Kerala HC Affirms Vicarious Liability of Managing Director Under Section 141 NI Act for Dishonoured Cheques [Read Order]

Kerala: The Kerala High Court has held that a Managing Director who was in charge of and responsible for the day-to-day affairs of a company at the time of commission of an offence under Section 138 of the Negotiable Instruments Act, 1881, can be held vicariously liable under Section 141 of the Act.

Justice M.B. Snehalatha dismissed a criminal revision petition filed by V.J. Joseph, former Managing Director of J & A Foundation Pvt. Ltd. (now under liquidation), who challenged his conviction and sentence for an offence punishable under Section 138 of the Negotiable Instruments Act.

The case arose from a complaint filed by India Cements Limited, a company engaged in the manufacture and distribution of cement. The complainant alleged that the accused company, represented by its Managing Director (the revision petitioner), had purchased cement on a credit basis. Towards partial discharge of the amount due, three cheques of ₹2 lakh each were issued in favour of the complainant. Upon presentation for collection, all three cheques were dishonoured due to insufficient funds.

After the dishonour, a legal notice was sent to the accused demanding payment. While the accused acknowledged the notice and admitted the transaction and liability in their reply notice, they failed to pay the amount covered by the dishonoured cheques.

The trial court convicted both accused under Section 138 of the NI Act. The second accused (Managing Director) was sentenced to undergo simple imprisonment for one year and was directed to pay ₹6 lakh as compensation under Section 357(3) Cr.PC, with a default clause of three months’ simple imprisonment.

On appeal, the Sessions Court confirmed the conviction but modified the sentence, reducing the substantive imprisonment to “till the rising of the court” while maintaining the compensation amount of ₹6 lakh.

The revision petitioner challenged both the conviction and sentence before the High Court, contending that the trial court and the appellate court erred in appreciating the evidence.

The Court observed that the complainant had specifically alleged that the second accused was the Managing Director of the first accused company and was in charge of and responsible for the day-to-day affairs of the company at the relevant time. The revision petitioner was the signatory to the dishonoured cheques and had issued them to the complainant.

Examining Section 141 of the Negotiable Instruments Act, which deals with offences by companies, the Court noted that the provision makes every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business, vicariously liable along with the company.

The Court emphasized that the primary responsibility lies on the complainant to make specific averments, as required under law, in the complaint so as to make the accused vicariously liable, and that criminal liability can be fastened only on those who, at the time of commission of the offence, were in charge of and responsible for the conduct of the business of the company.

Relying on the recent Supreme Court judgment in Hitesh Verma v. Health Care at Home India Pvt. Ltd. (2025 SCC OnLine SC 528), the Court held that there are twin requirements under sub-section (1) of Section 141 of the NI Act. In the complaint, it must be alleged that the person sought to be held liable by virtue of vicarious liability was, at the time when the offence was committed, in charge of and responsible to the company for the conduct of its business.

The Court found that in the present case, the complainant had succeeded in establishing that the revision petitioner, in his capacity as Managing Director and being in charge of the day-to-day affairs of the company, had issued the cheques in partial discharge of the amount due to the complainant. The Court also noted that the revision petitioner had categorically admitted in his examination under Section 313(1)(b) Cr.PC that he was the Managing Director and was in charge of the day-to-day affairs of the company, and that amounts were due to the complainant.

The Court therefore observed that the trial court and the Sessions Court had appreciated the facts, evidence, and law in the correct perspective and found no reason to interfere with their findings. The conviction and sentence, as modified by the Sessions Court, were confirmed.

The revision petition was dismissed, and the trial court was directed to take steps to execute the sentence.

Appearances:
For Revision Petitioner: Sri. P. Muraleedharan (Irimpanam), Sri. M.A. Augustine, Sri. P. Sreekumar (Thottakkattukara), Smt. Soumya James, Shri Thomas Jacob
For Respondents: Sri. K. Srikumar (Sr.), Shri K. Moni, Sri. K. Manoj Chandran, Smt. Maya M.N., Public Prosecutor

Case Title: V.J. Joseph v. The India Cements Limited & Ors. (Crl. Rev. Pet. No. 92 of 2019)

[Read Order]