Cheque Dishonour, Unpaid Cheque under Section 138 of Negotiable Instruments Act, 1881 and Unsustainable Complaints

Cheque Dishonour, Unpaid Cheque under Section 138 of Negotiable Instruments Act, 1881 and Unsustainable Complaints - Role of MD - Role of Joint MD - Signatory of Cheque - Section 482 of the Code of Criminal Procedure, 1973 and inherent powers of High Court - Role of Director (HRD) - Role of Director (Personnel) and prosecution under S.138 of N.I. Act, 1881 

In case of Sunita Palita v. Panchami Stone Quarry [2022] GCtR 1998 (SC) it was noted that when the accused is the Managing Director or a Joint Managing Director of a company, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company for the conduct of the business of the company. This is because the prefix “Managing” to the word “Director” makes it clear that the Director was in charge of and responsible to the company, for the conduct of the business of the company. A Director or an Officer of the company who signed the cheque renders himself liable in case of dishonour. Other officers of a company can be made liable only under sub-section (2) of Section 141 of the NI Act by averring in the complaint, their position and duties in the company, and their role in regard to the issue and dishonour of the cheque, disclosing consent, connivance or negligence.

Section 482 of the Code of Criminal Procedure, 1973 protects the inherent power of the High Court to make such orders as may be necessary to give effect to any order under the Cr.P.C or to prevent abuse of the process of any Court or otherwise secure the ends of justice.

While it is true that inherent jurisdiction under Section 482 should be exercised sparingly, carefully and with caution and only when such exercise is justified by the tests specially laid down in the Section, the Court is duty bound to exercise its jurisdiction under Section 482 of the Cr.P.C. when the exercise of such power is justified by the tests laid down in the said Section. Jurisdiction under Section 482 of the Cr.P.C. must be exercised if the interest of justice so requires.

The High Court rightly held that when a complaint was filed against the Director of a company, a specific averment that such person was in charge of and responsible for the conduct of business of the company was an essential requirement of Section 141 of the NI Act. The High Court also rightly held that merely being a Director of the company is not sufficient to make the person liable under Section 141 of the NI Act. The requirement of Section 141 of the NI Act was that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company. This has to be averred as a fact.

The High Court also rightly held that the Managing Director or Joint Managing Director would admittedly be in charge of the company and responsible to the company for the conduct of its business by virtue of the office they hold as Managing Director or Joint Manging Director. These persons are in charge of and responsible for the conduct of the business of the company and they get covered under Section 141 of the NI Act. A signatory of a cheque is clearly liable under Section 138/141 of the NI Act.

The High Court, however, failed to appreciate that none of the accused persons in this case were Managing Director or Joint Managing Director of the Accused Company. Nor were they signatories of the cheque which was dishonoured.

The High Court observed rightly that the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions, resulting in enactment of Sections 138 and 141 of the NI Act has to be borne in mind. A complaint should also not be read with a pedantically hyper technical approach to deny relief under Section 482 of the Code, 1973 to those impleaded as accused, who do not have any criminal liability in respect of the offence alleged in the complaint.

Approach to be Adopted by High Court under S.482 

There can be no doubt that in deciding a Criminal Revisional Application under Section 482 of the Cr.P.C. for quashing a proceeding under Section 138/141 of the NI Act, the laudable object of preventing bouncing of cheques and sustaining the credibility of commercial transactions resulting in enactment of the said Sections has to be borne in mind. The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act.

Director who is not responsible for conduct of business

A Director of a company who was not in charge or responsible for the conduct of the business of the company at the relevant time, will not be liable under those provisions. 

Director (Personnel) and Director (HRD) 

It would be a travesty of justice to drag Directors, who may not even be connected with the issuance of a cheque or dishonour thereof, such as Director (Personnel), Director (Human Resources Development) etc. into criminal proceedings under the NI Act, only because of their designation. 

Effect of Designation of Directors

Liability depends on the role one plays in the affairs of a company and not on designation or status alone.

Averments in Complaint to sustain prosecution against Director

Moreover, when a complaint is filed against a Director of the company, who is not the signatory of the dishonoured cheque, specific averments have to be made in the pleadings to substantiate the contention in the complaint, that such Director was in charge of and responsible for conduct of the business of the Company or the Company, unless such Director is the designated Managing Director or Joint Managing Director who would obviously be responsible for the company and/or its business and affairs.

Category of Persons liable under S.141 

The High Court correctly observed that three categories of persons were covered by Section 141 of the NI Act – the company who committed the offence as alleged; everyone who was in-charge of or was responsible for the business of the company and any other person who was a Director or a Manager or a Secretary or Officer of the Company with whose connivance or due to whose neglect the company had committed the offence. 

Wrong Approach of High Court 

What the High Court overlooked in not quashing the complaint was, the contention of accused persons that they were non-Executive Independent Directors of the Accused Company, based on unimpeachable materials on record.

Personal Appearance of Accused Directors of Company 

In any event there could be no justification for not dispensing with the personal appearance of the accused persons who were Directors of the accused Company, when the accused - Company had entered appearance through an authorized officer.