Author: Advocate Harshit Sachar
Place of Practice: Ludhiana, Punjab
Jurisdiction: India

The Delhi High Court has held that dropping the cheque signatory from a cheque dishonour complaint does not automatically invalidate proceedings against the company and its directors under the Negotiable Instruments Act, 1881. Corporate liability and statutory presumptions under Sections 138 and 141 NI Act allow prosecution of the company and responsible directors to continue.

Background of the Case

In a recent judgment dated 10 February 2026, the Delhi High Court refused to quash criminal proceedings in a cheque dishonour matter where:

• The cheque signatory had been dropped from the array of accused.

• The company and its directors sought quashing of proceedings on that basis.

The petitioners argued that once the signatory was removed, prosecution against the company and directors could not survive.

What the Delhi High Court Held

Justice Neena Bansal Krishna rejected the plea and observed:

“Dropping of the signatory of Cheques from proceedings, does not result in the automatic collapse of the Complaint against the Petitioner Companies and the other Directors. The statutory presumptions and the principles of corporate vicarious liability necessitate that the matter proceed to trial.”

The Court clarified that:

• Liability under the Negotiable Instruments Act, 1881 does not depend solely on the presence of the signatory.

• Sections 138 and 141 create statutory presumptions.

• Corporate and vicarious liability principles apply independently.

Understanding the Legal Principle

1️⃣ Section 138 NI Act

Provides punishment for dishonour of cheque for insufficiency of funds.

2️⃣ Section 141 NI Act

Extends criminal liability to:

• The company, and

• Every person who was in charge of and responsible for the conduct of business at the time of the offence.

This creates vicarious liability for directors and officers.

Why Dropping the Signatory Does Not End the Case

Many accused persons attempt this defence:

“If the person who signed the cheque is no longer an accused, the complaint fails.”

The Delhi High Court clarified:

• The offence is committed by the company.

• Directors responsible for business operations remain liable.

• Whether they were “in charge” is a matter of trial, not quashing.

Therefore, proceedings must continue unless clear legal grounds for discharge exist.

Corporate Vicarious Liability Explained

Under criminal law, liability is usually personal.
However, under Section 141 NI Act:

• A company acts through individuals.

• Directors responsible for its affairs can be prosecuted.

• Presumptions operate in favour of the complainant at the initial stage.

Only during trial can directors rebut these presumptions.