Skip to main content

Directors can be held liable for dishonour of cheque, rules SC

The Supreme Court has said that all directors involved in the day-to-day running of a company can be made liable for a bounced cheque, but not one who resigned before the cheque was issued. The top court said this while dealing with a case filed by a private company that had lent money to another.

Gunmala Sales Pvt Ltd had filed cheque-bouncing cases under the Negotiable Instruments Act against Navkar Infra Projects Pvt Ltd and four of its directors. The Calcutta High Court quashed proceedings initiated by a magistrate on grounds that the complaint was based on a mere assertion that the directors were responsible for the day-to-day business of the accused company when the offence was committed.

The high court reasoned that the complainant had in this case not clearly stated what part was played by each director and how they were responsible for the finances of the company and the issuing of cheques.

The complainant then approached the apex court which remitted the issue back to the HC to decide afresh within six months. The court, however, clarified the law and directed that the directors should normally face prosecution if there is no incontrovertible evidence to show their non-involvement such as long illness, resignation, etc. The complainant only has to make a specific averment in the complaint that a person is in charge of and is responsible for the conduct of the business of the company to maintain it, said a top court bench comprising justices Ranjana Prakash Desai and NV Ramana.

The complainant does not have to elaborate on the role played by each of the directors in the transaction. "The individual role of a director is exclusively in the realm of internal management of a company and at the initial stage of a complaint, it would be unreasonable to expect a complainant to elaborate the specific role played by a director in the transactions," the bench said.

Vicarious liability is contemplated in the Negotiable Instruments Act to ensure greater transparency in commercial transactions, the court said. This object has to be kept in mind while considering individual cases and hardship arising out of a particular case cannot be the basis for directors to try to wriggle out of prosecution, the court said.

A case can only be quashed under Section 482 of the Criminal Procedure Code by a high court if a director is wrongly arraigned, the Supreme Court said. In cheque-bouncing cases, the court said managing directors in charge of company affairs, directors or officers who sign cheques can be arraigned as accused. Any other director can also be made liable if the person was in charge of and was responsible for the conduct of business. Other officers of a company can be made liable in such a case if a specific role by way of consent, connivance or negligence is alleged against them.

Article referred: http://economictimes.indiatimes.com/news/politics-and-nation/directors-can-be-held-liable-for-dishonour-of-cheque-rules-sc/articleshow/44894320.cms

Comments

Most viewed this month

Deposit Of Minimum 20% Fine/Compensation U/s 148 NI Act Mandatory

In OP(Crl.).No.348 OF 2019, T.K.SAJEEVAN vs FRANCIS T.CHACKO, the appeal was filed against the order of the lower court to deposit 25% of the fine before filling of appeal. The appellant argued that the deposit introduced through the Section 148 of the NI Act after amendment was directory in nature as it used the term 'may' while mentioning the issue of deposit. The Kerala High Court however disagreeing held that in view of the object of the Legislature while incorporating Section 148 into N.I. Act, the word 'may' will have to be read as 'shall'. The imposition of payment contemplated under Section 148 N.I. Act cannot be restricted to some prosecutions and evaded in other prosecutions. Since the amount directed to be deposited being compensation, undoubtedly, it is liable to be ordered to be deposited irrespective of the nature of the prosecution. Therefore, the word 'may' can only be taken to have the colour and meaning of 'shall' and there

NCLT - Mere admission of receipt of money does not qualify as a financial debt

Cause Title : Meghna Devang Juthani Vs Ambe Securities Private Limited, National Company Law Tribunal, Mumbai, CP (IB) No. 974/MB-VI/2020 Date of Judgment/Order : 18.12.2023 Corum : Hon’ble Shri K. R. Saji Kumar, Member (Judicial) Hon’ble Shri Sanjiv Dutt, Member (Technical) Citied:  Carnoustie Management India Pvt. Ltd. Vs. CBS International Projects Private Limited, NCLT Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors. (2019) Sanjay Kewalramani vs Sunil Parmanand Kewalramani & Ors. (2018) Pawan Kumar vs. Utsav Securities Pvt Ltd 2021 Background Application was filed under section 7 of the Insolvency and Bankruptcy Code, 2016 alleging loan of Rs, 1.70 cr is due. The Applicate identified herself as the widow and heir of the lender but could not produce any documents proving financial contract between her Late husband and the CD but claimed that the CD has accepted that money was received from her husband. The applicant subsequently filed rejoinder claiming the debt t

Vanishing promoters and languishing shareholders

Over Rs 60,000 crore of shareholders’ wealth is stuck in 1,450 companies suspended by the stock exchanges. More importantly, near 100 per cent pledging of promoter holding appears to be common in many of these companies. This, almost rules out any chance of the companies bouncing back. The suspension is for non-compliance of the listing norms. Vanishing Companies - Definition As per the definition stipulated by SEBI, any listed company, which raised moneythrough initial public offer and, thereafter, stopped operations, did not file returnseither with the RoC or SEBI and did not exist on the registered premises wastermed as vanishing.There are provisions under Companies Act under which companies are termedvanishing companies on satisfying certain conditions. it is provided a companywould be deemed to be a vanishing company, if it satisfies all the conditions given below : a) Failed to file returns with Registrar of Companies (ROC) for a period of two years; b) Failed to fil