Directors cannot be held liable under Section 138 of the NI Act without establishing active involvement in the company’s transaction leading to the cheque issuance.

ORDER

This Criminal Petition is filed under Section 482 of Code of Criminal Procedure, 1973 (for short ‘CrPC’) seeking quashment of STC NI No.4238 of 2023 on the file of the VIII Additional Metropolitan Magistrate, Hyderabad at Manoranjan Complex against the petitioner/accused No.3.

2. I have heard Mr. K. Pradeep Reddy, learned counsel for the petitioner, Mr.Jithender Rao Veeramalla, learned Additional Public Prosecutor, representing the respondent No.1-State.

3. The essential facts, in brief, are that the respondent No.2/the complainant initiated a private complaint under Section 138 of the Negotiable Instruments Act, 1881 (for short ‘the NI Act’) against the petitioner/Accused No.3/Director,Accused No.1/Company/Managing Director, and Accused No.2/another Director of the company.

According to the complainant, an agreement was executed with Accused No.1/Company for the engineering, procurement, construction (EPC), operation, and maintenance of ten grid- connected solar photovoltaic (PV) rooftop plants, with a total capacity of 4,020 KW, to be established at various locations within the State of Uttarakhand. Under the terms of the contract, accused No.1 undertook to complete the project on a turn-key basis, inclusive of O&M (Operations and Maintenance) and a Defects Liability Period (DLP), within a period of two years, with a stipulated deadline of 28.08.2021. Pursuant to the contract, accused No.1 was obligated to furnish post-dated cheques amounting to 10% of the total balance system price as a performance guarantee. It was mutually agreed that, in the event of non-fulfillment of contractual obligations by accused No.1, the complainant would be entitled to invoke legal remedies by presenting the post-dated cheques for encashment.

Following the alleged failure of accused No.1 to discharge its contractual obligations, the complainant presented the aforementioned post-dated cheque for encashment. However, the cheque was dishonoured by the bank with the endorsement ‘funds insufficient.’ Despite issuance of a statutory notice under Section 138 (b) of the NI Act, no reply or payment was forthcoming from the accused. Consequently, the complainant instituted the present criminal proceedings.

4. Learned counsel for the petitioner/Accused No.3 submitted that while the petitioner holds the designation of Director in accused No.1 Company, her role was purely nominal and she was not involved in the day-to-day affairs or management of the company. It was further contended that the petitioner was neither a signatory to the cheque in question nor a party to the underlying contractual agreement pursuant to which the disputed cheque was issued. It is emphasized that, as a settled proposition of law, mere designation as a Director is insufficient to attract liability under Section 138 of the NI Act, in the absence of any material evidence demonstrating the individual's active involvement in the conduct of the company’s business or in the transaction giving rise to the offence.

In support of this contention, learned counsel placed reliance on the judgment of the Hon’ble Supreme Court in Susela Padmavathy Amma v. Bharti Airtel Limited , 2024 SCC OnLine SC 311, wherein the Hon’ble Supreme Court reiterated that a Director cannot be held vicariously liable under Section 138 unless specific allegations establishing the role in the issuance of the cheque or the commission of the offence.

5. Despite service of due notice, there was no appearance on behalf of respondent No.2/the complainant.

6. I have perused the materials on record.

7. A perusal of the contract referred to in the c