Office Bearers Are Not Automatically Liable for Cheque Bounce; Liability Depends on Their Real Role in the Transaction

Held: The Supreme Court held that criminal liability under Section 141 of the Negotiable Instruments Act, 1881 cannot be fastened on every office bearer of a company, society or association merely because of the designation held by them. The complaint must disclose specific foundational facts showing that the person was in charge of and responsible for the conduct of the affairs of the entity at the relevant time. However, the complaint need not use any rigid formula if, when read as a whole, the documents and allegations disclose the person’s active participation in the financial transaction giving rise to the dishonoured cheque. Therefore, office bearers who signed or participated in the promissory notes, MoU, cheque or allied financial documents may face trial, while an office bearer against whom only a general allegation based on designation is made cannot be prosecuted.

Summary: The appellant, M/s Mansi Finance (Chennai) Ltd., had advanced INR 4.50 crore to M/s Ravindra Bharathi Educational Society for development and business requirements of the educational institution. The transaction was allegedly supported by promissory notes and a Memorandum of Understanding dated 31.07.2018, and later a cheque dated 18.11.2019 for INR 5,12,61,500 was issued towards discharge of liability. The cheque was dishonoured with the endorsement “Account Blocked”, after which the appellant issued statutory notice and filed a complaint under Sections 138 and 141 of the NI Act against the Society and its office bearers. The Madras High Court quashed the proceedings against four office bearers, holding that the allegations were omnibus and did not satisfy the requirement of Section 141. The Supreme Court partly disagreed. It held that respondent Nos. 1, 2 and 4 stood on a different footing because the MoU, dishonoured cheque, promissory notes and allied documents prima facie showed their participation in the underlying financial transaction. However, respondent No. 3, an Executive Member, was protected because no cheque, promissory note, MoU or financial document bore his signature and no specific role was attributed to him beyond his designation. The Court reiterated that Section 141 creates vicarious criminal liability and must be strictly applied, but a complaint must be read as a whole and not in an overly technical manner.

Decision: The Supreme Court partly allowed the appeal. It set aside the High Court’s order dated 28.06.2024 insofar as it had quashed proceedings against respondent Nos. 1, 2 and 4, and restored the complaint in S.T.C. No. 1980 of 2023 pending before the IV FTC Metropolitan Magistrate, George Town, Chennai against them. The Court upheld the quashing of proceedings against respondent No. 3 because no specific factual foundation connected him with the transaction. All contentions of the parties were left open before the Trial Court, and the Supreme Court clarified that its observations were confined only to the quashing issue and should not be treated as findings on the merits of the complaint.