Supreme Court Outlines when can Company’s Director be held Liable for Offence of Cheque Bounce

March 12, 2019

In this recent case, the Three-Judge Bench of the Supreme Court has outlined the factors to be taken into consideration while deciding an issue pertaining to dishonor of cheque complaint under Section 138 of Negotiable Instrument Act, 1881 against the Director of Company.

Case Name: A.R. Radha Krishna V. Dasari Deepthi & Ors.

The Appellant in the case has challenged High Court’s order, whereby the High Court quashed the criminal proceedings against the Respondents under Section 138 and 141 of Negotiable Instrument Act, 1881.

The accusation against the Respondents who were Directors of M/s Dhruti Infra Projects Limited was that cheques drawn by the authorised signatory, i.e., M.D. of M/s Dhruti Infra Projects Limited were returned dishonored, on presentation by the appellant, with the remark “Payment stopped by Drawer”.  

In appeal the Respondents have averred that they are only non-­executory Directors of the company, neither playing any role in the conduct of day-­to­day business of the company nor being in charge of the affairs of the company.

Bench’s Verdict

The Three-Judge Bench of the Supreme Court in view of the law pertaining on the subject set aside the High Court’s order and held that the High Court was not justified in allowing the quashing petitions by invoking its power under Section 482 of CrPC. The Apex Court further made the following observations in the case:

That in a case pertaining to an offence under Sections 138 and 141 of the Act, the law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for, the conduct of the company’s business at the time when the offence was committed.

That the High Court, in deciding a quashing petition under Section 482 of CrPC must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time.

That the role of a Director in a company is ultimately a question of fact, and no fixed formula can be fixed for the same, the High Court must exercise its power under Section 482 of CrPC when it is convinced, from the material on record, that allowing the proceedings to continue would be an abuse of process of the Court.

The entire case can be accessed here.

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