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DIRECTORS’ LIABILITY IN CHEQUE DISHONOUR CASES
These appeals arose out of proceedings adopted under Section 138 of the NI Act against companies who had issued cheques which were subsequently dishonored. In terms of Section 141 of the NI Act, these proceedings were also initiated against directors of the company.
The primary issue before the Supreme Court was whether the mandatory requirements of Section 141 of the NI Act were satisfied in relation to certain directors who were prosecuted.
Section 138 and Section 141 of the NI Act
In terms of Section 138 of the NI Act, a person who has drawn a cheque on an account maintained by him with a banker for payment of any amount of money to another person, from out of that account for the discharge of any debt or other liability, is deemed to have committed an offence if such cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account. The Section then proceeds to set out the period of imprisonment and fine for such offence.
Section 141 then provides that if the person committing the offence under Section 138 is a company, then, along with the company, every person who – (1) was in charge of the conduct of the business at the time the offence was committed; and (2) was responsible to the company for the conduct of its business; will also be deemed to be guilty of the offence.
Are all directors liable under Section 141?
One of the main grounds raised by the appellants was that there were no averments made in the complaints stating that the appellants were in charge of and responsible for the conduct of the business of the company.
With this background, the Supreme Court was to decide the vicarious liability of directors, who were not managing or whole-time directors.
The Supreme Court observed that the most important averment which is required by Section 141 (1) of the NI Act is that the directors/persons accused were in charge of and were responsible for the conduct of the Company.
In the different appeals lying before it, the Supreme Court observed that the different averments made in the complaints were as follows:-
Authors: Manisha Paranjape, Partner and Binkal Mehta, Associate
Footnotes [1] Judgment dated 03rd August 2023 in Criminal Appeal No. 879 of 2023 2 Judgment dated 20th March 2017 in Criminal Petition No. 6324 of 2013
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- All directors were liable for the transactions of the Company;
- The appellants were fully aware of the issuance of the cheques without sufficient balance ;
- The appellants were fully aware of the business transactions;
- The appellants are busy with day-to-day affairs of the Company;
- The appellants are managing the Company and are also in charge of the Company;
- The appellants were jointly and severally liable for the acts of the Company.
Authors: Manisha Paranjape, Partner and Binkal Mehta, Associate
Footnotes [1] Judgment dated 03rd August 2023 in Criminal Appeal No. 879 of 2023 2 Judgment dated 20th March 2017 in Criminal Petition No. 6324 of 2013