitration proceedings between the parties. (Para 7)

17. S.138 NI Act | Offence Can Be Compounded At Initial Stage Without Complainant's Consent, Provided They Are Duly Compensated

Case Title: Anuradha Kapoor and Ors. v. State of Maharashtra and Ors., Criminal Application (APL) No. 566/2023

Coram: Justice Anil Pansare

The Bombay High Court held that a court can compound the offence in appropriate check bounce cases without the complainant's consent provided that the accused applied for compounding in the initial stages of the case and the complainant was adequately compensated. (Para 36)

18. Dishonor Of Cheque Given As Security Attracts Section 138 NI Act, Cases of 'Account Closed' And 'Payment Stopped' Also Covered: Delhi HC

Case Title: Payal Malhotra v. Sulekh Chand., 2023 LiveLaw (Del) 1231

Coram: Justice Rajnish Bhatnagar 

The Delhi High Court reiterated that when a cheque given for the purpose of security is dishonored, Section 138 of the N.I. Act, will be attracted. Moreover, the Court also highlighted that the cases where cheques are dishonored for reasons “payment stopped” or “account closed” also fall within the ambit of the provision. (Para 13 and 14)

19. Cheque Dishonour | Wife Not Signatory, Cannot Be Held Liable For Cheque Signed & Given By Husband From Joint Account: Bombay High Court

Case title - Aarti Shailesh Shah vs Satish Vasant Dharukkar & Anr., CRIMINAL APPLICATION NO.747 OF 2023

Coram: Justice Sarang Kotwal

The Bombay High Court, while driving its strength from Aparna A. Shah vs M/S. Sheth Developers Pvt. Ltd. quashed and set aside the process and summons issued to a woman in a cheque bounce case, noting that only her husband was a signatory to the cheque. The cheque was issued from the couple's joint account.

In Aparna A. Shah, the Supreme Court, among others findings, had held that under Section 138 of the N.I. Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. (Para 6 and 7)

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Newton Engineering and Chemicals Limited & Ors. Vs. Uem India Pvt. Ltd. - It is clear from the above that the arbitration proceedings as well as the proceedings under Section 138 of the NI Act arise from separate causes of action and the pendency of the arbitration proceedings would not affect the proceedings under Section 138 of the NI Act.

High Court New Delhi (23.11.2023) in Newton Engineering and Chemicals Limited & Ors. Vs. Uem India Pvt. Ltd. [Crl.M.C. 5931/2023 & Crl.M.A. 22290/2023 (Delay)] held that.

• We are also of the view that there can be no bar to the simultaneous continuance of a criminal proceeding and a civil proceeding if the two arise from separate causes of action.

• It is clear from the above that the arbitration proceedings as well as the proceedings under Section 138 of the NI Act arise from separate causes of action and the pendency of the arbitration proceedings would not affect the proceedings under Section 138 of the NI Act.

• There is no merit in the contention of the petitioners that the complaint under Section 138 of the NI Act is not maintainable in view of the ongoing arbitration proceedings between the parties.

Excerpts of the Order;    

# 1. The present petition has been filed seeking quashing of complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) filed by the respondent company/complainant against the petitioners/accused. 

# 2. Brief facts resulting in the filing of the present petition are set out below:- 

i. The Memorandum of Understanding (MoU) dated 19th June, 2014 was signed between the petitioners and the respondent company towards work CRL.M.C. 5931/2023 Page 2 of 4 for Modernization of ETP Plant at the ONGC Urban Plant. 

ii. The respondent company was to participate as a technical collaborator and provide its expertise to the petitioner, if the bid and contract of the aforesaid work was awarded by ONGC to the petitioner in pursuance of a tender. 

iii. The contract was awarded by the ONGC to the petitioners. 

iv. A post-dated cheque dated 23rd June, 2017 of Rs.7,00,000/- was given by the petitioners to the respondent company pursuant to meetings between the representatives of the petitioner no.1 and the respondent company on 17th May and 18th May, 2017. 

v. Subsequently, the ONGC terminated contract with the petitioners vide letter of termination dated 15th June, 2017. 

vi. The petitioners vide e-mail dated 21st June, 2017 asked the respondent company not to deposit the aforesaid cheque. However, the respondent company deposited the said cheque. 

vi. Since the aforesaid cheque was dishonoured, a complaint under Section 138 of the NI Act was filed by the respondent company in which summons were issued to the petitioners by the learned Magistrate. 

