Company directors cannot be held liable under Section 141 for dishonoured cheques without proof of control or negligence

Delhi HC dismissed petition challenging discharge of respondents in dishonour of cheque case. Court held Section 141 NI Act creates vicarious liability only on persons in-charge of accused company or those who connived/were negligent, not on group companies. Corporate veil cannot be lifted in Section 138 cases as it creates criminal liability only on cheque drawer. Liability cannot extend to other corporate entities merely for being group companies. Petitioner failed to establish respondents were directors of accused company or persons in-charge of its business conduct, providing only LinkedIn profile as evidence which was insufficient.

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Issues Involved:
1. Whether respondent no. 3 can be held liable under Section 138 of the NI Act as a group company of the drawer of the cheque.
2. Whether respondent nos. 1 and 2, as Directors of the group company, can be held vicariously liable under Section 138 read with Section 141 of the NI Act.

Issue 1: Liability of Respondent No. 3 as a Group Company

The petitioner contended that Right Choice Marketing Solutions JLT (accused no. 1) and Right Choice Builders Private Limited (respondent no. 3) are part of a single economic entity and should be treated as such for liability under Section 138 of the NI Act. The learned counsel for the petitioner argued for lifting the corporate veil, citing various judgments. However, the court found that the petitioner failed to provide substantial evidence to prove that respondent no. 3 and accused no. 1 are the same entity. The court emphasized that Section 141 of the NI Act does not extend vicarious liability to group companies and that Section 138 creates liability only on the "drawer of the cheque." Therefore, respondent no. 3 could not be proceeded against on the mere allegation of being a group company of accused no. 1.

Issue 2: Vicarious Liability of Respondent Nos. 1 and 2

The petitioner alleged that respondent nos. 1 and 2, as Directors of the Right Choice Group, were responsible for the day-to-day affairs of accused no. 1 and had instructed the issuance of the dishonored cheques. The court examined the complaint and found that there were no specific averments or documents to show that respondent nos. 1 and 2 were Directors of accused no. 1 or were in charge of its business. The court noted that the complaint lacked the necessary averments under Section 141 of the NI Act to hold respondent nos. 1 and 2 vicariously liable. The court also found that the reliance on the alleged LinkedIn profile of respondent no. 1 was insufficient to establish liability. Consequently, respondent nos. 1 and 2 could not be held liable under Section 138 of the NI Act.

Conclusion

In light of the above findings, the court dismissed the petition, holding that neither respondent no. 3 nor respondent nos. 1 and 2 could be held liable under Section 138 of the NI Act based on the provided evidence and allegations. The court reiterated that the statutory liability for dishonor of the cheque is limited to the drawer of the cheque and, in the case of companies, to those in charge of or responsible for the conduct of the company's business.

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