IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
BIJOY KUMAR MONI …APPELLANT
VERSUS
PARESH MANNA & ANR. …RESPONDENT(S)
CRIMINAL APPEAL NO. 5556 OF 2024
Bench of Justice JB Pardiwala and Justice R Mahadevan
Section 138 NI Act | Director Who Signed Cheque Not Liable for Dishonour If Company Is Not Made an Accused: Supreme Court
Abstract
The Supreme Court of India’s judgment in Bijoy Kumar Moni v. Paresh Manna & Anr. criminal appeal number. 5556 OF 2024 addresses crucial aspects of liability under Section 138 of the Negotiable Instruments Act, 1881 (herein after referred as NI Act). This article delves into the legal framework governing dishonored cheques, focusing on the distinction between personal and corporate liability, especially when the cheque is signed by an authorized signatory on behalf of a company.
The judgment emphasizes the need to strictly adhere to statutory requirements, including the necessity of arraigning the company as an accused under Section 141 of the said act when its representatives face allegations of vicarious liability. The Court also elaborated on the interpretation of terms like “drawer,” “account maintained by him,” and the presumptions under Section 139, highlighting the interplay between individual culpability and corporate responsibility.
This article examines the factual background, procedural history, and judicial reasoning in this case while providing a comprehensive analysis of its implications for negotiable instruments law. Through an exploration of relevant precedents and statutory provisions, the article underscores the importance of due process in enforcing liability under the NI Act. The discussion aims to clarify the legal landscape for practitioners and scholars alike, offering insights into how courts balance corporate and individual accountability in cases of financial misconduct.
Keywords: Negotiable Instruments Act, Section 138, Corporate Liability, Authorized Signatory, Vicarious Liability
Introduction
A bench comprising Justice JB Pardiwala and Justice R Mahadevan affirmed the acquittal of a man previously convicted for a dishonoured cheque, reasoning that the cheque was issued on behalf of a company that had not been made a party to the case. The Court dismissed the contention that the company need not be implicated because the cheque was issued to settle the accused’s personal debt, even though he had signed it in his capacity as the company’s director.
“even if the cheque might have been issued for the discharge of personal liability of the accused towards the complainant, had the company Shilabati Hospital Pvt. Ltd. been arraigned as an accused in the complaint case before the Trial Court, it would have remained open to the complainant to establish with the aid of the presumption under Section 139 that the cheque issued by the company was in discharge of a legally enforceable debt. However, in the absence of the drawer of the cheque having been arraigned as an accused, it was rightly held by the High Court that no prosecution could have proceeded against the accused in his personal capacity. The only way by which the accused could be held liable was under Section 141 of the NI Act, however the same could not have been done in the absence of the company being arraigned as an accused”, the Court explained.
The Supreme Court of India’s decision in Bijoy Kumar Moni v. Paresh Manna & Anr. criminal appeal number. 5556 OF 2024 provides a pivotal examination of liability under Section 138 of the NI Act. This section, designed to enhance the reliability of cheques in financial transactions, penalizes the dishonor of cheques due to insufficient funds or other reasons. The facts of the case highlight a dispute over whether an authorized signatory of a company can be held personally liable under Section 138 when the cheque is drawn on the company’s account.
The appellant, Bijoy Kumar Moni, alleged that the respondent, Paresh Manna, issued a dishonored cheque to discharge a personal debt. However, the cheque was signed by Manna as the director of Shilabati Hospital Pvt. Ltd., with the company’s stamp affixed. The trial court convicted the respondent, holding him liable under Section 138, which was upheld by the sessions court. The High Court, however, quashed the conviction, reasoning that the company, being the account holder, was not arraigned as an accused. This judgment relied heavily on Section 141 of the NI Act, which mandates that vicarious liability can only be imposed on directors or officers if the company is first held guilty.
Section 141. Offences by companies.—
- If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
- Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.Explanation.—For the purposes of this section, —
(a) “company” means any body corporate and includes a firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the firm
The Supreme Court’s analysis began with the foundational principle of the NI Act—that liability under Section 138 is person-specific, applying primarily to the “drawer” of the cheque. The term “drawer” is defined under Section 7 of the NI Act as the maker of the cheque.
