INDIA BUSINESS WORLD - JULY - AUGUST - 2007
The Month that was ...

CHEQUE BOUNCE: LIABLE ONLY IF INVOLVED DIRECTLY

The Supreme Court has ruled that in a cheque bounce case, the liability of a company's director can be inferred only if it can be proved that the accused was in charge for the conduct of the company at the time of the alleged offence.

Merely because a person was involved with the negotiations to obtain a loan cannot make him or her liable for the offence relating to the bouncing of a cheque, Justices SB Sinha and HS Bedi said while setting aside an order for the Andhra Pradesh High Court.

Interpreting Section 141 of the Negotiable Instruments Act, the apex court said that the liability of a person arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office. The appellant, Srikant Singh, had filed a special leave petition against the High Court's ruling which upheld a magistrate's order holding the former liable for a cheque bounce offence.