Can company be made accused in cheque bounce case under Section 138?

[Anonymous]

A cheque issued by a company to me has been dishonoured by bank. The actual dealing was done with me by two directors of the company. But, the transaction was in the name of the company and the cheque was also issued from the account of the company. Can a company be made an accused in a cheque bounce case? Can I prosecute the company for this case or I have to prosecute only those persons (i.e., directors) who signed the cheque which bounced?

[Dr. Ashok Dhamija]

Yes, of course, a company can be made an accused in a case of cheque bouncing under Section 138 of the Negotiable Instruments Act, 1881, if the cheque was issued by the company from its own account. In fact, Section 141 of the N.I. Act specifically lays down that if the person committing an offence under Section 138 is a company, the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly along with every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company:

“141. Offences by companies.—(1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

“Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this chapter.”

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section,—

(a) “company” means any body corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.”

In a recent case vide Standard Chartered Bank v. State of Maharashtra, (2016) 6 SCC 62, referring to the aforesaid Section 141, the Supreme Court held as under:

“On a perusal of the aforesaid provision, it is clear as crystal that if the person who commits an offence under Section 138 of the Act is a company, the company as well as other person in charge of or responsible to the company for the conduct of the business of the company at the time of commission of the offence is deemed to be guilty of the offence. …”.

In the case of Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, a three-judge bench of the Supreme Court held as under:

“Section 141 uses the term “person” and refers it to a company. There is no trace of doubt that the company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence.”

In this case, the Supreme Court further held that:

“…the company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, that would be imputed to the body corporate. In this backdrop, Section 141 of the Act has to be understood. The said provision clearly stipulates that when a person which is a company commits an offence, then certain categories of persons in charge as well as the company would be deemed to be liable for the offences under Section 138. Thus, the statutory intendment is absolutely plain. As is perceptible, the provision makes the functionaries and the companies to be liable and that is by deeming fiction. A deeming fiction has its own signification.”

In fact, in the above case of Aneeta Hada, the Supreme Court went on to hold as under:

“…commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.”

In this manner, the Supreme Court, in the said case of Aneeta Hada, concluded that for maintaining the prosecution under Section 141 of the N.I. Act, arraigning of a company as an accused is imperative, and that the other categories of offenders [as per Section 141] can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself.

     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

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