Is an authorized signatory or director of a company liable for prosecution under section 138 of the Negotiable Instruments Act, 1881, or section 67 of the Information Technology Act, 2000, without the company being named as an accused?
Ruling simultaneously in Aneeta Hada v M/s Godfather Travels & Tours Pvt Ltd, Avnish Bajaj v State and Ebay India Pvt Ltd v State, a three-judge bench of the Supreme Court considered if this was also true in the context of any person mentioned in sections 141(1) and 141(2) of the Negotiable Instruments Act, and section 85 of the Information Technology Act, which are identical.
Applying the doctrine of strict construction, the Supreme Court held that commission of an offence by a company “is an express condition precedent to attract the vicarious liability of others”. As the words person and company appear in section 141 of the Negotiable Instruments Act, which deals with offences by companies, the court ruled that it is “absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof”.
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Accordingly, the apex court ruled that an authorized signatory or director of a company cannot be prosecuted for issuing a dishonoured cheque or for any offence under Section 67 read with section 85 of Information Technology Act without the company itself being arraigned as an accused person.
This ruling clarifies that an individual’s liability as per a penal provision is vicarious and unless the principal entity, the company, is prosecuted as an accused, the subsidiary entity, the individual, cannot be held liable.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
