Court Upholds Requirement for Specific Allegations to Establish Vicarious Liability Under Negotiable Instruments Act
In a significant ruling, the Karnataka High Court has quashed the criminal proceedings against Kavitha Chopra in a case involving cheque dishonour, reinforcing the necessity for specific allegations in complaints to establish vicarious liability under the Negotiable Instruments Act, 1881. The judgment, delivered by Justice M. Nagaprasanna on July 1, 2026, addresses five criminal petitions where Kavitha Chopra and her husband, Dhirendra Chopra, were accused in connection with a transaction involving M/s 63Ideas Infolabs Pvt. Ltd.
The case arose from a transaction where OSIA Hyper Retail Limited, with Kavitha and Dhirendra Chopra as directors, issued a cheque for Rs. 50,00,000 that was dishonoured due to insufficient funds. The complainant, M/s 63Ideas Infolabs Pvt. Ltd., initiated proceedings under Section 138 of the Negotiable Instruments Act after the accused failed to respond to a statutory demand notice.
Justice Nagaprasanna emphasized the importance of specific averments in complaints to establish the role and responsibility of directors in the company's affairs. The court reiterated that mere designation as a director does not automatically render an individual liable under Sections 138 and 141 of the Negotiable Instruments Act. The judgment draws from a series of Supreme Court precedents, including SMS Pharmaceuticals Ltd. v. Neeta Bhalla, which underscore the need for detailed allegations demonstrating how a director was responsible for the conduct of the company's business.
Kavitha Chopra's petitions were allowed as the complaints lacked specific averments regarding her involvement in the day-to-day affairs of the company, thereby failing to satisfy the twin requirements under Section 141 of the Act. In contrast, the petitions filed by Dhirendra Chopra, who was identified as the Managing Director and signatory to the cheques, were dismissed, holding him accountable for the alleged offences.
The court also addressed the issue of joint account holders, referencing the Supreme Court's judgment in Aparna A. Shah v. Sheth Developers (Private) Limited, which held that a joint account holder cannot be prosecuted under Section 138 unless they are signatories to the cheque.
This ruling is pivotal in reinforcing the legal framework governing vicarious liability in cheque dishonour cases, ensuring that only those directly responsible for the company's conduct at the time of the offence can be held criminally liable.
Bottom line:-
Vicarious liability under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, requires specific averments in the complaint demonstrating how and in what manner a Director was in charge of and responsible for the conduct of the business of the company. Mere designation as a Director is insufficient.
Statutory provision(s): Negotiable Instruments Act, 1881 Section 138, Section 141; Bharatiya Nagarik Suraksha Sanhita, 2023 Section 223
Kavitha Chopra v. M/s. 63ideas Infolabs Pvt. Ltd, (Karnataka) : Law Finder Doc id # 2936524
