In a significant ruling, the Gujarat High Court addressed the extent of a director's liability in instances of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The court emphasized that criminal liability primarily rests with the drawer company, and its officers can be held accountable only if specific conditions outlined in Section 141 of the NI Act are satisfied.
Background of the Case
The case involved a former director of a textile company who faced criminal proceedings due to a cheque issued by the company that was dishonoured. The director had resigned from her position in 2013, while the cheque in question was issued in 2017. She contended that she should not be held liable for the dishonour, given her resignation predating the issuance of the cheque by several years.
Legal Provisions Involved
Section 138 of the NI Act deals with the offence of dishonour of cheque for insufficiency of funds. It stipulates that if a cheque drawn by a person is returned unpaid due to insufficient funds or if it exceeds the amount arranged to be paid, the drawer is deemed to have committed an offence. The punishment can extend to imprisonment for up to two years, a fine up to twice the amount of the cheque, or both.
Section 141 of the NI Act extends this liability to companies and specifies that every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the company's business, as well as the company itself, shall be deemed guilty of the offence. However, it provides a proviso that such a person shall not be liable if they prove that the offence was committed without their knowledge or that they had exercised due diligence to prevent it.
Court's Analysis and Decision
Justice Divyesh A. Joshi, presiding over the case, examined the materials on record and noted that the applicant had resigned from her position as director in 2013, well before the issuance of the cheque in 2017. The court reiterated that for a director to be held vicariously liable under Section 141, it must be established that they were in charge of and responsible for the conduct of the company's business at the time the offence was committed.
The court referred to established legal precedents, emphasizing that vicarious liability under Section 141 arises only when the individual was actively involved in the company's operations during the commission of the offence. In this case, since the applicant had resigned years prior to the issuance of the cheque, she could not be held liable under Section 138.
Conclusion
The Gujarat High Court's ruling underscores the principle that criminal liability for cheque dishonour primarily falls on the drawer company. Directors or officers can be held liable only if it is proven that they were in charge of and responsible for the company's conduct at the time of the offence. This judgment provides clarity on the scope of vicarious liability under the NI Act, ensuring that individuals are not unjustly held accountable for corporate actions taken after their association with the company has ended.
0 Comments
Thank you for your response. It will help us to improve in the future.