Manner and Procedure to be Adopted in Case of Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881

Manner and Procedure to be Adopted in Case of Cheque Dishonour under S.138 of Negotiable Instruments Act, 1881

Section 138 - Effect of Summons - "Issuing summons to all persons named in the complaint mechanically, without ascertaining whether they played any actual role in the transaction, not only pesters the innocent directors/employees named in the complaint, but also upsurges the load on the High Courts as the Magistrates once issuing the summoning orders against the accused, are precluded from reviewing their summoning orders". - Sudeep Jain v. ECE Industries Ltd. [2013] GCtR 6477 (Delhi)

Section 138 - Origin and Purpose - "Chapter XVII was incorporated in the Negotiable Instruments Act, 1881 by the Banking Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 with effect from 1.4.1989 for the purpose of imposing penalties in case of dishonor of cheque due to insufficiency of funds in the account of drawer of the cheque, in addition to the remedy of filing a recovery suit already available to the aggrieved under the civil law. Finding the punishment contained in this chapter inadequate and the procedure to deal with such matters cumbersome, this chapter was further amended by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 for the purpose of early disposal of the cases related to dishonour of cheques as well as for enhancing punishment for the offenders." - Sudeep Jain v. ECE Industries Ltd. [2013] GCtR 6477 (Delhi)

Section 141 - Prosecution of Directors of Company - "With a view to ensure that the Metropolitan Magistrates dealing with the complaint cases filed under Section 138 r/w Section 141 of the Negotiable Instruments Act have a clear and complete picture of the persons arrayed by the complainant so as to hold them vicariously liable for the commission of the offence by the accused company, Magistrates must seek copies of Form-32 from the complainant to prima facie satisfy the Court as to who were the directors of the accused company at the time of commission of the alleged offence and on the date of filing of the complaint case. In addition to the above, the Magistrates must also seek information as given in the" table given in this Judgment.  - Sudeep Jain v. ECE Industries Ltd. [2013] GCtR 6477 (Delhi)

Section 141 - Liability of Individuals involved in a Company - Held, "Section 141 of the Negotiable Instruments Act, 1881 deals with the offences by the companies and says that if an offence has been committed by a company under section 138 Negotiable Instruments Act, 1881 then every person, who at the time the offence was committed was in charge of, and was responsible to the company in the conduct of the business of the company, as well as to the company is liable to be proceeded against and punished accordingly. What necessary averments are required to be made in the complaint to hold any Director or other post holder in the company as vicariously liable for an offence committed under Section 138 of the Negotiable Instruments Act, 1881 by the company has been a subject matter of discussion in a number of cases." - Sudeep Jain v. ECE Industries Ltd. [2013] GCtR 6477 (Delhi)

Section 138 - Procedure to be Followed by Magistrates - Direction issued that Magistrate has to obtain information from complainant which is to be annexed by Complainant in a separate sheet with following details : (a) Name of the accused Company; b. Particulars of the dishonoured cheque/cheques;  Person/Company in whose favour the cheque/cheques were issued  Drawer of the cheque/cheques  Date of issuance of cheque/cheques  Name of the drawer bank, its location  Name of the drawee bank, its location  Cheque No. /Nos.  Signatory of the cheque/cheques c. Reasons due to which the cheque/cheques were dishonoured; d. Name and Designation of the persons sought to be vicariously liable for the commission of the offence by the accused Company and their exact role as to how and in what manner they were responsible for the commission of the alleged offence; e. Particulars of the legal notice and status of its service; f. Particulars of reply to the legal notice, if any. - Sudeep Jain v. ECE Industries Ltd. [2013] GCtR 6477 (Delhi)