We need not go into the background concerning the usage of cheque and it is a reality now that the payments through cheque have become an indispensable part of the mercantile community and even the public in general. In fact, payments through cheque is encouraged and made mandatory in view of certain regulations and as a best accounting practice. Considering the usage of cheque and its significance and in order to give the needed credibility to the cheque, the legislature has thought it fit to bring a stringent law dealing with dishonor of cheques. As a result, the Negotiable Instruments Act, 1881 was amended and 138 to 142 have been introduced in the Act specifically dealing with dishonor of cheques. Before the introduction of section 138 to 142, an act of dishonour of cheque is considered as a civil issue and the aggrieved is only provided with Civil Remedy which consumes lot of time and also costly. The legislature had further felt that the provisions introduced in the Negotiable Instrument (N.I.) Act in the year 1989 dealing with the dishonour of cheques could not be effective and speedy, and further provisions 143 to 147 were introduced through 2002 amendment to the N.I.Act. The provisions introduced in the year 2002 were basically of procedural in nature and aimed at reducing delay in disposal of “138 cases”/Dishonour of Cheque cases. Unless otherwise specifically provided, the procedure to be followed in criminal cases is provided in the Code of Criminal Procedure. Despite making efforts to make certain enactments like the provisions dealing with the dishonour of cheques self-contained, the Courts had to depend on certain provisions of Code of Criminal Procedure very often. Making a balance between the object of special provisions like dishonor of cheques and the rights of the accused has become a complicated exercise for the courts.
The gist of the provisions dealing with ‘dishonour of cheques” is as follows:
1. The holder of cheque in due course can present the cheque to the Bank within 6 months from the date of the cheque.
2. When the cheque is dishonoured, then, the drawee, if chooses to take action against the drawer, should give a notice or intimation in demand to the drawer about dishonour of cheque and there should be a demand for payment of the Amount.
3. The drawee who receives a notice from the drawee for dishonour of cheque is supposed to reply the notice within 15 days or makes the payment.
4. If the payment is not made within 15 days, then the drawee can file a Complaint in writing to the Court within 1 month.
5. If the offence is proved, then, the Court can impose fine and also the accused may be sentenced to imprisonment upto 2 years.
6. There is a presumption in favour of the drawee that the there exists a legally enforceable debt.
7. If the Cheque issued by or on-behalf of the Company is dishonored, then, the persons in-charge of and responsible to the affairs of the Company can also be booked for an offence under section 138 of N.I.Act.
Though the law dealing with the dishonour of cheques appears to be simple, there are so many complications and many feel that the provisions are being misused very often. I do strongly feel that the provisions dealing with dishonour of cheques are being misused very often and some are proceeding with the illegality indirectly using the penal provisions to their advantage. Normally, the cheque is issued for a legally enforceable debt or liability, but, there is a presumption in section 139 of the Act in favour of the drawee that the cheque is issued by the Drawer for a legally enforceable debt. What happens is that, when there is a presumption in favour of drawee, then, it is the duty of the Accused to rebut that presumption. This is one of the controversial areas among many. There are conflicting judgments and views on this and there are allegations that the provisions are being misused and in some cases, the exercise of power by the concerned magistrate in a judicious way is also under suspicion.
Even if one issues a cheque for 2,000/- and if that is dishonored on the instructions of the Drawer for good and justifiable reasons, the drawer can be imprisoned upto 2 years depending upon the discretion of concerned Magistrate. These penal provisions and presumptions are very often misused. The Magistrate can award compensation and fine, and even then, if Magistrate chooses to impose a sentence of imprisonment strictly applying the provisions, then, it may appear legal and even the Appellate Court and Constitutional Courts are at times, support the strict applicability of the penal provisions dealing with dishonour of cheques.
Thus, though, there are only 9 sections in the Act dealing with the criminal liability of dishonour of cheques apart from other few provisions, the subject is so complicated.
