Dishonour Of Cheque - S. 141 Ni Act| Complainant Is Only Required To Have A General Understanding Of The Person Or People In Charge Of The Company Or Firm; The Liability Is On The Director Or Partner To Establish Their Innocence

Case title:

S.P. MANI AND MOHAN DAIRY v. DR. SNEHALATHA ELANGOVAN

Date of Order:

SEPTEMBER 16, 2023

Bench:

HON’BLE JUSTICE J.B PARDIWALA

 HON’BLE JUSTICE SURYA KANT

Parties:

APPELLANT ­– S.P. MANI AND MOHAN DAIRY

RESPONDENT - DR. SNEHALATHA ELANGOVAN

SUBJECT:

The given case's focus is on how Section 141 of the Negotiable Instruments Act of 1881 should be interpreted and applied, particularly in light of the criminal liability that results from dishonoured checks involving partnership firms.

The case revolves around the question of whether a partner of a disbanded partnership firm can be held criminally liable for a cheque that the firm issued that bounced, even if they claim to have no knowledge or involvement in the transaction.

The main legal issue is whether the complaint's and the statutory notice are specific allegations are enough to prove vicarious liability or whether more proof is needed to invalidate the proceedings.

According to the Supreme Court's decision, the burden of proof lies with the accused partner to demonstrate that they were not in charge of the firm's affairs at the pertinent time, even though the complainant must make specific allegations. In the end, the case highlights the guidelines and conditions for assigning criminal responsibility to partners in such circumstances.

IMPORTANT PROVISIONS:

NEGOTIABLE INSTUMENTS ACT, 1881 (NI ACT) –

1. Section 138 – Section 138 of the NI Act criminalizes cheque bounces due to insufficient funds in the drawer, punishable under the law.
2. Section 141 – under section 141, all individuals responsible for the company's business at the time of the offense are guilty under Section 138 of the NI Act, along with the company.

OVERVIEW:

1. This is an appeal in which the appellant filed a complaint against the respondent for cheque dishonour.
2. The complainant served the respondent with a statutory notice under Section 138 of the NI Act, alleging that the respondent was liable for the dishonoured cheque.
3. The complainant contended that because the respondent was a partner in the firm, he was vicariously liable for the cheque's dishonour.
4. The respondent failed to respond to the statutory notice and provided no evidence to refute the allegations.
5. The case turned on whether the complainant's allegations in the complaint were sufficient to establish the respondent's vicarious liability under Sections 138 and 141 of the NI Act.
6. The court emphasised that the burden of proof shifts to the accused to establish their innocence and that the complainant must include specific allegations in the complaint to establish vicarious liability.
7. The court ruled in favour of the appellant, finding that the complainant's allegations were sufficient and that the respondent had not presented any uncontradicted proof to the contrary.
8. The court emphasised the significance of responding to statutory notices in order to make one's position clear in such situations.

In conclusion, the case focuses on the requirements for establishing vicarious liability under Section 138 of the NI Act in situations involving cheque dishonour and the requirement for specific averments in the complaint.

ISSUES RAISED:

Whether the High Court committed any error in passing the impugned order?

ARGUMENTS ADVANCED BY THE APPELLANT:

1. The appellant argued that, unless they can show otherwise, partners of a firm can be held vicariously liable for the crime of dishonouring a cheque under Section 138 of the Negotiable Instruments Act.
2. In order to prove vicarious liability, the appellant emphasised the significance of specific allegations in the complaint. These allegations, it was argued, should be sufficient to demonstrate the part played by the accused partners in the firm's operations.
3. It was made clear that partners in a firm are accountable for the way their business is run, and that this legal obligation serves as the foundation for possible criminal liability under Section 138.
4. The appellant advocated for a more liberal reading of the complaints in order to prevent their quashing and criticised the use of a hyper-technical approach in interpreting them.
5. The appellant emphasised that the court's interpretation should be guided by the legislative goal of preventing cheque bounces and maintaining the credibility of business transactions.
6. The appellant emphasised that, absent proof to the contrary, all partners were potentially criminally liable under Section 138, including the respondent as a partner.
7. It was argued that when a statutory notice is given, the recipient—in this case, the respondent—has an obligation to respond in a concise manner, particularly if they don't think they should be held accountable for the offence.
8. The appellant emphasised that dismissing criminal proceedings must be supported by strong evidence or circumstances and should not be done lightly. A complaint should not be quashed merely because it lacks specific information.
9. The appellant made the point that certain facts, such as the precise nature of the partners' involvement in the firm and their role therein, are typically only known to the company or firm in question and their partners or directors.
10. The appellant emphasised that the respondent must prove that they were not in charge of the firm's affairs at the time of the offence in order for them to be exonerated of criminal responsibility.

JUDGEMENT ANALYSIS:

• In contrast to the Madras High Court's decision, the Supreme Court discovered clear and specific averments that the complaint and the statutory notice given to the respondent both contained that the cheque had been issued with the respondent's knowledge and consent. Therefore, this was enough to have the respondent tried for the alleged crime.
• The High Court's assertion that the allegations in the complaint are insufficient to impose the respondent with vicarious liability under Section 141 of the NI Act was deemed to have little to no legal support. 
• The court emphasised that the respondent could not get away with simply asserting that she had no connection to the company at the time the cheque was written or when the crime was committed, or that she was not in charge of or accountable for the firm's daily operations. The respondent in this case is expected to present unimpeachable and conclusive evidence to support her position.
• The Court pointed out that a Director or Partner cannot have the complaint dismissed merely because, aside from the basic allegation, there are no details provided in the complaint about his or her role. In most cases, the basic allegation would be sufficient to send the Director or Partner to trial, and it could be argued that his or her additional role could be revealed during the trial.

CONCLUSION:

In a recent Supreme Court decision, it was made clear that under Section 141 of the Negotiable Instruments Act, 1881, partners or directors of an organisation may be held criminally liable for dishonoured checks without having to demonstrate their knowledge of every transaction. A Partnership Firm called Sira Marketing Services was involved in the case. The Partnership Firm issued a cheque for Rs. 10, 00,000 to settle its debts, but the cheque bounced, prompting a complaint under Section 138 of the NI Act. The Supreme Court emphasised that complainants must provide specific details and that the accused can only escape liability by showing that they exercised due care or knowledge. Those in charge of the firm's affairs have the burden of proof, and liability is established using the evidence that is presented at trial. An accused director or partner must present convincing evidence that their trial would constitute an abuse of the legal system in order to have proceedings quashed.