National

Ex-director not liable for cheque dishonour, rules Supreme Court

New Delhi: A former director is not liable under Section 138 of the Negotiable Instruments Act for the dishonouring of a post-dated cheque issued during his tenure in a company, the Supreme Court has held.

He would not be liable even under Section 141, “which provides for constructive liability of those who are in charge of the affairs of the company,” said a Bench consisting of Justices S.B. Sinha and Mukundakam Sharma.

Writing the judgment, Justice Sinha said: “It is only those persons who were in charge of and responsible for the conduct of the business of the company at the time of commission of an offence who will be liable for criminal action. It follows from this that a director, who was not in charge of and was not responsible for the conduct of business at the relevant point of time, will not be liable.”

The Bench, quoting earlier judgments, said: “To launch a prosecution against the director there must be a specific allegation in the complaint as to the part played by him in the transaction. There should be a clear and unambiguous allegation as to how the director was in charge and responsible for the conduct of business of the company.”

A person who had resigned as director could not be one in-charge of the company when the cheque was dishonoured. He had no say in the matter of seeing that the cheque was honoured.

The Bench said: “When post-dated cheques are issued and the same are accepted, it may be presumed that the money will be made available in the bank when the same are presented for encashment, but for that purpose, the harsh provision of constructive liability may not be available except when an appropriate case in that behalf is made out.”

In the instant case, J.N. Sareen was director of International Agro Allied Products, where as part of a business transaction some post-dated cheques were issued in favour of DCM Financial Services in April 1995. He resigned in May 1996. The appellant presented one of the cheques in January 1998 and it was dishonoured.

A complaint under Section 138 of the NI Act was registered against the company and its directors. The trial court discharged Mr. Sareen as he was no longer a director. The Delhi High Court dismissed a revision petition.

Dismissing the appeal, the Supreme Court said: “The mere fact that at one point of time some role has been played by the accused may not by itself be sufficient to attract constructive liability under Section 141 of the NI Act.”

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