The Orissa High Court has once again reinforced that an Executive Director of a company cannot be prosecuted under Section 138 of the Negotiable Instruments Act (NI Act) if the company itself has not been arraigned as an accused. The ruling was delivered by a Single Bench of Dr. Justice Sanjeeb Kumar Panigrahi, emphasizing the mandatory nature of Section 141 of the NI Act.
"In the present case, the accused, an Executive Director, had signed the cheque in question. The prosecution, however, was instituted solely against him, without impleading the company. This raises a substantial legal infirmity. The accused was not the drawer of the cheque in his personal capacity, but rather as an agent of the corporate entity."
Case Background
The complainant, the sole proprietor of M/s. Maa Gayatri Transport & Supplier, engaged in the supply of building materials, had a business transaction with CCC Builders Merchant Pvt. Ltd., Gurgaon, Haryana. The dispute arose over payments for the supply of building materials for a railway construction project in Balasore.
The outstanding balance payable by CCC Builders Merchant Pvt. Ltd. was ₹12,92,345/-, out of which ₹5,00,000/- was partially paid via bank transfer. The petitioner, as the Executive Director of the company, issued a cheque for ₹4,00,000/-, which was dishonoured with the remark "Payment Stopped by Drawer."
The complainant issued a demand notice on 27.01.2011, which was received by the accused on 04.02.2011, but no payment was made within the statutory period. Consequently, a complaint was filed under Section 138 of the NI Act.
Court’s Observations
The key issue before the court was whether the Executive Director could be prosecuted under Section 138 of the NI Act when the company itself had not been made a party to the proceedings.
Justice Panigrahi examined Section 141 of the NI Act, which states:
“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.”
The court relied on the Supreme Court judgment in Bijoy Kumar Moni v. Paresh Manna, 2024 LiveLaw (SC) 1035, which held:
“It is the drawer company which must first be held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in charge of and responsible to the Company for the conduct of its business. In the absence of liability of the drawer company, there would naturally be no requirement to hold other persons vicariously liable.”
Applying this principle, the Orissa High Court ruled that since CCC Builders Merchant Pvt. Ltd. had not been made an accused, the prosecution against the Executive Director alone was legally unsustainable.
The Orissa High Court quashed the criminal proceedings against the petitioner, observing:
"From the foregoing discussion, it is evident that the prosecution of the petitioner is legally untenable. The statutory requirement under Section 141 of the NI Act mandates the arraignment of the company as an accused before vicarious liability can be imposed on its officers. Accordingly, the failure of the complainant to implead CCC Builders Merchant Pvt. Ltd. as an accused renders the proceedings against the petitioner unsustainable in law."
Case Title: Gourav Kumar Hota v. Ajay Kumar Barik
Case No: CRLREV No. 542 of 2014
Date of Judgment: March 13, 2025
Counsel for the Petitioner: Mr. M. K. Mishra, Sr. Advocate Along with Mr. B. K. Mishra, Advocate
Counsel for the Respondent: Mr. Debasish Samal, Advocate
