Director not vicariously liable under Section 138 NI Act for cheque bouncing if company acquitted: Kerala High Court

The Kerala High Court recently held that when a company is not convicted for the offence of cheque bouncing under Section 138 of the Negotiable Instruments Act (NI Act), its Directors cannot be held vicariously liable for the same offence [Afsal Hussain v KS Muhammed Ismail & Anr.]..Justice Sophy Thomas made the observation while allowing a revision petition filed by a Managing Director (MD) against his conviction by a Kottayam court in a cheque-bouncing case. The MD was convicted under Section 138 of the NI Act even though the company that he was part of, Omnitech Information Systems Pvt. Ltd (a private company), was acquitted in the case."When the company is found not guilty of the offence alleged, the Managing Director cannot be held vicariously liable for the offence," the High Court observed.By way of background, the private company and its directors (including the Managing Director) were accused by the complainant of inducing him into investing ₹10 lakh. However, the company later failed to return the money and issued a cheque in February 2000, which allegedly bounced due to insufficient funds. Despite sending a notice, the accused persons (private company, Managing Director, and three other directors) allegedly did not respond, prompting the complainant to file a complaint under Section 138 of the NI Act..The trial court convicted all the accused but the appellate court acquitted everyone (including the private company) except the MD.The appellate court, however, reduced the penalty imposed on the MD to imprisonment till the rising of the court and a fine of ₹10 lakh..This prompted the MD to file a revision petition petition before the High Court against the appellate court's decision. .The High Court noted that the cheque in question was not issued by the MD in his personal capacity. As such, with the company's acquittal in the case, the MD could not be held personally liable for the cheque bouncing, the Court said..Relying on Pramod v. Velayudhan, the High Court proceeded to conclude that even as per Section 141 of the NI Act, when a private company is found not guilty of the offence alleged under Section 138, the MD cannot be held vicariously liable for the offence.Therefore, the High Court set aside the appellate court order and allowed the revision petition by the MD..The petitioner-MD was represented by advocate CP Peethambaran.The State government was represented by Public Prosecutor Renjith George..[Read Order]