Orissa High Court: 'Company Must Be Prosecuted First' – Quashes Criminal Proceedings Against Executive Director Under NI Act
Isabella Mariam
The Orissa High Court, Single Bench of Justice Dr. Sanjeeb Kumar Panigrahi, delivered a significant judgement on March 13, 2025, in a criminal revision petition challenging the maintainability of a complaint under the Negotiable Instruments Act, 1881. The court quashed the proceedings against the petitioner, an executive director of a company, on the ground that the company—the principal offender—had not been made a party to the complaint.
The revision petition was filed by the petitioner challenging the order dated May 5, 2014, passed by the learned J.M.F.C., Balasore in ICC No. 114 of 2011. The case stemmed from a commercial transaction between the complainant, Ajay Kumar Barik, the proprietor of M/s. Maa Gayatri Transport & Supplier, and CCC Builders Merchant Pvt. Ltd., a company engaged in construction activities.
The complainant alleged that he had supplied building materials, including metal, sand, boulders, and other construction aggregates, to CCC Builders Merchant Pvt. Ltd. for a concrete road construction project under S.E. Railways at Balasore. The supplies were made on credit between October 11, 2010, and November 1, 2010, amounting to ₹6,58,300/-. Additionally, there was an existing outstanding balance of ₹6,34,045/- from previous transactions. The total outstanding dues were ₹12,92,345/-.
A partial payment of ₹5,00,000/- was made via bank transfer, leaving a balance of ₹7,92,345/-. To settle part of this amount, the petitioner, acting as Executive Director of CCC Builders Merchant Pvt. Ltd., issued a cheque (No. 255951, dated 19.12.2010) for ₹4,00,000/- drawn on Axis Bank Ltd., Balasore.
The complainant presented the cheque on December 20, 2010, but it was dishonoured on December 29, 2010, with the remark “Payment Stopped by Drawer.” The complainant was formally informed of the dishonour on January 1, 2011, and received confirmation on January 3, 2011. Several attempts to contact the accused failed, prompting the complainant to issue a demand notice on January 27, 2011, which was received by the petitioner on February 4, 2011. However, no payment was made, leading to the filing of ICC Case No. 114 of 2011 under Section 138 of the NI Act before the learned SDJM, Balasore.
The trial proceeded, and the complainant was examined as PW-1. The petitioner did not raise any objections regarding the maintainability of the case at the initial stage. However, on July 2, 2013, at an advanced stage of trial, the petitioner filed a petition arguing that the case was not legally sustainable since the company—the actual drawer of the cheque—had not been arraigned as an accused. The J.M.F.C., Balasore, rejected the petition on May 5, 2014, stating that the case had already progressed significantly, and raising such an objection at this stage would amount to a delay tactic. This rejection led to the filing of the present revision petition.
The High Court examined whether a complaint under Section 138 of the NI Act could be maintained against an officer of a company when the company itself had not been made an accused. The court stated that liability under Section 141 of the NI Act is vicarious and that the primary offender in such cases is the company itself.
Citing the Supreme Court’s decision in Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661, the court stated:
"Commission of an offence by the company is an express condition precedent to attract the vicarious liability of others... The words ‘as well as the company’ appearing in Section 141 make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable."
The court also relied on Bijoy Kumar Moni v. Paresh Manna (2024 INSC 1024), where the Supreme Court observed:
"It is the drawer company which must first be held to be the principal offender under Section 138 of the NI Act before culpability can be extended, through a deeming fiction, to the other Directors or persons in charge of and responsible to the Company."
Further, the High Court examined the petitioner's argument that he had signed the cheque in his official capacity and was not personally liable. The court noted that while an officer of a company may be held liable under Section 141, such liability is contingent upon the company being a party to the proceedings. Since CCC Builders Merchant Pvt. Ltd. was not made an accused, the legal requirement for imposing vicarious liability was not satisfied.
The court also referred to Siby Thomas v. Somany Ceramics Ltd. (2023 SC 4949), which held that raising factual disputes about maintainability at an advanced stage of the trial was impermissible. However, in the present case, the defect in non-arraignment of the company was a fundamental legal flaw, rendering the proceedings void ab initio.
The Orissa High Court quashed the criminal proceedings against the petitioner, holding:
"The statutory requirement under Section 141 of the NI Act mandates the arraignment of the company as an accused before vicarious liability can be imposed on its officers. Accordingly, the failure of the complainant to implead CCC Builders Merchant Pvt. Ltd. as an accused renders the proceedings against the petitioner unsustainable in law."
The court stated that the complainant was at liberty to initiate fresh proceedings in accordance with law.
Advocates Representing the Parties:
- For the Petitioner: Mr. M. K. Mishra, Senior Advocate, along with Mr. B. K. Mishra, Advocate.
- For the Opposite Party: Mr. Debasish Samal, Advocate.
Case Title: Gourav Kumar Hota v. Ajay Kumar Barik
Case Number: CRLREV No. 542 of 2014
Bench: Justice Dr. Sanjeeb Kumar Panigrahi
[Read/Download order]