Director’s liability for the dishounour of cheque when the cheque is issued on-behalf of the Company:
Company is a juristic person and can not be imprisoned. Dealing with the issue of dishonour of cheques issued by Companies, the provisions dealing with the dishonour of cheques make it clear that that the persons in-charge of and responsible to the affairs of the Company can be taken to task when the cheque issued on-behalf of the Company is dishonoured for want of funds and even for other reasons. The issue as to on what ground the cheque dishonoured is another complicated issue. There is plethora of judgments on the issue of dishonor of cheques issued by the Companies and few issues are as follows:
1. There were judgments saying that there is no need to give a notice to the persons responsible or in-charge for the affairs of the Company and it is sufficient if notice is given to the Company when the cheque is dishonored.
2. There are judgments saying that the Managing Director can never say that he is not in-charge of or responsible to the affairs of the Company.
3. There are judgments saying that the accountants and secretaries of the Company are unnecessarily implicated in ‘dishonour of cheque cases’.
4. There are issues where the Magistrate insists for the personal appearance of the Accused or even the Director, for many reasons and despite the directives of the Constitutional Courts that the presence of the complainant/accused can be exempted unless really required.
I have only mentioned few issues in the provisions dealing with the dishonour of cheque issued by Companies. There are contradictory judgments and views on the issues. In practice, no Company issues a cheque without any documentary proof or basis for the issuance of Cheque, but, this can be ignored easily if the provisions sought to be misused. If really there is involvement and dishonest intention on the part of the Director as proved based on documentary evidence and probabilities, then, he can be taken to task. But, merely, using the provisions dealing with the ‘dishonour of cheques’, the directors or the top of management of Company can not be troubled and the misuse of provisions can not be allowed. There are many judgments on the issue of director’s responsibility and from the background of each case, it can be found that the provisions were misused and the Constitutional Court had to say very often that the directors could not have been taken to task as there can not be any involvement of directors. There are views as to what is wrong if a proceeding under section 138 of N.I.Act is filed and pending against a Director as he can prove his innocence during trial. But, the time and mental torture for the Directors who at times are burdened with so many responsibilities can not be easily ignored. Many issues are to be considered while dealing with the responsibility of the Directors when the cheque is issued on-behalf of the Company and the few issues are as follows:
1. The Cheque Amount.
2. The size of the Company.
3. The status and the relation of the Complainant with the Company.
4. The transaction in particular.
If the required issues are considered by the Magistrates when the Directors contend that they are not responsible and seek for discharge in right perspective and the object of the legislation, then, many cases now pending on directors for the dishonour of cheques issued by the Company are bound to fail. When Directors feel that they are unnecessary implicated in the issue, then, they will either seek for discharge from the case in the concerned Magistrate Court or approach the High Court seeking to quash the proceedings as such. The issue of Director’s responsibility and even the penal provisions dealing with dishonour of cheques are complicated and there so many complicated issues. I would like to quote a very good observation of High Court of Andhra Pradesh in the matter of Rohinton Noria Vs. M/s. NCC Finance Ltd reported in 2000 (106) CRLJ 4117 AP: 2000 (2) ALT (Cri) 27: 2000 (1) ALD (Cri) 664 and the same is extracted below:
“It is being observed that in complaints filed for offence under Section 138 of the Negotiable Instruments Act, all the Directors of the Company are routinely being proceeded against ‘by invoking the provision under Section 141 of the Negotiable Instruments Act by glibly repeating the words in the section that certain director “was incharge of and responsible to the company for the conduct of business of the company’. It is necessary to emphasize that Section 141 of the Negotiable Instruments Act where an offense under Section 138 of the Negotiable Instruments Act has been committed by a company, the complainant is required to give a serious thought and make enquiries and ascertain the fact as to whether a particular director was incharge of and responsible to the affairs and conduct of the business of the company. Routinely roping in all the Directors by merely repeating the words used in Section 141 of Negotiable Instruments Act without ascertaining the facts is a serious matter which has to be deprecated. However, it is a question of fact which necessarily has to be decided during the trial.”
The detailed directives given by the Constitutional Courts at times on the issue of dishonour of cheques is a testimony to the complications involved in the subject.
Note: though the subject is very vast and complicated, I have only provided a small brief, am aware of all the concerned issues and complications.
V.Durga Rao, Advocate, Madras High Court.