Liability of Partner in a Cheque Bounce Case

Published on 29 Apr 2016 by Team

Section 138 of the Negotiable Instruments Act provides for statutory relief to what has been a perennial issue in transactions via cheques as instruments of money or currency exchange.

Section 138- 142 of the Act lay down all the obligations of the Issuer/ Drawer/ Maker of a cheque to ensure that the person or organisation has enough balance to ensure the transaction goes through successfully as well as to ensure there are proper overdraft facilities for the particular account to ensure in certain cases that the transaction does not get declined for any reason, especially for the 'lack of sufficient funds'.

The law specifically in case of offence by companies is such that If the person committing an offence under Section 138 of the Negotiable Instruments Act is a company, every person who, at the time the offence was committed, was in charge of and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

As such, Every director of the company is not automatically vicariously liable for the offence committed by the company, only such director or directors who were in charge of and responsible to the company for the conduct of the business of the company at the material time shall be deemed to be guilty.And there must be a specific averment in the complaint that at the time the offence was committed, the person accused was in charge of and responsible for the conduct of the business of the company. You can consult the best cheque bounce lawyers in India to know more.

Understanding the basics of Section 138- Criminal liability for drawer/ maker of cheque

The provision put liability on the drawer/issuer/maker of the cheque to be criminally prosecuted if there is dishonour of cheque either due to the insufficiency of funds or if it exceeds the arrangement made by the drawer.  In order to invoke Section 138, it is necessary that the cheque must be issued in discharge, wholly or in part of any debt or other liability of the drawer to the payee. There are certain other conditions as well that needs to be fulfilled. They are as follows:

  1. Within a period of 6 months from the date on which the cheque is drawn, it should be submitted to the bank or the period of validity, whichever is earlier.

  2. If the payee or the holder in due course receives information from the bank regarding the return of the cheque as unpaid, then he must make a demand in writing to the drawer of the cheque, within 30 days of the receipt of such notice, and
  3. Within 15 days of the receipt of the said notice, the drawer of the cheque fails to make the payment of the said amount of the money to the payee or the holder in due course.

Cheque bouncing for cheque drawn or issued by Company/ Organisation/ Partnership Cheque

Section 141 of the NI Act, 1881 regulates offences by Companies. The provision states as follows- 
1. When the offence of cheque bouncing as defined by Section 138 under the Act is committed by a company then- 

'every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

2. The only defence to the above can be claimed by the concerned persons in charge or responsible for the conduct of the company if they can prove that 'the offence was committed without his knowledge' or 'that he had exercised all due diligence to prevent the commission of such offence'. Top cheque bounce case lawyers in India can defend a cheque bounce case for you.

3. The Provision under Section 141 of the Act goes one step further in imposing criminal liability. Instead of limiting criminal liability to the person merely signing the cheque it states that 'where an offence of cheque bouncing occurs by a company and it is proved that the offence has been committed with the consent or connivance, or attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation:  For the purposes of this section,
(a) 'Company’ means any body corporate and includes a firm or other association of individuals; and 
(b) 'Director’ in relation to a firm, means a partner in the firm.

Supreme Court interpretation of vicarious liability of Company Directors, Officers 

Only those persons who were in-charge of and responsible for the conduct of the business of the company at the time of the commission of an offence will be liable for criminal action. It follows from the fact that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, are not to be liable for a criminal offence under the provisions. Hire the best cheque bounce advocates in India to file or defend your cheque bounce case.

The Supreme Court laid down guidelines, the broad contours of which are:

  • It is a complainant's responsibility to explain how a director was vicariously liable. There is no presumption that every director knows about the issuance of the cheque that bounced.
  • Under Section 141, criminal liability can be fastened only on those directors who, at the time of the commission of the offence, were in charge of and responsible for the conduct of the business of the company.
  • Vicarious liability on the part of a person must be pleaded and proved and not inferred.
  • If the accused is managing director or joint managing director, then it is not necessary to make a specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

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