03 August 2015

Negotiable Instruments Act - Liability of a company and persons in charge

The Supreme Court of India has ruled that under Section 138 of the Negotiable Instruments Act, 1881, it is the drawer of the cheque alone that attracts liability. It was held that therefore if the cheque is drawn by a director of the company in his individual capacity and not on behalf of the company or in his capacity as the director, the company and its other directors/persons in charge of and responsible to it for its business cannot be punished.

The court on 6-7-2015 in this regard observed that even if the cheque is drawn in order to pay the company’s dues or discharge the company’s liability, the company and such other persons cannot be made liable if the individual draws it with his personal account maintained by his banker. The Apex court hence rejected that the accused party’s contention that he must be acquitted since the company and its other directors were not made a party to the complaint. Impugned Orders passed by the High Court and the Metropolitan Magistrate who had accepted this contention were both set aside.


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