A three-judge bench of the Supreme Court held that a prosecution under Section 141 of the Negotiable Instruments Act cannot stand against a director or authorised signatory unless the company itself is arraigned as an accused. Vicarious liability is derivative, and the principal offender must be on the record before secondary liability can attach.
The Supreme Court held that liability under Section 138 of the Negotiable Instruments Act attaches only to the drawer who maintains the account on which the cheque is drawn. A director who signs a cheque on his company's account does not become the drawer in his personal capacity, and cannot be prosecuted unless the company itself is arraigned.
The Supreme Court confirmed that a cheque-dishonour offence under s.138 of the Negotiable Instruments Act is compoundable under s.147, and framed graded-cost guidelines to push parties toward early settlement. A no-cost window at the first or second hearing rises to escalating percentages of the cheque amount the longer compounding is delayed, foregrounding the statute's compensatory purpose.
The Supreme Court held that for an account-payee cheque, territorial jurisdiction under s.142(2)(a) of the NI Act lies only with the court where the payee's home branch — the branch collecting the cheque — is situated. The contrary reading in Yogesh Upadhyay was declared per incuriam.
The Supreme Court quashed cheque-dishonour proceedings against an independent non-executive director, holding that mere designation as a director does not attract Section 141 liability. Vicarious liability under the NI Act must be pleaded and proved with specific averments that the director was in charge of and responsible for the company's business.
The Supreme Court held that the power to award interim compensation under Section 143A(1) of the Negotiable Instruments Act is discretionary, because it operates before conviction against a presumptively innocent accused. A digest of why 'may' cannot be read as 'shall', the factors that now guide the discretion, and what the ruling changes for cheque-dishonour litigation.
A three-judge bench of the Supreme Court held that the presumption under Section 139 of the Negotiable Instruments Act extends to the existence of a legally enforceable debt or liability, not merely the issuance of the cheque. Once the drawer admits the signature, an evidentiary onus shifts to the accused, rebuttable only on the preponderance of probabilities.
A three-judge bench held that a Section 138 complaint lodged before the 15-day statutory notice period has run is premature and discloses no cause of action, so no cognizance can be taken — even if the period has lapsed by the time the magistrate acts. The Court allowed a fresh complaint to be filed within a month of its judgment.
In February 2026 a single judge of the Madras High Court, hearing a criminal revision arising from the financing of the Rajinikanth film Kochadaiyaan, affirmed a Section 138 conviction yet moulded the relief into a monetary direction rather than imprisonment. A digest of the facts, the compensatory characterisation of cheque-bounce law, and what it means for sentencing under the Negotiable Instruments Act.