S.138 NI Act | Director Cannot Be Prosecuted For Cheque Dishonour Without Arraying Company As Accused: Kerala High Court Reiterates

The Kerala High Court has reiterated that when a cheque issued by a company is dishonored, prosecution under Section 138 of the Negotiable Instruments Act against its Director shall not sustain if the company is not arrayed as an accused. 

Justice A. Badharudeen relying on the law laid down by the Apex Court, observed that prosecution against the director of the company merely for the reason that the director had signed the cheque shall not sustain if the company is not arraigned as an accused in the case. 

In this case, admittedly, the cheque was issued for and on behalf of a company and the company is not arraigned as an accused. Therefore, in view of the above legal position, the entire prosecution is vitiated and accordingly, the concurrent finding of conviction and sentence are liable to be set aside.

The Revision Petition was filed against conviction for dishonor of cheque worth Rs. 5,26,500 issued under signatures of revision petitioners in their capacity as Directors, on behalf of of Teltron Kuri Company Pvt. The main legal question before the Court was whether a prosecution launched under Section 142 of the NI Act would lie against the Directors of a Company without arraying the Company as the accused.

 The Counsel appearing for the Revision Petitioners, Advocate Noble Mathew, placed reliance on the Apex Court decision in Himanshu v. B. Shivamurthy and another, in which it was held that in the absence of the company being arraigned as an accused, a complaint against the director is not maintainable, merely for the reason that the Director of the Company had signed the cheque for and on behalf of the company. The Apex Court had further held that the commission of the offence by the company is an express condition precedent to attract vicarious liability of the Director.

Therefore, the ratio of the decision, indubitably, is that, in a prosecution alleging commission of the offence punishable Under Section 138 of N.I Act, when cheque being issued by a company, a prosecution shall not sustain without arraying the company as an accused. No doubt, then its director/directors can be arrayed as co-accused, being signatory/signatories of the cheque, observed the Court. 

Pointing out the fact that in the present case, the cheque was issued for and on behalf of a company and the company was not arraigned as an accused, the Court observed that as per the law laid down by the Apex Court, the entire prosecution is vitiated and finding of conviction and sentence is liable to be set aside. 

Thereby, the Court allowed the review petition and set aside the impugned order.

Case Title: Kallar Harikumar v. Amritha Enterprises Pvt Ltd & Anr. 

Citation: 2022 LiveLaw(Ker) 561

Click Here To Read/Download The Order