Non-Executive Directors of Company immuned from Cheque Dishonour Proceedings: Delhi HC [Read Judgment]

The Delhi High Court has held that the Non-Executive Directors of a company are exempted from Cheque Dishonour Proceedings under Section 138 of the Negotiable Instrument Act, 1881.

In the case of Sunita Palta vs. M/s Kit Marketing Pvt. Ltd. it was observed that Section 138 of the Negotiable Instrument Act, 1881, which pertains to the dishonour of cheque, which attracts the criminal liability, the Non-Executive Directors of a company are exempted from this liability.

The petitioner namely Sunita Palta was the non-executive additional director of the private company. The cheque was issued and the same was dishonoured. As a consequence, the Metropolitan Magistrate under Section 138 of the Negotiable Instrument Act, 1881, issued the summons. However, the petitioner contended that the cheques in question were drawn from the account which was maintained by the company, wherein the petitioner is the non-executive director and is never involved in the day to day affairs of the company.

The issue raised in this case was whether the Non-Executive Directors of a company are liable for Cheque Dishonour Proceedings under Section 138 of the Negotiable Instrument Act, 1881 or not?

The Single Bench of High Court of Delhi comprising of Justice Manoj Kumar Ohri in the light of the judgment passed by the Supreme Court of India in the case of Pooja Ravinder Devidasani vs. State of Maharashtra held that Section 138 of the Negotiable Instrument Act, 1881, which pertains to the dishonour of cheque, consequently attract the criminal liability. The Non-Executive Directors of a company are exempted from the proceedings held under Section 138 of the Negotiable Instrument Act, 1881. The reason behind the exemption is that the Non-Executive Directors are not involved in the day to day activities of the company and the only function of the Non-Executive Directors is to monitor the executive activities of the company.