GAUTAM JAYASURYARoll no: 339

Advent of cheques the practice of giving cheques without any

intention of honoring them has also risen.An increase in the number of criminal

cases relating to or concerned with the banking transactions.

In reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time.

Amendment of 1988 introduced Section 138 and 142 of the Negotiable Instruments Act which made it a criminal offence.

Mens Rea, a guilty mind – Although prima facie and as a general rule there must be a mind at fault before there can be a crime, it is not an inflexible rule, and a statute may relate to such subject-matter and may be so framed as to make an act criminal, whether there has been any intention to break the law or otherwise to do wrong or not. There is a large body of Municipal law at the present day which is so conceived – Wills R. v. Tolson, (1889) 23 Q.B.D 173 (vide Wharton’s Law Lexicon 14th Ed., Fifth Imp., 1992).

If the cheque is found mutilated, the dishonouring is not an offence.

Managing director and secretary of the company liable by the virtue of their office. No proof required.

Non-participation of the company’s affairs-Not a valid reason. Signatory of cheques at company’s address was held liable.

Three categories of persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal fiction envisaged in the section. They are:

(1) The company, the principal offender, which committed the offence;

(2) Every one who was in charge of and was responsible for the business of the company;

(3) Any other person who is a director or a manager or a secretary or officer of the company, with whose connivance or due to whose neglect the company has committed the offence.

Judge Marshal's version of a corporation. Entrustment of company’s business

entrusted to some human agents. Section 252 of companies act, 1952:

Minimum no. of directors. Public: 3 Pvt: 2 Minimum requirements: Elected by small

shareholders.1.Public company with a paid up capital of 5

cr.2.With 1000 or more small shareholders(with

a value less than 20,000).

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

only such director or directors who were in charge of and responsible to the company for the conduct of the business of the company at the material time shall be deemed to be guilty.

The offender in Section 138 is the drawer of the cheque.

Liable to be proceeded against, if the offense is committed when he was in charge of, and was responsible to the company for the conduct of the business of the company.

A government appointed director is immune from this law.

Offense if committed with the permission of his superiors, he would also be held liable.

Presumption that cheques have been issued towards discharge of an antecedent liability.

It is for the accused to rebut the said presumption by adducing evidence.

Presentation of the cheque:1. 6 months is the expiry period of validity.2. Can be presented in any number of times. Exemptions: 1. Proving that offence was committed without his

knowledge or that he had exercised all due diligence

Within 15 days from the date of receipt of information from the bank.

Notices in respect of separate cheques is not valid if in those notices the claim has been combined.

Fresh notice is not necessary, if it is dishonoured again.

A company cannot escape from a penal liability under section 138 of the Act on the premise that a petition for winding up of the company has been presented and pending.

Cannot avert its liability on the mere ground that the winding petition was presented previously.

When a company goes into liquidation, enforcement of debt due from the company is only made subject to the conditions prescribed therein

Nucor wires Ltd., & Others vs. H.M.T. (International) Ltd ILR 1997 Kar. 3239 - Specific allegation as to the part played by them in the transaction is necessary- If cheque issued by M.D, proceedings only against M.D and the company – Up to the court to find out people in charge and responsible for the conduct.

Anil Hada vs Indian Acrylic Limited AIR 2000 SC 145 - No bar to proceed against the Directors, even if a company cannot be prosecuted- the complainant had to establish that the offence was actually committed by the company- prosecution of the company is not a sine quo non for prosecution of the other persons.

R.Guruswamy Vs. M/S. Balaji Cotton Industries ILR 2000 Kar 1415 -One of the directors of the company had issued cheques in question and the notice was issued- Liability of other directors shouldn’t be speculated, must be proven.

State of NCT of Delhi through Prosecuting Officer, Insecticides, Government of NCT, Delhi Vs. Rajiv Khurana JT2010(7)SC546- Unless clear averments are specifically incorporated in the complaint, the respondent cannot be compelled to face the rigmarole of a criminal trial.

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr (2005) 8 SCC 89. - It is the bounden duty of the court to ensure that the process was issued only against whom there were specific allegations in the complaint.

Specific averment in the complaint There is no deemed liability of a director. Managing director or joint managing

director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 138.

Vicarious liability of the company: Where the cheques were issued by the authorized signatory will not preclude prosecution of directors.