The Hindu : National : Who is to blame for cheque bounce, firm or director?

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Who is to blame for cheque bounce, firm or director?

J. Venkatesan

New Delhi: A larger Bench of the Supreme Court will examine whether a director of a company is liable to face trial in his/her individual capacity in a cheque bounce case under Section 138 of the Negotiable Instruments Act even if the cheque is drawn in the name of the firm and signed by the director as an authorised signatory.

A two-judge Bench gave a split verdict on this issue and referred it to Chief Justice K.G. Balakrishnan for posting it before a larger Bench.

While Justice S.B. Sinha held that only a drawer of the cheque, i.e. the company, could be prosecuted, Justice V.S. Sirpurkar said the director, being an authorised person to sign the cheque, could be prosecuted in the individual capacity.

Disagreeing with some of the earlier decisions of this court that the firm need not be proceeded against, Justice Sinha said: “Prosecution of the company is a sine qua non for prosecution of the other persons [directors and others], viz. everyone who was in charge and was responsible for the business of the company [and] with whose connivance or due to whose neglect the company had committed the offence.”

Separate entity

He said the trial court, in a given case, would have to arrive at a finding that the company was guilty although it was not an accused.

“Company, although a juristic person, is a separate entity. Directors may come and go. The company remains. It has its own reputation and standing in the market which is required to be maintained. Nobody, without any authority of law, can sentence it or find it guilty of commission of an offence.”

He pointed out that a director who was in charge of the company at one point of time might have no interest in the firm.

He might not even defend it. He need not even continue to be its director. In such a situation, the company would to all intents and purposes stand convicted, although, it was not an accused and thus had no opportunity to defend itself.

“Deemed guilty”

Justice Sirpurkar said if the director was authorised to use the company’s cheque and if it bounced, it would have to be presumed that the signatory should also be deemed guilty of the offence. Section 141 (2) of the NI Act would suggest that the director, the manager, the secretary or other officer would be deemed guilty of cheque bounce.

The judge said even if the director’s liability was vicarious on account of the offence having been committed by the company, it would have to be presumed that the director had also committed it. That the company was not cited as an accused would be of no consequence.

In the instant case, Anneta Hada, director, Intel Travels Ltd., issued a cheque on behalf of the company to Godfather Travels and Tours Pvt. Ltd. and it bounced.

A complaint under Section 138 of the Act was registered against her without making the company an accused. A magistrate took cognisance of the complaint.

The Delhi High Court rejected Ms. Hada’s plea to quash the proceedings. Her appeal is against that judgment.

While Justice Sinha set it aside, Justice Sirpurkar dismissed the appeal.

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