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The Kerala High Court held that cheque dishonour directors not held vicariously liable if company found not guilty of crime under NI Act

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Title: Afsal Hussain v. K.S. Muhammed Ismail & Anr.
Decided on: 14 November, 2023

+ CRL.REV.PET NO. 1060 OF 2008

CORAM: HON’BLE Justice Sophy Thomas

Introduction

The Kerala High Court ruled that, in cases where the company is not proved to have committed the offense, the directors of the company cannot be found guilty of a crime under Section 138 of the Negotiable Instruments Act (NI Act), which is known as “Dishonour of Cheque.”

Facts of the Case

In the current case, the Managing Director of Omnitech Information Systems Pvt. Ltd., the revision-petitioner, was sued by the first respondent for dishonouring a Rs. 10 lakh cheque that the latter had sent to the former. In the complaint, the Company was listed as the first accused, the Managing Director/revision-petitioner as the second accused, and the other Directors as the other accused parties. According to Section 138 of the NI Act, the trial court found all of the accused guilty. The first accused firm was fined, and the other accused directors—including the revision petitioner—were sentenced to simple imprisonment and a fine. The Appellate Court only maintained the conviction of the revision-petitioner, even though his substantive sentence was lowered, while clearing the other respondents—including the firm.

Courts analysis and decision

The revision-petitioner issued the check in his capacity as the company’s managing director, the court stated. It was determined that the Managing Director could not be held accountable for any offenses committed by the Company after the appellate court cleared the company of all charges. As a result, it overturned the contested ruling and cleared the revisionist of any wrongdoing.

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Written by- Hargunn Kaur Makhija

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THE KERALA HIGH COURT DEGREE IN FAVOUR OF PLAINTIFF FOR  DISHONOURED CHEQUE

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Case Title : ASHOK KUMAR V SANKARANKUTTY PILLAI

Bench : THE HONOURABLE MR. JUSTICE SATHISH NINAN 

Case no : RFA NO. 390 OF 2003 

Date of order : 6/06/2023`

FACTS OF THE CASE-

  1. The plaintiff and the first defendant were friends and employed in Saudi Arabia.
  2. In March 1995, the first defendant borrowed an amount of ₹5,50,000/- from the plaintiff, to be repaid in three months.
  3. Instead of repaying the borrowed amount, the first defendant issued a post-dated cheque dated 02.11.1996 for ₹5,50,000/- as security, to be returned when the amount is paid.
  4. The cheque was dishonoured for insufficient funds when presented for payment.
  5. The plaintiff filed a suit for the recovery of the dishonoured cheque amount.

JUDGEMENT-

  1. The trial court dismissed the suit, stating that it lacked territorial jurisdiction and that the plaintiff failed to prove the payment of ₹5,50,000/-
  2. On appeal, the court held that the trial court has territorial jurisdiction to entertain the suit since the dishonoured cheque was presented within its jurisdiction.
  3. The defendant did not raise a specific contention regarding lack of territorial jurisdiction at the earliest opportunity, as required by the Code of Civil Procedure.
  4. The court rejected the defendant’s contention that a notice of dishonour was necessary before filing the suit. According to Section 98(c) of the Negotiable Instruments Act, no notice of dishonour is necessary when the party charged cannot suffer damage for want of notice.
  5. The court also rejected the defendant’s argument that the cheque was issued only as security and could not be presented for payment. A cheque issued as security can be enforced if the payment is not made.
  6. The defendant admitted borrowing an amount from the plaintiff but disputed the quantum, claiming it was ₹50,000/- instead of ₹5,50,000/-. However, the court found that the defendant’s claim was not supported by evidence and accepted the plaintiff’s claim.
  7. The court granted a decree in favour of the plaintiff for the amount of ₹5,50,000/- with interest at the rate of 6% per annum from the date of appeal (12.11.2003) until the date of the decree, and thereafter until full realisation from the first defendant and his assets.
  8. The plaintiff was not entitled to interest during the pendency of the suit before the trial court because it was not claimed in the appeal.

Overall, the court set aside the trial court’s decision, granted a decree in favour of the plaintiff for the dishonoured cheque amount with interest, and awarded costs to the appellant throughout the case.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

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WRITTEN BY- ANVITHA RAO