INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

CHEQUE BOUNCING: ONLY THE PERSON IN-CHARGE IS GUILTY

Merely being the director or an employee of the company does not make one responsible for the offence of cheque bouncing, the Supreme Court has ruled. A person would be held guilty only when he is in-charge at the time of commissioning of the act and is responsible for the conduct of the business of the company.

A Bench comprising Justice Arijit Pasayat and Justice LS Panta said, "The provision (Section 141 of Negotiable Instruments Act) clearly shows that so far as the companies are concerned if any offence is committed by it then every person who is director or employee of the company is not liable. Only such would be held liable if at the time when the offence is committed he was in-charge and was responsible for the conduct of the company."

The court dismissed the appeal which had sought proceedings against the Director and other employees of a company that issued cheques but on being presented got dishonoured.

The appellant NK Wahi complained that the Director and others were liable for the bouncing of some cheques that were issued in the name of Western India Industries.

Seeking initiation of appropriate proceedings against them, Wahi moved the trial court which had said the company is a juristic person and works through persons responsible for carrying out its activities.

Aggrieved by the trial court decision, the Director and other employees of the company moved the Delhi High Court, which turned down the trial court summon order. The high court had said preliminary evidence does not establish that the concerned Director and others were in-charge or responsible to the company for the conduct of the business.

Against the high court order, the complainant moved the apex court which, while dismissing the appeal, said it must be shown how the Director and employees are incharge and responsible for the conduct of the business of the company. Merely being a Director or employees of the company does not make them liable for it, said Justice Pasayat writing the verdict.