Negotiable instrument act
C. P. CHUGH
(Querist) 04 February 2012
This query is : Resolved
Dear Experts,
What is latest law laid down by Hon'ble Apex Court in the following circumstances :
A is a Public Ltd Company and B is its MD.
A Complaint u/s 138 has been filed by C against B and the title reads as under :
Notice has been issued to B only
Mr C Prop of ABC Vs Mr B Director of A
Cheque in question has been issued by A to C and is signed by B
Now my precise querry is,
Is this compalint not maintainable on the ground that the condition precedent to section 138 are not satisfied.
Section 138 says where a cheque drawn on an account maintained by HIM is dishonoured........
In this case the cheque is drawn on an account which is not maintained by the accused but by the Co.
2. Is it necessary to plead Company as accused and MD as co-accused as the liability of directors u/s 141 is vacarious one and unless the person who has committed offence (CO in this case) is made laible, directors cannot be pleaded guilty.
Pls reply with latest citation in favour and against if any.
Advocate. Arunagiri
(Expert) 04 February 2012
If the company cheque gets bounced,
It is not necessary to implead the company as a accused in 138 case. But, notice to the company is a must.
The provisions do not contain a condition that prosecution of the company is sine qua non for prosecution of the other persons who fall within the second and the third categories mentioned above. No doubt a finding that the offence was committed by the company is sine qua non for convicting those other persons.
For your benefit I am enclosing a case law.
Sachin Bhatia
(Expert) 04 February 2012
agree with the above expert.
Raj Kumar Makkad
(Expert) 04 February 2012
The Supreme Court of India in a far reaching Judgment of the Bench of Hon'ble Justice Mr Sathasivam and Mr Justice H.Dattu reported in the case of National Small Industries Corp. Ltd. Versus Harmeet Singh Paintal & Anr. has dealt with the liability of Directors in Check Bouncing Cases under Section 141 of the Negotiable Instruments Act
Two separate Appeals came before the Apex Court one related to National Small Industries Corp. Ltd vs Harmeet Singh Paintal & Anr and DCM Financial Services Ltd., vs M/s International Agro Allied Products Ltd.
BRIEF FACTS:
National Small Industries Corporation Ltd. had filed 12 criminal complaints under Section 138 read with Sections 141 and 142 of the Act against M/s Jay Rapid Roller Limited, a Company incorporated under the Companies Act, its Managing Director - Shri Sukhbir Singh Paintal, and its Director - Shri Harmeet Singh Paintal. It is the claim of the appellant that so as to make the Managing Director and Director of the Company liable to be prosecuted under the provisions of the Act, they had specifically averred in the complaint that all the accused persons approached it for financing of bill integrated market support program. It was also stated that the accused persons had issued cheques which were dishonored on presentation against which the appellant had filed criminal complaints under the provisions of the Act against all the respondents herein. It is their further case that all the accused persons accepted their liability and delivered various cheques, which are the subject matter of the present appeals.
DCM Financial Services Ltd., entered into a hire purchase agreement on 25.02.1996 with M/s International Agro Allied Products Ltd. At the time of entering into contract, the Company handed over post-dated cheques to the appellant towards payment of monthly hire/rental charges. Respondent No.1 - Dev Sarin was one of the Directors of the said Company. The cheque issued by International Agro and Allied Products Ltd. in favour of the appellant was duly presented for payment on 28.10.1998 and the same was returned unpaid for the reason that the Company had issued instructions to the bankers stopping payment of the cheque. The appellant issued a legal notice on 05.12.1998 to the Company, Respondent No.1 and other Directors under Section 138 of the Act informing them about the dis-honouring of the cheque in question. Despite the service of the notice, the Company did not make the payment to the appellant. The appellant, on 11.01.1999, filed a complaint before the Metropolitan Magistrate, New Delhi against respondent No.1 and others under Section 138 read with Section 141 of the Act. By order dated 04.02.1999, the Metropolitan Magistrate, New Delhi, after recording evidence summoned the accused persons including respondent No.1 herein. Respondent No.1 filed an application before the Additional Sessions Judge, Delhi for dropping of proceedings against him. By order dated 08.09.2004, the Metropolitan Magistrate dismissed the said application. Aggrieved by the said order, the respondent filed a petition under Section 482 of the Criminal Procedure Code before the High Court for quashing of the complaint. The High Court, after finding that the averments against respondent No.1 are unspecific and general and no particular role is assigned to the appellant, quashed the summoning order insofar as it concerned to him.
The substantial question of Law of National importance which arose for determination before the Apex Court was this:
Whether the order of the High Court quashing the summoning orders insofar as the respondents are concerned is sustainable and what should be the averments in the complaint under Section 138 read with Section 141 of the Act against the Director of a Company before he can be subjected to criminal proceedings.
The Hon’ble Court considered the Statutory position and the liability of Directors and specifically Section 141 of the Negotiable Instruments Act .
Section 141 reads as follows:
"141. Offences by companies.--(1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.-- For the purposes of this section,-- 6
(a) `company' means any body corporate and includes a firm or other association of individuals; and
(b) `director', in relation to a firm, means a partner in the firm."
As per the Judgment written by His Lordship Mr Justice P.Sathasivam J the following principles of Law emerge from the Apex Court for fixing the liability of Directors under Section 141 of the N.I. Act for prosecuting them for an action under under Section 138 of the N.I.Act.
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be\ pleaded and proved and not inferred.
(v) If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.
(vii)The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.
C. P. CHUGH
(Querist) 10 February 2012
Dear Expert Arunagiriji and Makkadji,
In the light of earlier replies pls throw some light of the judgement of Hon'be SC given below:
"No notice to company – but to MD who signed cheques – valid. No notice was issued to company on behalf of which cheque was issued – want of notice to company will not invalidate criminal proceedings against director who issued the cheque – provision for notice cannot be construed in narrow technical way with examining subject matter – prosecution is maintainable. 2001 (1) CTC 170 SC."
Does it still stand or has been reversed.
Also share judgement wherein it has been upheld that Notice to Company is a MUST.
Thanks in advance.
PS: It is my personal matter and not a commercial querry.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 10 February 2012
Thanks in advance issuer of cheque is also liable.
But there are other avenues and eascpe routes for cheque bounce cases.
Advocate. Arunagiri
(Expert) 10 February 2012
If the notice served on the MD in his official capacity, there is no need to send notice to the company.
