Who is liable for a cheque bounce issued by a company - the company or its directors?

Question

A cheque issued by our company bounced and now the complainant has made me, a non-executive director, an accused as well. Am I liable under Section 138? Specifically, I want to know how Negotiable Instruments Act 1881, Section 138 applies to a situation like mine and what the banking law position in India actually is. If there is a deadline I should be aware of, I need to know that now.

MyVakeel Legal Desk · Accepted Answer

Who is liable for a cheque bounce issued by a company - the company or its directors? is governed in India primarily by Negotiable Instruments Act 1881, Section 138 and Negotiable Instruments Act 1881, Section 141. Outcomes in section 141 ni act disputes depend heavily on documentation, so check what you can actually evidence as you read.

Section 141 fixes vicarious liability on persons who were in charge of and responsible for the conduct of the company's business at the time the offence was committed.

The Supreme Court in SMS Pharmaceuticals held that specific averments about the accused's role in the company's affairs must be made in the complaint, mere designation as director is insufficient.

Non-executive or independent directors who were not involved in day-to-day affairs can seek quashing of proceedings under Section 482 CrPC if the complaint lacks specific allegations.

The company itself must be arraigned as an accused for the vicarious liability of its officers to arise under Section 141.

Resignation from directorship before the cheque was issued is a strong ground to quash proceedings if supported by documentary proof such as Form DIR-12.

In practice, in this order: 1) Check whether the complaint contains specific averments regarding your role in managing the company's affairs; 2) Gather proof of your position, such as board resolutions or Form DIR-12, showing lack of involvement in the transaction; 3) File a petition under Section 482 CrPC before the High Court seeking quashing of proceedings against you; 4) Simultaneously ensure the company's defence on the merits of the cheque bounce is separately conducted.

Timing matters here: Negotiable Instruments Act 1881, Section 138 works on limitation periods, so a section 141 ni act claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in banking law.