2021 (3) TMI 437 - HC - Indian Laws

Court rules company, not MD, liable for dishonored cheque under Section 138 of Negotiable Instruments Act.

The court upheld the lower court's judgment, determining that only the company could be considered the drawer of the dishonored cheque, not the Managing ... Dishonor of Cheque - Personal liability of the Director / Signatory of the Company - insufficient funds - cheque issued to discharge a liability which the signatory of the cheque owed to the appellant - signatory was also the Managing Director of the company - HELD THAT:- In the case on hand, the cheque in question is signed by the respondent for and on behalf of the company and the cheque is issued on an account maintained by the company with the bank. As such, the drawer of the cheque can only be the company and not the signatory, who has affixed the signature on behalf of the company. A reading of Section 138 extracted above clearly shows that it is the drawer of the cheque who is deemed to have committed the offence under the section. It follows therefore that the offence if at all, in the case on hand can be said to have been committed only by the company. If the company is deemed to have committed the offence, necessarily, going by Section 141 of the Negotiable Instruments Act, the company should have been made a party to the proceedings and it is only on finding that the company has committed the offence, that the Managing Director could have been made liable for the offence. The appellant is not entitled to contend that the offence has been committed by the Managing Director. Admittedly, the cheque is not drawn on a personal account maintained by the respondent. The cheque specifically states that it has been issued for and on behalf of the company. As such the company alone can be treated as the drawer of the cheque who can be deemed to have committed the offence under Section 138. Admittedly, the appellant does not have a case that the company owes any amount to him - Appeal dismissed. Issues:Appeal against dismissal of complaint under Section 138 of Negotiable Instruments Act for cheque dishonor.Analysis:1. Issue 1: Liability of the Company vs. Individual Liability- The appellant alleged advancing a sum to the respondent for house construction, leading to a dishonored cheque issuance.- The court found the cheque was issued from the company's account, signed by the Managing Director, not the individual.- Appellant argued for individual liability, contending the loan was personal, not involving the company.- Court held that under Section 138, liability is on the drawer of the cheque, whether individual or corporate entity.2. Issue 2: Legal Precedents and Interpretation of Section 138- Reference to Anil Gupta v. Star India case highlighted the scope of Section 138 regarding cheque dishonor.- The court emphasized that only the drawer of the cheque, be it an individual or a company, is liable under Section 138.- Citing Mainuddin Abdul Sattar Shaikh v. Vijay D.Salvi case, the court reiterated the necessity of the drawer being the liable party.3. Issue 3: Applicability of Section 141 and Company's Liability- The court clarified that in cases of corporate entities, Section 141 of the Act comes into play.- Emphasized that for maintaining a complaint under Section 138, the drawer of the cheque must be the liable party.- Concluded that since the cheque was issued on behalf of the company, only the company could be deemed to have committed the offense.4. Decision:- The court found no grounds to interfere with the lower court's judgment.- Upheld that the company alone could be treated as the drawer of the cheque, not the Managing Director.- Since the appellant failed to establish any debt owed by the company, the appeal was dismissed, confirming the lower court's order.