# 3. The main submission of the counsel for the petitioners is that the MoU between the parties contained an arbitration clause, pursuant to which arbitration proceedings have been initiated, the complaint under Section 138 NI Act is not maintainable. It is further submitted that the amount due from the petitioners to the respondent company will be crystalised only upon conclusion of the arbitration proceedings and therefore, the deposit of the cheque by the respondent company was premature. 

# 4. Counsel appearing on behalf of the respondent company has placed reliance on the judgment of the Supreme Court in Sri Krishna Agencies v. State of A.P. & Anr., (2009) 1 SCC 69, to submit that the arbitration proceedings and proceedings under Section 138 of the NI Act are separate and independent proceedings and both can proceed simultaneously. 

# 5. I have heard the counsels for the parties. 

# 6. The relevant part of the Supreme Court judgment in Sri Krishna Agencies (supra) is set out below:- 

• “4. Mr Adhyaru, learned Senior Counsel appearing in support of the appeal, submitted that the High Court has apparently confused the issue relating to the continuance of the arbitration proceedings as also the criminal proceedings, since when the cheques were dishonoured, a separate liability arose in terms of Section 138 of the Act, whereas the arbitration proceedings were under the agreement signed between the parties. It was submitted by him that the commencement and the continuance of the arbitration proceedings could in no way affect the criminal proceedings taken separately. 

• 5. In support of his submissions, Mr Adhyaru referred to the decision of this Court in Trisuns Chemical Industry v. Rajesh Agarwal where the same question arose in relation to arbitration proceedings taken during the continuance of a complaint filed under Sections 415 and 420 of the Code of Criminal Procedure. In the said decision, it was held that merely because arbitration proceedings have been undertaken, the criminal proceedings could not be thwarted. 

• 6. On behalf of Respondent 2, the submissions which had been urged before the High Court were reiterated which however appear to be unacceptable having regard to the decision cited by Mr Adhyaru. 

• 7. We are also of the view that there can be no bar to the simultaneous continuance of a criminal proceeding and a civil proceeding if the two arise from separate causes of action. The decision in Trisuns Chemical Industry case appears to squarely cover this case as well.” 

# 7. It is clear from the above that the arbitration proceedings as well as the proceedings under Section 138 of the NI Act arise from separate causes of action and the pendency of the arbitration proceedings would not affect the proceedings under Section 138 of the NI Act. There is no merit in the contention of the petitioners that the complaint under Section 138 of the NI Act is not maintainable in view of the ongoing arbitration proceedings between the parties. Additionally, whether the aforesaid cheque was given as a security or not is something which can only be proved as a matter of defence during trial. 

# 8. There is no merit in the present petition. 

# 9. Accordingly, the present petition is dismissed. 

# 10. All pending application/s stand disposed of.

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Afsal Hussain v. K.S. Muhammed Ismail & Anr. - Commission of offence under Section 138 of the N.I Act by a juristic person is an inevitable legal pre-requisite or the condition precedent to proceed against a person referred to under Section 141 of the N.I Act and to hold him guilty of the said offence.

HC Kerala (14.11.2023) in Afsal Hussain v. K.S. Muhammed Ismail & Anr. [Crl. Rev. Pet No. 1060 Of 2008] held that.

• Unless and until, it is established that such juristic person commits offence under Section 138 of the N.I Act, no person referred to in Section 141 of the N.I Act can be proceeded against, summoned, prosecuted or convicted for offence under Section 138 of the N.I Act.

• Commission of offence under Section 138 of the N.I Act by a juristic person is an inevitable legal pre-requisite or the condition precedent to proceed against a person referred to under Section 141 of the N.I Act and to hold him guilty of the said offence.

• When the company is found not guilty of the offence alleged, the Managing Director cannot be held vicariously liable for the offence committed by the company.

• The liability of persons referred to in Section 141 of the N.I Act is co-extensive with that of the company, firm or association of individuals, in a prosecution under Section 138 of the N.I Act.

Excerpts of the Order;    

This revision is at the instance of the 2nd accused in C.C. No.695 of 2000 on the file of Judicial First Class Magistrate Court-I, Kanjirappally, assailing the judgment in Crl.Appeal No.226 of 2005 on the file of Additional Sessions Judge, (Adhoc-1), Kottayam, which upheld his conviction under Section 138 of the Negotiable Instruments Act (hereinafter referred as 'the N.I Act'), and modified the sentence and reduced it into imprisonment till rising of the court and fine of Rs.10 lakh with a default sentence of simple imprisonment for three months with a direction that, if the fine amount is paid, it shall be given to the complainant/1st respondent as compensation under Section 357(1) of Cr.P.C.

