The Punjab & Haryana High Court has clarified that directors of a company cannot be held vicariously liable under Section 138 of the Negotiable Instruments Act merely by virtue of their position, unless they were actively involved in the company's affairs or the issuance of the cheque in question. This judgment reinforces the principle that criminal liability under the NI Act requires direct participation or responsibility for the transaction.
Background & Facts
The Dispute
The petitioner, an advocate specializing in commercial law, was impleaded as an accused in a complaint under Section 138 of the Negotiable Instruments Act filed by M/s Mahalaxmi Trading Company against Amira Pure Foods and others. The complaint alleged that four cheques issued by the company between December 2016 and March 2017 had bounced. The petitioner, however, contended that he was merely a legal advisor to the company and had resigned from his directorship on 30.09.2016, prior to the issuance of the cheques.
Procedural History
The case progressed through the following stages:
- 15.04.2017: Complaint filed before the Sub-Divisional Judicial Magistrate, Gohana
- 13.07.2017: Summoning order issued against the petitioner and other co-accused
- 2025: Coordinate Bench of the Punjab & Haryana High Court disposed of a batch of similar petitions, including one involving the same petitioner, quashing the summoning orders
- 11.03.2026: Present petition filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 for quashing the summoning order and consequential proceedings
Relief Sought
The petitioner sought quashing of the summoning order dated 13.07.2017 and all consequential proceedings, arguing that he had no role in the issuance of the cheques and was not responsible for the company's day-to-day affairs.
The Legal Issue
The central question before the Court was whether a director of a company can be held vicariously liable under Section 138 of the Negotiable Instruments Act if they were not actively involved in the company's affairs or the issuance of the dishonoured cheque.
Arguments Presented
For the Petitioner
The petitioner's counsel advanced the following arguments:
- The petitioner was merely a legal advisor to the company and had resigned from his directorship on 30.09.2016, prior to the issuance of the cheques
- The petitioner was not a salaried director and was paid only professional fees for legal services
- The petitioner was neither in charge of nor responsible for the day-to-day affairs of the company
- The cheques in question were issued after the petitioner's resignation, absolving him of any liability
- The case was covered by a previous order of the Coordinate Bench in Rahul Sood vs State of Haryana and another and connected matters, which quashed similar summoning orders
The Court's Analysis
The Court observed that the present petition arose from the same set of allegations considered in the earlier batch of petitions, where the summoning orders were quashed. The Court noted:
"It is not disputed that the present petition arises out of the same set of allegations which were subject matter of consideration before the Coordinate Bench of this Court in Rahul Sood vs State of Haryana and another and connected matters, decided on 01.04.2025, wherein the complaints, summoning orders and consequential proceedings were quashed qua the petitioner."
The Court emphasized that the parties, allegations, and legal issues in the present petition were identical to those in the earlier batch of petitions. Consequently, the Court held that the petitioner could not be held liable under Section 138 of the NI Act in the absence of evidence showing his active involvement in the company's affairs or the issuance of the cheques.
The Verdict
The Court allowed the petition and quashed the summoning order dated 13.07.2017 and all consequential proceedings arising therefrom. The Court clarified that its observations were not an expression of opinion on the merits of the case.
What This Means For Similar Cases
Directors Not Automatically Liable Under Section 138 NI Act
The judgment reinforces that vicarious liability under Section 138 of the NI Act does not attach to directors merely by virtue of their position. Practitioners must establish:
- Active involvement in the company's affairs
- Direct responsibility for the issuance of the cheque
- Evidence linking the director to the transaction in question
Resignation Prior to Cheque Issuance Is a Valid Defence
- Directors who resign before the issuance of the cheque cannot be held liable under Section 138
- The burden lies on the complainant to prove the director's involvement in the transaction
Precedent Reliance in Quashing Proceedings
- Courts are likely to follow coordinate bench decisions in identical cases
- Petitioners can rely on earlier judgments quashing summoning orders in similar factual matrices
- This reduces the need for repetitive litigation in cases with identical allegations
