The Supreme Court recently reaffirmed the principles relating to the liability of a director of a company for the dishonour of a cheque issued by the company. In Siby Thomas v M/S Somany Ceramics Ltd, the appellant sought to quash a complaint against him under section 138 of the Negotiable Instruments Act, 1881, which relates to the dishonour of a cheque for insufficient funds in the account.
The appellant was named as an accused solely because he was a partner of the company issuing the cheque concerned. The judgment confirmed existing authority that criminal liability cannot be imposed on the sole ground that a person was a director of the company issuing the dishonoured cheque if the complaint failed to provide grounds supporting the allegation that the accused was responsible for the company’s conduct at the relevant time.
The court held that the only allegation in the complaint regarding the liability of the appellant was that he was a partner of the firm, and held that this alone was not sufficient to impose criminal liability on the appellant. Such details had been provided in the complaint for others connected with the company, but not for the appellant.
The court also referred to its decision in Ashok Shewakramani and Ors v State of Andhra Pradesh and Anor, which held that merely because somebody was managing the affairs of a company, they would not be in charge of the conduct of the business of the company nor the person responsible to the company for the conduct of its business.
The court also took note of the fact that it was in the knowledge of the complainant that the accused had retired from the firm two years before the dishonoured cheque was issued. The appellant had produced a deed of retirement in answering the complaint.
The court held that it was nowhere averred in the complaint that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed. An overall reading of the complaint also failed to disclose any clear and specific role of the accused appellant.
The Supreme Court allowed the appeal and quashed the complaint in relation to the appellant for the dishonoured cheque. This is a sensible and practical decision. It also upholds the principle that the onus of establishing the grounds of a criminal allegation lies with the person making it.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