# 2. C.C. No. 695 of 2000 was based on a complaint filed by the 1st respondent herein, with regard to dishonour of Ext.P2 cheque dated 20.02.2000 issued by the revision petitioner as the Managing Director of Omnitech Information Systems Pvt. Ltd towards discharge of Rs.10 lakh due to the 1st respondent/ complainant, from the 1st accused-company.

# 3. In the complaint, the company was the1st accused, its Managing Director was the 2nd accused, and other Directors were accused Nos. 3 to 5. 

# 4. On appearance of accused persons before the Magistrate court, particulars of offence was read over and explained, to which they pleaded not guilty and claimed to be tried. Thereupon, the complainant examined PWs.1 to 4, and marked Exts.P1 to P18 to prove his case.

# 5. On closure of complainant’s evidence, the accused persons were questioned under Section 313 of Cr.P.C. and they denied, all the incriminating circumstances brought on record. No defence evidence was adduced.

# 6. On hearing the rival contentions from either side and on analysing the facts and evidence, the trial court found all the accused guilty under Section 138 of the N.I Act, and 1st accused-company was sentenced to pay fine of Rs. 5,000/- and accused Nos.2 to 5 were sentenced to undergo simple imprisonment for six months and compensation of Rs.2,50,000/- by each, and in default of payment of compensation, they were directed to undergo simple imprisonment for a further period of three months each.

# 7. Aggrieved by the conviction and sentence, accused Nos.1 to 3 preferred Crl. Appeal No.226 of 2005 and accused No.5 preferred Crl. Appeal No.230 of 2005. Both appeals were heard together by the appellate court, and Crl. Appeal No.226 of 2005 was allowed in part, by acquitting accused Nos. 1 and 3 and upholding the conviction of 2nd accused/revision petitioner under Section 138 of the N.I Act and modifying and reducing the substantive sentence into imprisonment till rising of the court and compensation of Rs.10 lakh. The appeal filed by the 5th accused as Crl. Appeal No.230 of 2005 was also allowed, setting aside his conviction and senctence under Section 138 of the N.I Act. So, in effect only the conviction of the revision petitioner/2nd accused was upheld by the appellate court, though his substantive sentence was  modified and reduced, and the compensation amount was enhanced to Rs.10 lakh, against which, he has come up with this revision.

# 8. Now this Court is called upon to verify the legality, propriety and correctness of the impugned judgment in Crl. Appeal No.226 of 2005, which upheld the conviction of the revision petitioner under Section 138 of the N.I Act and a modified sentence was imposed.

# 9. Though service is complete, none appears for the 1st respondent/complainant.

# 10. Heard learned counsel for the revision petitioner and learned Public Prosecutor.

# 11. Learned counsel for the revision petitioner is impugning the judgment, mainly on the ground that, when the company in which he was the Managing Director was acquitted of the offence under Section 138 of the N.I Act, he being its Managing Director, has no vicarious liability for the offence committed by the company. The case of the 1st respondent/complainant also was that, the revision petitioner issued Ext.P2 cheque in his capacity as the Managing Director of Omnitech Information Systems Pvt. Ltd. So, when the

company is acquitted of the charges levelled against it, according to the revision petitioner, the Managing Director cannot have any liability for and on behalf of the company.

# 12. In the complaint filed by the complainant/ 1st respondent, his case was that, accused Nos.2 and 3 to 5, who were the Managing Director and Directors respectively of the 1st accused-company, requested him to invest some amount in the 1st accused-company, and accordingly, he deposited Rs.10 lakh with the company. But later, they failed to return the amount as agreed. When he demanded that amount, the 2nd accused issued Ext.P2 cheque dated 20.02.2000 drawn on State Bank of India, Mattanchery branch. According to him, that cheque was issued towards discharge of the amount due to him, from the 1st accused-company. He presented the cheque for collection, but it was dishonoured, for the reason “funds insufficient” and “property not marked”. He sent notice to the accused persons, as envisaged under Section 138(b) of the N.I Act. The notice was accepted by the revision petitioner (A2), and accused Nos.3 and 5. Notice to the 1st accused-company returned with the endorsement ‘addressee left’. Notice to the 4th accused was also returned ‘unserved’. In spite of receipt of notice by the revision petitioner, no reply was sent, and the amount was not repaid. So the 1st respondent/ complainant filed the complaint under Section 138 of the N.I Act against the company and its Directors. Though the trial court found all the accused guilty under Section 138 of the N.I Act and convicted and sentenced them, the appellate court acquitted all the accused except the revision petitioner (A2).

