A company committed offence under section 138 N I Act

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Question asked on: 18/01/2017

Whether a company is liable for the offence of cheque dishonour under section 138 of NI Act?

Advised by: Shivendra Pratap Singh,

When a company issued a cheque and it is dishonoured by the drawee bank it is said that offence under section 138 of the negotiable instrument act, is committed by the company. But company cannot be prosecuted for the offence because it is a legal entity and no physical punishment can be imposed upon a company.

When such offence has been committed by a company its director will be punished for the offence under section 138. A company performs all acts through its directors so vicarious liability shall be imposed upon its directors.

In N. K. Wahi vs Shekher Singh (2007) 9 SCC; the supreme court has held that under section 141, N I Act, if any offence has committed by a company then every person who is a director or employee is not liable, only that person is liable who was in-charge for the conduct of the business of the company at the time when cheque was issued.

Hence, if offence has committed by a company the person responsible for the affairs of the company at that particular time when cheque was issued, shall be liable and punishable under section 138. Section 141 does not postulate that all the directors are liable, this section envisages constructive or vicarious liability upon the directors for the offence punishable under section 138.

It infers from co-joint reading of section 138 and 141, that only those persons or directors will be liable for the offence who, at the time of issuance of cheque, in-charge of the affairs of the company.

In N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481; the supreme court has held that “to launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction.

There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the company.”

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [(2005) 8 SCC 89; a clear case should be spelled out in the complaint against the person sought to be made liable.

Therefore, complaint must clearly shown that who was the responsible person for the affair of business of the company at the particular time when alleged cheque was issued.

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Shivendra Pratap Singh

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