The Supreme Court has ruled that directors or those in charge of a firm cannot be prosecuted for criminal liability if a cheque bounces at the bank unless the company itself is arraigned as an accused, as stipulated under the Negotiable Instruments Act, 1888.

“It is the drawer company which must be first 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 the liability of the drawer company, there would naturally be no requirement to hold the other persons vicariously liable for the offence committed under Section 138 of the NI Act,” a bench of Justice J.B. Pardiwala and Justice R. Mahadevan said in a judgment.

The bench passed the ruling while dismissing the appeal filed by one Bijoy Kumar Moni, challenging a Calcutta High Court judgment of March 19, 2024, by which it had set aside the concurrent findings of a trial court and the sessions court which had held the respondent, Paresh Manna, guilty for issuing a cheque on April 28, 2006, drawn on Standard Chartered Bank, N.S. Road, Calcutta, for ₹8,45,000 which bounced.

The trial court at Ghatal sentenced Manna to one year imprisonment, which the sessions court affirmed. However, Calcutta High Court set aside the concurrent findings of the two courts on the ground that Manna cannot be held liable as the cheque was signed by him as a director of Shilabati Hospital Pvt. Ltd. and drawn upon the bank account maintained in the hospital’s name.

Justice Pardiwala said corporate persons like companies, which are legal entities and have no soul, mind or limb to work physically, discharge their functions through human agency recognised under the law to work. Therefore, if some function is discharged by such human agency for and on behalf of the company it would be an act of the company and not attributable to such human agent.