# 13. Let us see who are all responsible, when an offence under Section 138 of the N.I Act is committed by a company.

# 14. Section 141 of the N.I Act reads thus; 

• “ 141. Offences by companies:-

• (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: 

• PROVIDED that nothing contained in this subsection shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: ”

# 15. Learned Counsel for the revision petitioner relied on the decision Aneeta Hada V. Godfather Travels and Tours Private Ltd [(2012) 5 SCC 661) to say that, when the company can be prosecuted, then only the persons mentioned in the other categories under Section 141 of the N.I Act could be vicariously liable for the offence.

# 16. Paragraph 58 of the decision Aneeta Hada [(2012) 5 SCC 661) reads thus;

• “ 58. 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. Thus, 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 subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.”

# 17. In Siby Thomas v. Somany Ceramics Ltd [2023 (5) KLT 844 (SC)] the Apex Court held that, vicarious liability would be attracted only when the ingredients of Section 141(1) of the N.I Act are established.

# 18. Paragraph 16 of the decision Siby Thomas (2023 (5) KLT 844 SC) reads thus;

• “ 16. Thus, in the light of the dictum laid down in Ashok Shewakramani's case (supra) it is evident that a vicarious liability would be attracted only when the ingredients of S 141(1) of the NI Act, are satisfied. It would also reveal that merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company. A bare perusal of S. 141(1) of the NI Act, would reveal that only that person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished. In such circumstances, paragraph 20 in Ashok Shewakramani's case (supra) is also relevant. After referring to the S.141(1) of NI Act, in paragraph 20 it was further held thus:

• “20. On a plain reading, it is apparent that the words “was in charge of” and "was responsible to the company for the conduct of the business of the company” cannot be read disjunctively and the same ought be read conjunctively in view of use of the word "and" in between.”

# 19. In Pramod v. Velayudhan (2005 (4) KLT SN 96 Case No.128) this Court held that, to hold a person guilty of offence under Section 138 of the N.I Act by virtue of Section 141 of the N.I Act, the first and foremost requirement to be established is commission of the offence by another person i.e. a company, firm or  association of individuals. Unless and until, it is established that such juristic person commits offence under Section 138 of the N.I Act, no person referred to in Section 141 of the N.I Act can be proceeded against, summoned, prosecuted or convicted for offence under Section 138 of the N.I Act. In other words, commission of offence under Section 138 of the N.I Act by a juristic person is an inevitable legal pre-requisite or the condition precedent to proceed against a person referred to under Section 141 of the N.I Act and to hold him guilty of the said offence. It is thus clear that a person referred to in Section 141 of the N.I Act can be prosecuted and convicted for an offence committed by another person. 

# 20. In the case on hand, the 1st accused-company owed amount to the complainant/1st respondent. Admittedly the revision petitioner was the Managing Director of that company and he issued that cheque in his capacity as its Managing Director. When the company is found not guilty of the offence alleged, the Managing Director cannot be held vicariously liable for the offence committed by the company. No appeal or revision has seen preferred by the complainant/1st respondent against the acquittal of the 1st accused-company. So, that verdict has become final. So much so, the revision petitioner Managing Director cannot be held liable as the company was acquitted, finding that no offence was committed by the company. The revision petitioner in his personal capacity did not owe any amount to the complainant/ 1st respondent and Ext.P2 cheque was issued not towards discharge of any personal liability of the revision petitioner. He issued that cheque, in his capacity as the Managing Director of the company. Since the company is acquitted, its Managing Director, cannot have any liability, dehors the liability of the company. The liability of persons referred to in Section 141 of the N.I Act is co-extensive with that of the company, firm or association of individuals, in a prosecution under Section 138 of the N.I Act. When it is found that the company has not committed the offence, and it is acquitted, its directors are not liable to be convicted, for the offence for which the company has been acquitted.

# 21. In the result, the finding of the appellate court that, the revision petitioner/2nd accused has committed an offence punishable under Section 138 of the N.I Act in spite of acquittal of the 1st accused-company, is liable to be set aside.

# 22. In the result, the impugned judgment is set aside and the revision petitioner is found not guilty of the offence punishable under Section 138 of the N.I Act and he is acquitted. His bail bond is cancelled and he is set at liberty forthwith. The revision petition stands allowed accordingly.

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