Section 7.—
“Drawer” “Drawee”.— The maker of a bill of exchange or cheque is called the “drawer”; the person thereby directed to pay is called the “drawee”.
“Drawee in case of need”.— When in the Bill or in any indorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a “drawee in case
of need.”
“Acceptor”.— After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the
holder or to some person on his behalf, he is called the “acceptor”.
“Acceptor for honour”.— When a bill of exchange has been noted or protested for non-acceptance
acceptance or for better security, and any person accepts it supra protest for honour of the drawer or of
any one of the indorsers, such person is called an “acceptor for honour”“Payee”.—The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “Payee”.
For a cheque issued on a corporate account, the company is the drawer, while the authorized signatory acts merely as its agent. This interpretation aligns with the doctrine of corporate personality, distinguishing the company’s liability from that of its representatives. Thus, unless the company is prosecuted and held liable, its officers cannot be convicted based on vicarious liability.
The judgment also clarified the term “account maintained by him” in Section 138, emphasizing that it refers exclusively to the account holder. Even if an authorized signatory manages or operates the account, they do not “maintain” it in the legal sense. This distinction was critical in determining that Manna could not be deemed the drawer, as the account belonged to Shilabati Hospital Pvt. Ltd.
Section 138. Dishonour of cheque for insufficiency, etc., of funds in the account.—
Where any cheque drawn by a person 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, in whole or in part, of any debt or other liability, 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 by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) thecheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.
“Section 138 of the NI Act clearly postulates that the cheque returned for insufficiency of funds should have been drawn by a person on an account maintained by him. It will amount to doing violence to the language of the statute if Section 138 of the Act is interpreted to mean that even if a person draws a cheque on an account not maintained by him, he shall be liable if the cheque is returned for insufficiency of funds. Such an interpretation will lead to absurd and wholly unintended results”, the Court held.
Several precedents were examined to reinforce these principles. In P.J. Agro Tech Ltd. v. Water Base Ltd., the Court held that only the drawer of the cheque could be prosecuted under Section 138.
“Section 138 requires the cheque to be drawn on an account maintained by the accused, and liability cannot be extended to individuals merely acting as agents of a corporate entity.” (P.J. Agro Tech Ltd. v. Water Base Ltd., (2010) 12 SCC 146).
Similarly, in Aparna A. Shah v. Sheth Developers (P) Ltd., it was established that in cases involving joint accounts, only signatories of the dishonored cheque can be held liable. The Court also referred to Himanshu v. B. Shivamurthy & Anr., which underscored the necessity of prosecuting the company first before proceeding against its directors.
“The vicarious liability of directors arises only when the company, as the principal offender, is arraigned and held guilty.” (Himanshu v. B. Shivamurthy & Anr., (2019) 3 SCC 797).
The Court’s interpretation of presumptions under Section 139 further illuminated the evidentiary burden in such cases. While the complainant benefits from a presumption that the cheque was issued for a legally enforceable debt, this presumption is rebuttable. In this case, the respondent’s defense—that the cheque was issued as security for a loan—was unsupported by evidence, but it was sufficient to challenge the presumption.
Section 139. Presumption in favour of holder.—
It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section138 for the discharge, in whole or in part, of any debt or other liability.
In conclusion, the Supreme Court upheld the High Court’s decision, reaffirming the principle that liability under Section 138 cannot extend to an individual who acts as an agent of a company unless the company itself is prosecuted. This judgment serves as a reminder of the procedural rigor required to impose liability under the NI Act. For practitioners, the decision highlights the necessity of meticulously drafting complaints to include all necessary parties, particularly in cases involving corporate accounts. By dissecting the interplay between individual and corporate liabilities, the judgment clarifies the application of Section 138 and reinforces the principle of corporate personality in negotiable instruments law.
This case, alongside other landmark judgments, solidifies the jurisprudence surrounding Section 138, ensuring a balanced approach that protects both creditors’ rights and the integrity of corporate entities.
References
- Ramaswamy Iyer’s The Law of Negotiable Instruments in India, 12th Edition, Lexis Nexis.
- Avtar Singh, Negotiable Instruments Act, Eastern Book Company.
- Supreme Court Judgments Archive.
- Relevant provisions of the Negotiable Instruments Act, 1881.
- Law Commission of India Reports on Negotiable Instruments.
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