No Deemed Liability U/S 141 NI Act Merely By Virtue Of Office In Company Or Society; Designation Alone Insufficient: Supreme Court
The Court said that a complaint containing only a bald reproduction of the statutory language without factual foundation cannot be sustained.
Supreme Court, Justice Prashant Kumar Mishra, Justice N.V. Anjaria
The Supreme Court has held that criminal liability under Section 141 of the Negotiable Instruments Act, 1881 cannot be fastened on office-bearers of a society or company merely because they hold a particular designation. While upholding quashing against an executive member, the Court restored cheque dishonour proceedings against three other office-bearers after finding prima facie material linking them to the underlying borrowing transaction.
Reiterating that there is no deemed liability by virtue of office alone, the Court clarified that prosecution for cheque dishonour can proceed only where the complaint and accompanying material disclose a specific factual basis showing that the person sought to be prosecuted was in charge of and responsible for the conduct of the entity’s affairs at the relevant time.
A Bench of Justice Prashant Kumar Mishra and Justice N. V. Anjaria observed, “…The law governing Section 141 of the NI Act is clear that there is no deemed liability merely by virtue of holding an office or position in the company or society. The complaint must disclose the factual basis showing that the person sought to be prosecuted was in-charge of and responsible for the conduct of the business of the entity at the relevant time. As far as the present case is concerned, except for the general assertion regarding his status as an Executive Member, no specific averment or material connecting respondent No. 3 with the transaction in question has been brought on record. His designation alone, therefore, would not be sufficient to attract liability under Section 141 of the NI Act”.
Senior Advocate A. Ramesh appeared for the appellant and Balaji Srinivasan, AOR appeared for the respondent.
Accordingly, the Court partly allowed the appeal, and upheld the quashing of proceedings against the Executive Member, but set aside the Madras High Court’s order insofar as it related to the Vice-President, Treasurer and Manager, restoring the complaint against them before the trial court.
The dispute arose out of financial transactions between the appellant finance company and Ravindra Bharathi Educational Society. According to the complaint, the society borrowed an aggregate amount of ₹4.5 crore during July 2018 for development of its educational institution and related business purposes.
The borrowings were allegedly acknowledged through promissory notes and later formalised through a memorandum of understanding. Towards discharge of the outstanding liability with accrued interest, a cheque for ₹5.12 crore was issued to the appellant. The cheque was subsequently dishonoured with the endorsement “Account Blocked”.
After service of the statutory demand notice and failure to make payment, the appellant initiated proceedings under Sections 138 and 141 of the NI Act before the trial court.
The respondents thereafter approached the High Court under Section 482 CrPC, contending that they were neither signatories to the cheque nor involved in the day-to-day affairs of the society. Accepting the plea, the High Court quashed the complaint against all four respondents.
Before the Supreme Court, the central question was whether the complaint disclosed sufficient foundational facts to sustain prosecution against each of the respondents under Section 141 of the Act.
Answering the issue, the Bench reiterated that Section 141 creates vicarious criminal liability and therefore requires strict compliance. The Court observed that the complaint need not mechanically reproduce the exact language of the statute, but must contain sufficient factual material demonstrating the role of each accused.
“…Mere designation as an office bearer of a company or society is not sufficient to attract Section 141 of the NI Act. Equally, a complaint containing only a bald reproduction of the statutory language without factual foundation cannot be sustained. However, it is clear that the complaint itself is required to be read as a whole and not in isolated fragments…”, it observed.
Distinguishing them from the Executive Member, the Bench held that the Vice-President, Treasurer and Manager were not being proceeded against merely because of the posts they held. Their signatures on the memorandum of understanding, promissory notes and related financial documents, the Court said, constituted prima facie material linking them to the underlying transaction, warranting continuation of proceedings at the threshold stage.
“At the stage of quashing, the Court does not adjudicate upon the truthfulness of the allegations nor does it embark upon appreciation of evidence. Whether respondent nos.1, 2 and 4 were in fact in-charge of and responsible for the conduct of the affairs of the Society is ultimately a matter of evidence to be established at trial…”, it noted further.
Cause Title: M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha & Ors. (Neutral Citation: 2026 INSC 547)
Appearances:
Appellant: A. Ramesh, Sr. Adv., N. Sai Vinod, AOR, R. Ashwin, Susila. V, Kanu Garg, Aniruddh. R, Advocates.
Respondent: Balaji Srinivasan, AOR, Kanishka Singh, Harsha Tripathi, Prajoy J, Advocates.