CHENNAI: The Madras High Court has ruled that in cheque bounce cases against companies, statutory notice to every officer or director responsible for the offence is mandatory for prosecution.

Reiterating that service of notice of demand was a condition for filing a complaint under Section 138 of the Negotiable Instruments Act, a Division Bench comprising Justice M. Karpagavinayagam and Justice A.C. Arumugaperumal Adityan said: "When the directors sought to be prosecuted have not been given an opportunity either to rectify the mistake within the time or to explain to the complainant that they were not responsible for the affairs of the company or to establish their defence, then, it is meaningless for the complainant to rush to the court by filing a complaint against all, whether they are really connected with the company or not, to make them stand as accused before the criminal court."

The criminal original petition was posted before the Bench after two divergent views were obtained by two single judges on the matter.According to the Bench, five stages need to be gone through before prosecution of a cheque bounce offender could be initiated. These are: presentation of cheque; dishonour of the cheque; issuance of notice; receipt of the notice by persons sought to be prosecuted; default in paying the amount despite the notice. The Judges said: "Legislature discourages issuance of cheques in a hurried manner... In the same way, it does not allow the prosecution to be launched in a hurried manner without due process of law and without crossing various stages... The procedure would indicate that the Legislature envisages sufficient time to be given for settlement between the parties before launching prosecution."

They also reasoned that unless the statutory notices were served on the directors before being prosecuted, it might not be possible for them to establish their innocence during the pre-trial stage by explaining that they were not in-charge of and responsible for the act committed by the company and that the offence was committed without their knowledge.

The Bench held that when the offence was committed by the company, every person, who, at the time of the offence was committed, was in-charge of and responsible for the conduct of the business of the company, would be presumed guilty of the offence.

It is the complainant's duty to serve notice on the director, manager, or other officers of the company to enable them to rectify their mistakes and avoid the cause of action or explain the situation to the complainant, the Bench said. He could prosecute the company as well as the directors only when he was satisfied that the persons sought to be prosecuted had not chosen to pay the amount despite notice after the cheque was dishonoured.

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