Liability of Directors Under Section 138 of The Negotiable Instruments Act
March 11, 2019 | Author: Gautam Jayasurya | Category: N/A
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Company Law Gautam Jayasurya, 3rd Year B.A (Hons) LLB, Rajiv Gandhi National University of Law, Patiala, Punjab. SSRN A...
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GAU TAM JA GAUT J AYASU ASURYA RYA Roll no: 339
Advent f cheques the practice f giving cheques with ut any intention of honoring them has also risen. An increase in the number of criminal cases relating to or concerned with the banking transactions. In reality the processes to seek civil justice becomes notoriously dilatory and recover by way of a civil suit takes an inordinately long time.
Dishonouring
Failure to make payment ithin 15 days
Cheque dra n on a bank account
Proper notice in riting to the dra er ithin 30 days
a legally enf orceable liability or debt.
insuff iciency of f un unds
Amendment of 1 88 introduced ection 138 and 142 of the Negotiable Instruments Act which made it a criminal off en ence. Mens Mens Rea, Rea, a guilty mind Although prima gh prima facie and as a general rule there must be a mind at fault bef ore there can be a crime, it is not an inflexible rule, and a statute may relate to such sub ject-matter and may be so framed as to make an act criminal, whether there has been any intention to break the law or otherwise to do wrong or not. here is a large body of unicipal law at the present day which is so conceived Wills . v. olson, (188 ) 23 Q.B.D 173 (vide Whartons Law Lexicon 14th Ed., Fif th Imp., 1 2). If the cheque is f ound ound mutilated, the dishonouring is not an off en ence. Managing director and secretary of the company liable by the virtue of their off ice. No proof required. Non-participation of the companys affairs-Not a valid reason. Signatory of cheques at companys address was held liable.
Three categories of
persons can be discerned from the said provision who are brought within the purview of the penal liability through the legal f iction envisaged in the section. They are: ny, the principal off ende ender, which committed the off en ence; (1) The company, (2) Every one who was in charge of and was responsible f or the business of the company; (3) Any other person who is a director or a manager or a secretary or off icer of the company, ny, with whose connivance or due to whose neglect the company has committed the off en ence.
Judge Marshal's version of a corporation. Entrustment of companys business entrusted to some human agents. Section 252 of companies act, 1 52: Minimum no. of directors. Public: 3 Pvt: 2 Elected by small Minimum requirements: El shareholders. 1. Public company with a paid up capital of 5 cr. 2. With 1000 or more small shareholders(with a value less than 20,000).
Every person who, at the time the off en ence was committed, was in charge of and was responsible to, the company f or the conduct of the business of the company ny,, as well as the company ny,, shall be deemed to be guilty of the off en ence and only such director or directors who were in charge of and responsible to the company f or the conduct of the business of the company at the material time shall be deemed to be guilty. ty.
ender The off ende
in Section 138 is the drawer of the cheque. ense is committed Liable to be proceeded against, if the off ense when he was in charge of , and was responsible to the company f or the conduct of the business of the company. ny. A government appointed director is immune from this law. Off ense ense if committed with the permission of his superiors, he would also be held liable.
Presumption that cheques have been issued towards discharge of an antecedent liability. It is f or the accused to rebut the said presumption by adducing evidence. Presentation of the cheque: 1. 6 months is the expiry period of validity. 2. Can be presented in any number of times. Exemptions: ence was committed without his 1. Proving that off en knowledge or that he had exercised all due diligence
Within 15 days from the date of receipt of inf ormation from the bank. Notices in respect of separate cheques is not valid if in those notices the claim has been combined. Fresh notice is not necessary, if it is dishonoured again.
A company cannot escape from a penal liability under section 138 of the Act on the premise that a petition f or winding up of the company has been presented and pending. Cannot avert its liability on the mere ground that the winding petition was presented previously. When a company goes into liquidation, enf orcement of debt due from the company is only made sub ject to the conditions prescribed therein
Nucor wires Ltd., & Others vs. H.M.T.
(International) Ltd IL 1 7 Kar. 323 323 Specif ic allegation as to the part played by them in the transaction is necessary- If cheque issued by M.D, proceedings only against M.D and the company p to the ind out people in charge and court to f ind responsible f or the conduct.
Anil
Hada vs Indian Acrylic Limited AIR 2000 SC 145 - No bar to proceed against the Directors, even if a company cannot be prosecuted- the complainant had to establish that the off en ence was actually committed by the company- prosecution of the company is not a sine quo non f or prosecution of the other persons.
R.Gur uswamy Vs. M/S. Balaji Cotton Ind ustries ILR 2000 Kar 1415 -One of the directors of the company had issued cheques in question and the notice was issued- Liability of other directors shouldnt be speculated, must be proven.
State of NCT of Delhi through Prosecuting Off icer, Insecticides, overnment of NCT, Delhi Vs. Rajiv Khurana JT2010(7)SC546Unless clear averments are specif ically incorporated in the complaint, the respondent cannot be compelled to face the rigmarole of a criminal trial.
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr (2005) 8 SCC 8 . - It is the bounden duty of the court to ensure that the process was issued only against whom there were specif ic allegations in the complaint.
Specif ic averment in the complaint There is no deemed liability of a director. Managing director or joint managing director, these persons are in charge of and responsible f or the conduct of business of the company. ny. Theref ore, they get covered under Section 138. Vicarious liability of the company: Where the cheques were issued by the authorized signatory will not preclude prosecution of directors.
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