Debate on section 141 of NI act

India section 141 NI act debate

The world of commercial transactions contains numerous unique intricacies, many of which are yet to be statutorily regulated. More particularly, the principle laid down in Section 141 of the Negotiable Instruments Act, 1881 (NI Act), is susceptible to abuse by unscrupulous companies to the detriment of unsuspecting third parties.

The Supreme Court in a recent judgment laid down the guidelines as to how the High Court should exercise its power to quash criminal proceedings related to offences committed by companies under sections 138 and 141 of the NI Act.

The primary responsibility of the complainant is to make specific allegations in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the complainant to show that the accused partner of the firm was aware about each and every transaction. On the other hand, section 141 (1) of the NI Act clearly lays down that if the accused is able to prove to the satisfaction of the court that the offence was committed without his/her knowledge, or he/she had exercised due diligence to prevent the commission of such offence, he/she will not be liable for punishment.

In construing a complaint, a hyper-technical approach should not be adopted so as to quash the same. The complainant is supposed to know only generally who were in charge of the affairs of the company or firm, as the case may be. The other administrative matters would be within the special knowledge of the company or firm and those in charge of it. In such circumstances, the complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the company/firm.

It is only the directors of the company or the partners of the firm, as the case may be, who have the special knowledge about the role they had played in the company, or the partners in a firm, to show the court that at the relevant point of time they were not in charge of the affairs of the company. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge, and it is for them to establish at the trial that they were not in charge of the affairs of the company or firm.

The final judgment and order would depend on the evidence adduced. Criminal liability is attracted only on those who at the time of commission of the offence were in charge of, and were responsible for, the conduct of the business of the firm.

If any director wants the process to be quashed by filing a petition under section 482 of the Code of Criminal Procedure, 1973, on the grounds that only a bald allegation is made in the complaint, and that he/she is really not concerned with the issuance of the cheque, he/she must, in order to persuade the High Court to quash the process, either furnish incontrovertible material or acceptable circumstances to substantiate his/her contention.

The apex court further held that the object of the statutory notice before the filing of the complaint is not just to give a chance to the drawer of the cheque to rectify his omission to make his stance clear so far as his liability under section 138 of the NI Act is concerned. It is essential for the person to whom the statutory notice is issued to give an appropriate reply. If the person concerned has some incontrovertible material to establish that he or she has no role to play in the affairs of the company/firm, then such material should be highlighted in the reply to the notice as a foundation.

The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at Readers should not act on the basis of this information without seeking professional legal advice.