Case Law Details
The Supreme Court ruled last week that prosecution for issuing a cheque which was dishonoured for want of credit in the bank can be initiated only against the person who issued the cheque and not against the company or directors who were not aware of it.
It quashed the Madras high court order to try the company, the chairman and the managing director in the judgement, PJ Agro Tech Ltd Vs Water Base Ltd. The two companies had entered into an agreement for distribution of prawn feed in Andhra Pradesh. However, it did not succeed and PJ Agro authorised the other company to collect its dues from customers who had not paid for the goods. It appointed a coordinator for the purpose. He issued a cheque to Water Base which bounced, leading to the filing of charges under the Negotiable Instruments Act.
The Supreme Court explained that the coordinator might have issued the cheque for the benefit of PJ Agro, but the directors of the latter company were not responsible for the default.
slowly the effectiveness of s.138 is being diluted.in this process the lower grade employees will become scape goats. the top bosses will escape.
sofar the fear of the directors responsibility served as weapon to collect money. after this judgment, the lower grade accountant will be given the power of cheque issuing.
the hard core murderers are leased on benefit of doubt; the gays are allowed to publicly continue their affairs; black money holder having swiss accounts are protected saying bilateral treaty; ..where we are heading for?
I appeared for PJ Agrotech before the Madras HC and prepared the SLP before the Supreme Court. This was a case where the cheque was issued by the Manager from his personal account, allegedly for dues of the Company. The Cheque was not even from the Company’s Account. Hence the Judgment that only the drawer of the cheque is liable and not the Company or its Directors.
Basically the Apex Court has again reiterated the settled law on the subject while pronouncing this judgement.
Now it’s been upheld many a times that no partner/ director could be made liable under the N.I. Act by merely having the signature on the instrument. Essence of the Law is that whether the accused is in active control of the affairs of the firm/ company or not so on whose behalf the cheque has been purporteldly been issued. That thing determines the ultimate liability upon the accused. So merely being a signatory does not fasten any liability upon the signatory though 138 will be maintainable against the signatory but it is not always that the signatory will be convicted at the end.
In a corporate, Directors are the master mind of the company, all other executives / employees are working on his directions only. He is responsible for all the activities of the company. It is the duty of the director to check the financial position before issue the cheque because he only (Board of Directors) authorize the coordinator to sign/issue the cheque. The coordinator has no independent power/right to issue a cheque on behalf of the company until authorized by the Company. So my view is director and company are liable for the activities of the coordinator/any employee if authorized to do any particular work/act on behalf of the company due course of employment.
It is confusing. How drawer can issue the cheque without authority from directors?
The Apex Court consistingly taking the view that person who is notin charge of business cannotbe prosecuted just becuase he happens to be a partner or a director. In the present case, from the reading of the gist of judgment provided, it is clear that the company on whose behalf of cheques are issued, the direcdtors are unaware of issue of cheques, as such the decision is consistant with earlier judgements. However, if it becomes a planning to escape the liability, I am sure Courts defintely will curb such mis-adventures while protecting honests.