Delhi HC: Immunity against Cheque Dishonour case for Non-executive director

In a recent landmark judgement by the Delhi high court, it has been held that Non-Executive Directors of a company are exempted from Cheque Dishonour Proceedings under Section 138 of the Negotiable Instrument Act, 1881.

Fact of the case: In the case of Sunita Palta vs. M/s Kit Marketing Pvt. Ltd. it was observed that Section 138 of the Negotiable Instrument Act, 1881, which pertains to the dishonour of cheque, which attracts the criminal liability, the Non-Executive Directors of a company are exempted from this liability. The petitioner namely Sunita Palta was the non-executive additional director of the private company. The cheque was issued and the same was dishonoured. As a consequence, the Metropolitan Magistrate under Section 138 of the Negotiable Instrument Act, 1881, issued the summons. However, the petitioner contended that the cheques in question were drawn from the account which was maintained by the company, wherein the petitioner is the non-executive director and is never involved in the day to day affairs of the company. The issue raised in this case was whether the Non-Executive Directors of a company are liable for Cheque Dishonour Proceedings under Section 138 of the Negotiable Instrument Act, 1881 or not?

Interpretation of Law:  The Single Bench of High Court of Delhi comprising of Justice Manoj Kumar Ohri in the light of the judgment passed by the Supreme Court of India in the case of Pooja Ravinder Devidasani vs. State of Maharashtra held that Section 138 of the Negotiable Instrument Act, 1881, which pertains to the dishonour of cheque, consequently attract the criminal liability. The Non-Executive Directors of a company are exempted from the proceedings held under Section 138 of the Negotiable Instrument Act, 1881. The reason behind the exemption is that the Non-Executive Directors are not involved in the day to day activities of the company and the only function of the Non-Executive Directors is to monitor the executive activities of the company. 

Also, reference to the judgement passed in case of “K.K Ahuja Vs V.K. Vora” was also made in which it has been made clear that in case of director an averment in the complaint that he was in-charge of, and was responsible to the company, for the conduct of the business of the company is necessary to bring the case under Section 141(1).

For making a Director of a Company liable for the offences committed by the Company under Section 141 of the Negotiable Instruments Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.

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