Mansi Finance (Chennai) Ltd. Vs M. Lalitha And Others (Supreme Court of India)
Office Bearers Who Signed Loan Documents Can Face NI Act Prosecution Even if They Did Not Sign the Dishonoured Cheque; Mere Designation Not Enough for Vicarious Liability: Supreme Court
In a significant ruling, the Supreme Court in M/s Mansi Finance (Chennai) Ltd. v. M. Lalitha & Ors. held that while mere designation as an office bearer of a society is insufficient to attract liability under Sections 138 and 141 of the Negotiable Instruments Act, prosecution can continue against those who were actively involved in the underlying financial transaction and had signed loan-related documents, even if they were not signatories to the dishonoured cheque itself.
The case arose from a cheque of over ₹5.12 crore issued by an educational society towards repayment of borrowings, which was dishonoured with the remark “Account Blocked.” The Madras High Court had quashed proceedings against certain office bearers of the society on the ground that the complaint contained only omnibus allegations and lacked specific averments showing how they were responsible for the conduct of the society’s affairs.
Reversing the High Court in part, the Supreme Court observed that the complaint could not be read in isolation from the accompanying documents. The Court noted that the Vice-President, Treasurer and Manager had participated in the borrowing transaction and were signatories to documents such as the MoU, promissory notes and related financial records forming the foundation of the debt. These documents constituted sufficient foundational material to justify continuation of criminal proceedings against them under Section 141 of the NI Act.
