[S.138 NI Act] Not Making Company Separate Accused In Cheque Bouncing Complaint Isn't Fatal To Prosecution Case: Jharkhand HC

The Jharkhand High Court dismissed a petition filed by the Director of a company seeking to quash criminal proceedings for cheque bouncing under Section 138 of the Negotiable Instruments Act and said that not making the company a separate accused in the complaint would not be fatal for the prosecution. 

The Court noted that while the company that issued the cheque was not named as an accused, the complainant had made the company's Director who had signed the cheque in question as an accused and had mentioned the company's name in Section 138 complaint petition in the accused persons column.

A single judge bench of Justice Sanjay Kumar Dwivedi, presiding over the case, remarked, “From perusal of the complaint petition, the Court finds that although the company has not been made accused separately, but complainant has made the Director as accused who has signed the cheque as an accused and mentioned the company name i.e. M/s Morias Infrastructure Private Limited in the complaint petition in the name of the accused persons column, just below the name of the Director which clearly reveals that company name is there and involvement of the company is also there. It is well settled law that the person who was at the helm of the affairs of the company and in charge of and responsible for the conduct of the business at the time of the commission of the offence will be liable for the criminal prosecution". 

"Since the cheque in question has been signed by the Directors of the company and the company name has been mentioned in the complaint just below the name of the Director, with the Directors named as accused, the omission of the company as a separate accused is not fatal to the prosecution," the court added. 

The petition was filed to challenge the criminal proceedings and the summons issued to the accused under Section 138 of the NI Act. The case stemmed from a sale agreement between the complainant and the company for land, where the company's cheque was dishonored due to insufficient funds. After issuing a notice to both the company and the accused director, and receiving no payment, the complainant filed the complaint under Section 138 of the NI Act.

The question required to be considered by the High Court was whether in the absence of the company as a separate accused, the entire criminal proceeding can be quashed or not.

The Court observed that while the company was not named as an accused separately, the complainant had included the Director as an accused, indicating the involvement of the company. The company's name, M/s Morias Infrastructure Private Limited, was mentioned in the complaint petition just below the Director's name, implying the company's participation in the offence.

The Court clarified that under Section 141(1) of the NI Act, the key factor for implicating a person is their role as being in charge of and responsible for the company's business at the time the offence was committed. In contrast, Section 141(2) focuses on the officer holding an office and the consent, connivance, or negligence of such officer, regardless of whether they were actually in charge or responsible for the company's business during the commission of the offence.

The Court further clarified, "Thus, the important and distinguishing feature in Section 141(1) is the control of a responsible person over the affairs of the company rather than his holding of an office or his person over the affairs of the company rather than his holding of an office or his designation, while the liability under Section 141(2) arises out of holding an office and consent, connivance or neglect."

The Court reasoned that vicarious liability exists because a company is run by individuals responsible for its affairs. In this case, the Directors were actively involved in the company's operations, signed the cheque as Directors, and received notice under Section 138 of the NI Act and did not deny their positions as Directors or the issuance of the cheque. Consequently, the Court dismissed the petition.

Case Title: Ripunjay Prasad Singh v. The State of Jharkhand & Anr.

LL Citation: 2024 LiveLaw (Jha) 171

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