News Ticker

How to move legally against a company for cheque dishonouring?

Q. I presented cheque issued by a Company in a bank. But the cheque dishonoured. How can I issue notice to the company? What are the proceduresto be followed when moving legally against a company for cheque dishonour?

Section 141 of the Negotiable Instrument Act states about offences made by companies.  Here the word “company” is explained as a body corporate which includes a firm or association of individuals.

If the dishonour of cheque is made by the company then you can file a suit for recovery of amount under Order 34 of CPC. Then a notice should be given to the offender within 30 days by registered post acknowledgement due and from the receipt of the notice, complaint can be filed under Section 138 of Negotiable Instrument Act. Details about nature of transaction, amount of loan, date of issue of cheque, deposit date, date of dishonour of cheque should be explained in the notice. The holder itself can send the notice to the offender which is considered as good as a notice sent by an advocate.

Under Section 141 of the Act every person who is incharge of and responsible for conduct of business of the company at the time an offence was committed will be liable to be prosecuted. All directors, secretaries and officers in charge of the company can be made liable including partnership firms. The company will also be liable to be prosecuted. If any person considers and proves that the offence was out of his knowledge and committed without his involvement then he can escape prosecution. But one exception here will be for the director of a company which is under Central or State Government they enjoy exemption from prosecution.

In N Rangachari vs. Bharat Sanchar Nigam Ltd. (19/04/2007) case Supreme Court has explained the law under Section 138 who are the persons who are deemed to be liable. Everyone who was in charge of the affairs of the company at the time of issue of cheque will be liable. Accused should prove that offence of cheque bounce was committed by company without his knowledge and they should exercise due diligence to prevent such thing. Vicarious liability which has to be proved and pleaded. It makes a person criminally liable for someone else’s actions. In SMS Pharmaceuticals vs. Neeta Bhalla (20 February, 2007)Court held that since Section 138 imposes criminal liability, Section 141 of the NI Act should be strictly complied with.

by Sushma Javare.