Section 138 Complaint Against Company: Rules & Liability
In the world of business transactions, cheques remain a staple for payments, but dishonour due to insufficient funds can lead to serious legal repercussions under (NI Act). A common query arises: Can a complaint under Section 138 be incorporated against a company? The answer is yes, but with specific conditions, especially regarding the company's role as the and for its officers. This blog post breaks down the legal landscape, drawing from key judicial precedents to guide payees, business owners, and legal professionals.
Whether you're a creditor chasing bounced cheques from a corporate debtor or a director navigating potential liability, understanding these rules is crucial. Note that this is general information based on established case law and not specific legal advice—consult a lawyer for your situation.
Maintainability of Section 138 Complaints Against Companies
A complaint under Section 138 NI Act is maintainable against a company as the when a cheque issued from its account is dishonoured. The company is the primary offender, as it is company alone which would continue to be maker of these cheques and also drawer within meaning of . 2025 2 Supreme 109 The is merely physical limb that signs and makes cheque on behalf of company’s , not the drawer itself. 2025 2 Supreme 109 2024 5 Supreme 622
Crucially, the company must be arraigned as an accused when the cheque is drawn on its account. Failure to do so is fatal to the complaint. 2022 0 Supreme(Ker) 786 Courts emphasize that proceedings target the account holder (company) strictly. 2025 2 Supreme 109
Even against sick companies declared under the (SICA), there is no absolute embargo. There is no embargo on filing complaint under Section 138 of N.I. Act against a ‘SICK’ company. 2025 7 Supreme 266 Any restraints under SICA are case-specific and decided post-evidence, not at the threshold.
Procedural Prerequisites
To file a valid complaint:- Serve a proper demand notice under .- accrues after 15 days of non-payment. 2025 3 Supreme 332 2023 6 Supreme 133- Jurisdiction lies at the payee's bank branch where the cheque was presented. 2025 6 Supreme 281
Non-compliance, like absent demand notice, can lead to .
Under NI Act
Liability doesn't stop at the company. extends it to directors, partners, or persons in charge, but only as a after establishing the company's guilt. It is drawer Company which must be first held to be principal offender under Section 138 of NI Act before culpability can be extended... to other Directors or persons in-charge of and responsible to Company. 2025 2 Supreme 109
Mandatory Requirements:- in the complaint that the individual was in-charge of, and responsible for company concerned in the matter of conduct of its business. 2025 1 Supreme 737 2023 6 Supreme 133- Bald averments (e.g., 'director') may suffice initially for trial unless disproved by unimpeachable and incontrovertible evidence. 2022 7 Supreme 1126
Absence of these averments leads to : Averments in terms of (1) of NI Act are not found at all in entire complaint or are conspicuously absent. 2023 6 Supreme 133 2025 1 Supreme 737
In partnership firms, even without prosecuting the firm, a managing partner in fact concerned with affairs and management of company can individually be prosecuted. The may convict one partner alone if evidence supports it, acquitting others.
Liability attaches to those in charge during the offence sequence (dishonour to non-payment). 2022 7 Supreme 1126
Exceptions and Special Scenarios
Sick Companies and Insolvency
While SICA doesn't bar proceedings generally, specific orders restraining payments may halt them post-evidence. 2025 7 Supreme 266 Under the (IBC), directors suspended after Interim Resolution Professional (IRP) appointment aren't liable if unable to act or repay under . 2025 3 Supreme 332
Winding-Up Under Companies Act
, covering suit or other proceedings, does not include Section 138 NI Act complaints. These are criminal proceedings for penal and personal liability, not affecting winding-up or company assets directly. No leave from court is needed. Expression 'suit or other proceedings' in Section 446(1)... does not include criminal complaints filed under Section 138. 2016 0 Supreme(Bom) 501
Indorama Synthetics (I) Limited VS State of Maharashtra
orders in appeals like CA No. 138/252/ND/2021 highlight ongoing proceedings against companies despite insolvency challenges. 2025 Supreme(Online)(NCLT) 7934 2025 Supreme(Online)(NCLT) 7892
Authorized Signatories and Compounding
Signatories aren't personally liable as drawers. 2025 2 Supreme 109 2024 5 Supreme 622 For compounding under , complainant consent is . can't use inherent powers to compound without it, even if amounts are deposited. Consent of complainant is for exercise of power to under N.I. Act. 2024 7 Supreme 86 2024 0 Supreme(SC) 694
Practical Recommendations
- For Complainants: Array the company as accused first, include specific averments for individuals, and ensure demand notice compliance. Proceed cautiously in sick/IBC cases per court directions.
- For Accused: Challenge via petitions with incontrovertible evidence disproving role. Basic averments go to trial; liability assessed on evidence.
- General Tip: Expedite proceedings, as NI Act cases prioritize swift resolution.
Key Takeaways
- Companies are primary targets in Section 138 cases; must be named accused. 2025 2 Supreme 109
- needs ; no blanket director guilt. 2025 1 Supreme 737
- No bar for sick companies; winding-up doesn't halt criminal complaints. 2025 7 Supreme 266 2016 0 Supreme(Bom) 501
- Compounding requires complainant consent. 2024 7 Supreme 86
This framework, backed by precedents like those in references 2025 7 Supreme 266, 2025 2 Supreme 109, etc., empowers informed action. Stay compliant to safeguard transactions—cheque dishonour isn't just a glitch; it's a punishable offence.
Disclaimer: This post summarizes general legal principles from cited cases. Laws evolve, and outcomes depend on facts. Seek professional advice.
#Section138 #ChequeBounce #NIAct
