A Section 138 complaint is not maintainable against a director without arraigning the issuing company.

The complainant and the applicant were childhood friends. The complainant alleged that he lent the applicant ₹15,00,000, repayable within eight months. Upon non-payment, the applicant allegedly issued two cheques of ₹7,50,000 each, which were dishonoured with the endorsement “Stopped Payment by Drawer.” After issuance of statutory notice, the complainant filed Criminal Complaint No. 2701871/2016 before the Metropolitan Magistrate, Ahmedabad, alleging an offence under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”).

The applicant sought quashing under Section 482 of the Code of Criminal Procedure, 1973, contending that the cheques had been issued by Maharsh Unipro Pvt. Ltd. as security in connection with business transactions and not by him in his personal capacity. He further contended that the transaction had been cancelled and that the complainant had misused the blank cheques.

The company was neither issued notice nor arraigned as an accused in the complaint.

Whether a complaint under Section 138 of the NI Act is maintainable against the applicant when the cheques were issued by a private limited company but the company was neither served with statutory notice nor arraigned as an accused?

Whether the applicant could be prosecuted individually for the company’s alleged liability under Section 138 read with Section 141 of the NI Act in the absence of prosecution of the company itself?

The Court applied Sections 138 and 141 of the NI Act and Section 482 of the Code of Criminal Procedure, 1973. Section 141 makes persons responsible for a company’s conduct vicariously liable for an offence under Section 138, but such liability is premised on the company itself being an accused.

Relying on Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, the Court held that arraignment of the company is a condition precedent where the alleged offence arises from the company’s liability; the words “as well as the company” in Section 141 require the company to be prosecuted before vicarious liability can ordinarily attach to its directors or officers.

The Court also relied on Himanshu v. B. Shivamurthy, (2019) 3 SCC 797, where proceedings against an individual signatory were held not maintainable because the company had not been arraigned as an accused.

The Court found that, even assuming the complainant’s version that ₹15,00,000 had been advanced as a loan, the cheques were issued in the name of Maharsh Unipro Pvt. Ltd. and were signed by the applicant as the company’s authorised signatory.

The complaint, however, impleaded only the applicant and not the company. Since the company is a separate juristic person, its alleged commission of the Section 138 offence was an essential foundation for invoking Section 141 against the applicant. Applying Aneeta Hada and Himanshu, the Court held that the applicant could not be proceeded against vicariously without the company being made an accused. The Court therefore treated the absence of the company from the complaint as a fundamental defect in maintainability, irrespective of whether the underlying transaction was personal or corporate.

Criminal Complaint No. 2701871/2016 and all consequential proceedings were quashed and set aside under Section 482 CrPC. The application was allowed and the rule was made absolute.