Cheques are a widely used means of payment, especially in business transactions involving Companies. A cheque is said to bounce when it is returned by the bank without being encashed.
The question that arises is when cheques issued by Companies are bounced, who is held liable, the Company or its Directors? The article deals with this question.
Cheques are bounced or dishonoured due to any defect in them, which may have been caused intentionally by the issuer of a cheque to escape payment. The several reasons leading to bouncing of cheques are:
However, it is an offence under the Negotiable Instruments Act, 1881 if the unpaid cheque is returned by the bank when:
Punishment for Cheque Bouncing, which is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881 can be:
When the person who commits the offence of cheque bouncing is a Company which is an artificial entity, how does it face the punishments, especially imprisonment? The Directors are appointed to control and manage the affairs of a Company. Hence, the Directors can be accountable for the misdeeds of the Company.
Directors may be held liable when the Company has committed the offence of cheque bouncing, under Section 141 of the Negotiable Instruments Act, 1881. According to this Section, every person who was in charge of the Company and responsible for its business, at the time the offence was committed will be liable, along with the Company.
Even a manager, secretary, or officer of the Company can be accountable in matters where the offence of cheque bouncing was committed due to the consent or neglect of such persons.
Reason for issuance of the cheque:
· The original cheque with the “memo of return” from the bank
Specific Statement to be made in the Complaint: It should be specifically stated in the complaint how and in what manner the accused Director was in charge of and responsible for the conduct of the business of the Company at the time the cheque was bounced. However, the Apex Court has held that in certain situations, as given below, one need not specifically state the responsibility of the accused person in the complaint:
When and if the Company is found guilty in the case, and if it is proved that the Director was in charge of the business of the Company, he will have to bear the punishments as directed by the Court.
The Director would not be held liable for the acts of the Company if he is able to prove the following:
Only when a person is responsible for the Company and was in charge of the conduct of its business, he could be held liable. Hence, the reason to hold a person guilty of a cheque bouncing case cannot solely be based on the fact that he is a Director of a Company.