2024 (7) TMI 454 - HC - Indian Laws

Section 141 NI Act cannot impose vicarious liability on non-proprietors or non-cheque signatories in proprietorship concerns

The Delhi HC held that Section 141 of the NI Act cannot extend vicarious liability to persons in proprietorship concerns who are neither the proprietor ... Dishonour of Cheque - vicarious liability of petitioner - whether the petitioner has signed the agreement or not - Section 141 of NI Act - HELD THAT:- The provision of Section 141 of the NI Act cannot be extended in case where the offence under Section 138 of the NI Act is committed by a proprietorship concern. In such a case, only the proprietor or at best the signatory of the cheque may be made liable to face the prosecution under Section 138 of the NI Act, but not a person who is neither the proprietor of the proprietorship concern, nor is a signatory to the cheque. Applying the above principles to the facts of the present case, it is apparent that, in the Complaint, the respondent itself has pleaded that the Accused No. 1 is the proprietorship concern of which the Accused No. 2 is the proprietor. The cheque in question is also signed by the Accused No. 2 as proprietor of the Accused No. 1. The petitioner/Accused No. 3 has been arrayed as an accused on the premise that she is the authorized signatory of the accused no. 1 and that she signed the Agreement between the Accused No. 1 and the respondent along with the accused no. 2. That itself is not sufficient to invoke the vicarious liability of offence under Section 138 of the NI Act, in terms of Section 141 of the NI Act, on the petitioner. The complaint against the petitioner cannot be sustained. Accordingly, the same is quashed as against the petitioner - Petition disposed off. Issues Involved:1. Quashing of the complaint under Section 138 of the Negotiable Instruments Act, 1881.2. Applicability of Section 141 of the NI Act to a proprietorship concern.3. Vicarious liability for offences committed by a proprietorship concern.Comprehensive Issue-wise Detailed Analysis:1. Quashing of the complaint under Section 138 of the Negotiable Instruments Act, 1881:The petitioner sought the quashing of a complaint filed under Section 138 of the NI Act, which pertains to the dishonor of cheques due to insufficient funds. The respondent had filed the complaint against M/s Hillstar Distributors (Accused No. 1), its proprietor (Accused No. 2), and the petitioner (Accused No. 3), who was alleged to be the Authorized Signatory.2. Applicability of Section 141 of the NI Act to a proprietorship concern:The petitioner argued that Section 141 of the NI Act, which deals with offences committed by companies, firms, or associations, does not extend to proprietorship concerns. The petitioner was neither the proprietor nor the signatory of the cheque in question. The respondent countered that the petitioner had signed the distributorship agreement and represented herself as the authorized signatory of the proprietorship concern.3. Vicarious liability for offences committed by a proprietorship concern:The court examined Section 138 of the NI Act, which makes only the drawer of the cheque liable for prosecution. It also reviewed Section 141, which creates vicarious liability for offences committed by companies, firms, or associations. The court referenced the Supreme Court's judgment in *Raghu Lakshminarayanan v. Fine Tubes*, which clarified that vicarious liability under Section 141 does not apply to proprietorship concerns. The court noted that the complaint itself described Accused No. 1 as a proprietorship concern with Accused No. 2 as the proprietor and signatory of the cheque. The petitioner was implicated solely based on her role as an authorized signatory and her involvement in signing the agreement, which was insufficient to invoke vicarious liability under Section 141.Judgment:The court concluded that the complaint against the petitioner could not be sustained. The complaint was quashed as against the petitioner, but the proceedings against the other accused were unaffected. The petition was disposed of, and pending applications were rendered infructuous, with no order as to costs.