The Lucknow Bench of the Allahabad High Court quashed multiple criminal proceedings under Section 138 of the Negotiable Instruments Act against company directors, holding that prosecution for cheque dishonour cannot continue when the company that issued the cheques has not been made an accused. Justice Brij Raj Singh ruled that the commission of an offence by the company is a necessary condition for imposing vicarious liability on directors under Section 141 of the NI Act.
Background of the Case
The Court was hearing a batch of applications filed under Section 482 of the Code of Criminal Procedure seeking quashing of several complaint cases related to cheque dishonour. The applications included multiple petitions filed by Rajiv Gupta and two petitions filed by Santosh Kumar Bajpayi.
Rajiv Gupta sought quashing of orders passed by the Additional Chief Judicial Magistrate, Lucknow, through which cognizance had been taken and summons issued against him under Section 138 of the Negotiable Instruments Act in several complaint cases.
According to the complaints, the complainant, who carried on business under the name Approach Advertising and Exhibitors Pvt. Ltd., had advertised the products of the accused company and received cheques towards payment of liabilities. One such cheque of ₹1 lakh issued on 30 October 2011 was dishonoured when presented for encashment due to insufficient funds. Legal notices were thereafter sent demanding payment within fifteen days.
The accused allegedly refused to accept the legal notices, following which complaint cases were instituted under Section 138 of the NI Act.
Arguments by the Applicants
Counsel for Rajiv Gupta argued that he was merely a Director of M/s Slim Care Herbal Product Pvt. Ltd., the company that had issued the cheques. The defence contended that substantial payments had already been made to the complainant for advertisements over the years and that the complainant had failed to disclose these payments in the complaint.
It was further argued that the essential requirement for invoking Section 138 of the NI Act is the existence of an “enforceable liability.” According to the applicants, advertisements were sometimes published without authorised release orders and therefore the company could not be held liable for payment.
More importantly, the applicants argued that the complaint suffered from a fundamental defect: the company had not been made an accused. It was submitted that under Section 141 of the NI Act, if the offence is committed by a company, the company must be prosecuted along with the persons responsible for its conduct.
Reliance was placed on the Supreme Court decision in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. (2012) 5 SCC 661, which held that arraigning the company as an accused is mandatory before directors can be prosecuted for cheque dishonour.
Similar submissions were made on behalf of Santosh Kumar Bajpayi, whose cases also involved dishonour of cheques issued by a company while the company itself had not been impleaded as an accused.
Submissions by the Complainant and State
Counsel for the complainant contended that a memorandum of understanding (MOU) had been executed acknowledging an outstanding amount of ₹12,20,927 for advertisement services. Several cheques were issued by the applicants towards discharge of this liability.
It was also argued that legal notices had been issued to Rajiv Gupta in his capacity as a director of the company and therefore the company had effectively been notified.
The complainant relied on the Supreme Court ruling in Bhupesh Rathod v. Dayashankar Prasad Chaurasia (2022) 2 SCC 355, arguing that technical defects in the format of complaints should not defeat legitimate prosecution.
The State also argued that since the applicants were managing directors representing the company, liability could be fastened upon them.
Court’s Analysis
Justice Brij Raj Singh examined the legal position governing prosecution under Sections 138 and 141 of the NI Act and relied heavily on the Supreme Court’s decision in Aneeta Hada.
The Court reproduced key observations from the judgment, including the principle that:
“Commission of offence by the company is an express condition precedent to attract the vicarious liability of others.”
The Supreme Court had further held:
“For maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative.”
The High Court noted that Section 141 creates vicarious liability only when the company committing the offence is prosecuted along with the persons responsible for its business.
The Court also referred to a coordinate bench judgment in Sanjay Singh v. State of U.P., which held that if the company is not made an accused, directors cannot be held vicariously liable.
While addressing the reliance placed on Bhupesh Rathod, the Court observed that the facts of that case were different because the complaint had been filed by the company through an authorised managing director supported by a board resolution.
In the present matter, however, the Court found that the company itself had not been made a party to the complaints nor served legal notice as an accused entity.
The Court further held that the judgment in Dhanasingh Prabhu v. Chandrasekar (2025 SCC OnLine SC 1419) was not applicable because it concerned a partnership firm, whereas the present case related to prosecution under Sections 138 and 141 of the NI Act involving a company.
Decision of the Court
After analysing the legal framework and precedents, the Court concluded that the prosecution against the applicants could not continue.
The Court held:
“The complaints filed against the applicants cannot sustain because the company is not made an accused and no vicarious liability can be imposed upon the applicants. The complaints cannot proceed against the applicants in their personal capacity as the cheques were issued by the company.”
Accordingly, the High Court allowed the Section 482 applications and quashed the entire criminal proceedings, including all consequential actions, in multiple complaint cases pending before the trial courts in Lucknow.
However, the Court clarified that the complainant remains free to pursue other legal remedies available under law for recovery of the alleged dues.
- Case Title: Rajiv Gupta v. State of U.P. and Anr. (and connected matters)
- Case No: Application U/S 482 No. 4766 of 2012
- Bench: Justice Brij Raj Singh
- Date : March 11, 2026
