Criminal Liability For Cheque Dishonour Primarily On Drawer Company, Officers Are Held Liable Only If Section 141 Is Satisfied: Gujarat HC

While quashing criminal proceedings in a cheque bouncing case against a woman stated to be the former director of a textile company, the Gujarat High Court noted that she had resigned in 2013 and shouldn't be held liable for a cheque issued in 20197 reiterating that criminal liability in such cases primarily falls on drawer company. 

This liability extends to the officers of the drawer company only when the condition stated in Section 141 Negotiable Instruments Act are fulfilled, the court added. For context Section 141(1) states if a company commits the offence under section 138 (cheque dishonour) then 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 company's business, as well as the company, shall be deemed to be guilty of the offence.

Section 141(2) states that notwithstanding anything in sub-section 1 where any offence under NI 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, then such persons shall also be deemed to be guilty of that offence.

Referring to various case laws on this aspect Justice Divyesh A. Joshi in his order said, “It is found out from the materials available on record that the applicant accused no.3 is not the signatory of the cheque and she has tendered her resignation way-back in the year 2013. It is well settled that where the Court finds that the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the applicant. As per the above-stated case laws, the liability under Section 141 of the Act is sought to be fastened vicariously on a person connected with a Company, in the present case, the applicant -accused has tendered her resignation way-back in the year 2013 and the cheque in question was presented in the bank in the year 2017 and therefore, after a lapse of more than four years, she cannot be held liable for an offence under Section-138 of N.I. Act. The criminal liability on account of dishonour of cheque primarily falls on drawer company and extends to its officers only when the condition stated in Section 141 are fulfilled. Therefore, this court is of the opinion that the prosecution launched against the applicant-accused is required to be quashed”. 

The petitioner had moved a plea for quashing the proceedings of a 2017 criminal case pending before the Chief Judicial Magistrate, Ahmedabad Rural for offence under Section 138 (dishonour of a cheque for insufficiency of funds).

The complainant finance company had said that they had loaned an amount of Rs 23,73,500 to the accused and signed an agreement issuing a cheque with an assurance of payment. It was then stated when the cheque was presented before Canara Bank, it was returned back due to insufficient funds on February, 2017, following which a notice was issued on in the same month but the accused did not respond to it nor paid the amount. Thereafter the Magisterial court issued an order for issuance of process under Section 204 (taking cognizance and issuance of summons or a warrant) of CrPC against the accused.

The petitioner's counsel contended that she had resigned from the Company on July 2013 and her resignation was accepted by the Board of Directors, following which a Form-32 was submitted to the Registrar of Companies. He relied on the documents to establish that the petitioner was not associated with the company from July 24, 2017. It was argued that petitioner is neither a signatory of the dishonoured cheque not involved in the financial transaction of the company at that time and the complaint did not specify any allegations about her role in day-to-day affairs of the company. He then relied on the judgement of the Apex Court (Jugesh Sehgal Vs. Shamshet Singh Goga (2009) 14 SCC 683) stating “a person who had drawn the cheque, can be held vicariously liable for the offence under Section-138 of the Act”. Therefore, she cannot be held “vicariously liable for the said offence”. 

The Counsel appearing for the respondent – complainant contended that the petitioner was one of the directors and was involved in the day-to-day activities of the company and being one of the Director hence, she was arraigned as an accused at the time of the registration of the complaint. She submitted that the petitioner failed to respond to the notice under Section 138(b) of NI Act that was duly served. She contended that the petitioner's name reflected in the board of directors, therefore the notice was issued and complaint was filed. 

The State's counsel submitted that the dispute lies between private parties and adopted the arguments canvased by the complainant's counsel. He then contended that the court below has already considered all materials and found no legal or factual error in issuance of the process and the application may be rejected as it is without merits.

After the considering the facts, contentions of the counsels and referring to the judgements of the Apex Court regarding the vicarious liability in the cheque dishonour cases the high court allowed the plea and quashed the proceedings pending before the Chief Judicial Magistrate, Ahmedabad Rural.

Case Title: Rakhidevi Umashankar Agarwal W/o Umashankar Shyamlal Agarwal vs Religare Finvest Ltd. & Anr.

Case Number: Cr.MA/6526 of 2017

Counsel for the Petitioner: Advocates Aaditya A. Gupta and Mohit A. Gupta

Counsel for the Respondent: Advocates Helly Panchal for  Kalpesh R Patel

Counsel for the State: APP Manan Mehta

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