Dishonour of Cheque – S. 141 NI Act| Complainant only supposed to have general knowledge of person(s) in charge of company/firm; Burden on Director/Partner to prove their innocence: SC 

Supreme Court: In yet another issue involving the true import of Section 141 of the Negotiable Instruments Act, 1881, the bench of Surya Kant and JB Pardiwala*, JJ has laid down the guiding principles for dealing with Section 141 of the Negotiable Instruments Act, 1881 and had held that 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.

The Court held that,

“if any Director or Partner wants the process to be quashed by filing a petition under Section 482 of the Criminal Procedure Code, 1973, on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of court.”

Background

In the case at hand, a Partnership Firm named Sira Marketing Services used to purchase milk and milk products from the appellant/complainant on credit basis. A cheque for Rs. 10,00,000, issued by the Partnership firm to clear its dues, came to be dishonoured, leading to a complaint being filed under Section 138 of the NI Act.  The respondent, one of the partners of the Partnership Firm, preferred an application under Section 482 of the Criminal Procedure Code, 1973 in the High Court and prayed that the criminal proceedings instituted against her may be quashed, on the ground that much before the cheque came to be issued, the firm had been dissolved. The accounts of the firm were also settled on 13-02-2017 following the dissolution.

High Court’s Ruling

The Madras High Court quashed the proceedings against the respondent herein mainly on the ground that there was nothing to indicate as to how and in what manner the respondent at the relevant point of time was in-charge and responsible for the conduct of the business of the firm. The High Court took the view that the complaint can be prosecuted as against the respondent herein only if the allegations made in the complaint fulfils the requirements of Section 141 of the NI Act. The High Court took the view that merely by reciting the words used under Section 141 of the NI Act in the complaint no vicarious liability can be fastened on the partner of the firm.

Supreme Court’s Ruling

Contrary to Madras High Court’s ruling, the Supreme Court found clear and specific averments not only in the complaint but also in the statutory notice issued to the respondent that the cheque was issued with the consent of the respondent and within her knowledge. Hence, this was sufficient to put the respondent to trial for the alleged offence. It was held that the High Court had practically no legal basis to say that the averments made in the complaint are not sufficient to fasten the vicarious liability upon the respondent by virtue of Section 141 of the NI Act.

The Court stressed that the respondent cannot get away by merely making a bald assertion that at the time of issuance of the cheque or at the time of the commission of the offence, she was in no manner concerned with the firm or she was not in-charge or responsible for day-to-day affairs of the firm. To make good her case, the respondent herein is expected to lead unimpeachable and incontrovertible evidence.

The Court observed that a Director or Partner cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his/her role, because ordinarily the basic averment would be sufficient to send him/her to trial and it could be argued that his/her further role could be brought out in the trial.

Principles laid down by the Supreme Court

a.) The primary responsibility of the complainant is to make specific averments 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, the first proviso to 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 of punishment.

b.)   The complainant is supposed to know only generally as to 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 the firm and those who are 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 before the court that at the relevant point of time they were not in charge of the affairs of the company. Advertence to Sections 138 and Section 141 respectively of the NI Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the company/partners of a firm to show that they were not liable to be convicted. 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 to show that at the relevant time they were not in charge of the affairs of the company or the firm.

c.) The final judgement 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. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners ‘qua’ the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal.

d.) If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment 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 some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court.

[S.P. Mani and Mohan Dairy v. Snehalatha Elangovan, 2022 SCC OnLine SC 1238, decided on 16.09.2022]


*Judgment by: Justice JB Pardiwala


For Appellant: Advocate E.R. Kumar

For Respondent: Advocate Hari Priya Padmanabhan

Join the discussion

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.