The Delhi High Court has reaffirmed the settled legal position that a Non-Executive Director cannot be held vicariously liable for offences committed by a company under Section 138 of the Negotiable Instruments Act, 1881, unless the complaint specifically discloses their role in the day-to-day affairs of the company. In [2025] 181 taxmann.com 458 (Delhi), the Court held that mechanical arraignment of directors without clear and specific averments regarding their responsibility for the conduct of the business is legally unsustainable. The ruling strengthens safeguards for non-executive and independent directors against unwarranted criminal prosecution in cheque dishonour cases.
Citation:
07 Jan 2026 | [2025] 181 taxmann.com 458 (Delhi)
Court: Delhi High Court
Date of Decision: 21-11-2025
Statute Involved: Section 138 read with Section 141, Negotiable Instruments Act, 1881
Subject Area: FEMA, Banking & Insurance – Case Laws
Facts of the Case
- A complaint under Section 138 of the NI Act was filed against a company and its directors for dishonour of cheque.
- The petitioner was a Non-Executive Director of the accused company.
- The complaint did not contain specific averments explaining:
- how the petitioner was in-charge of the day-to-day affairs of the company, or
- how the petitioner was responsible for the conduct of the business of the company at the relevant time.
Issue Before the Court
Whether a Non-Executive Director can be prosecuted under Section 138 read with Section 141 of the NI Act in the absence of specific allegations regarding their role in the conduct of the company’s business.
Held
The Delhi High Court held that:
- Mere designation as a director is not sufficient to fasten criminal liability under Section 138 NI Act.
- For invoking vicarious liability under Section 141, the complaint must specifically plead:
- that the accused director was in-charge of, and
- responsible for the conduct of the business of the company at the time of commission of the offence.
- In the present case, the petitioner being a Non-Executive Director, and the complaint being silent on their role, prosecution could not be sustained.
Decision
- Criminal proceedings against the petitioner were quashed.
- The Court ruled that the petitioner could not be held liable for the offence committed by the company under Section 138 NI Act.
Legal Principle Laid Down
A Non-Executive Director cannot be made vicariously liable for cheque dishonour under Section 138 NI Act unless the complaint contains specific and clear averments showing their active role in the conduct of the company’s business.
Practical Significance
- Provides protection to independent and non-executive directors from mechanical prosecution.
- Reinforces the requirement of strict compliance with Section 141 NI Act.
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Useful precedent for quashing petitions under Section 482 CrPC in cheque dishonour cases.