Background of 138 ni act and object
Payments through cheque became part of daily commerce and accounting. To give credibility, legislature amended Negotiable Instruments Act 1881 and inserted sections 138 to 142 in 1989. Earlier cheque bounce was only civil remedy, slow and costly. 2002 amendment added 143 to 147 for speedy trial. Object was to ensure trust in negotiable instruments. Section 138 makes drawer liable if cheque is dishonored and amount not paid within 15 days of notice. There is presumption under section 139 that cheque was for legally enforceable debt. This shifts burden to accused to rebut. Law looks simple but in practice it became complicated and often misused.
Director liability under section 141
Company is juristic person and cannot go to jail. So section 141 makes "person in charge and responsible for conduct of business" liable for company’s cheque bounce. This includes Managing Director, whole time director, and others who were responsible. But problem is routine impleadment. Complainants name all directors by copying section 141 words without checking who was actually in charge. AP High Court in Rohinton Noria Vs. NCC Finance Ltd 2000 106 CRLJ 4117 deprecated this. Court said complainant must make enquiry and ascertain fact. Mere repetition of statutory language is not enough. Liability is not automatic for every director. It must be based on role, transaction and control.
Misuse and practical complications
There are conflicting judgments on notice to directors, whether MD can say he is not responsible, and whether accountants/secretaries are unnecessarily dragged. Magistrates also insist on personal appearance despite HC/SC directives that exemption can be granted. Even for cheque of Rs.2000, accused faces up to 2 years imprisonment. Presumption in favour of complainant makes it hard. Many use 138 as pressure tactic for civil recovery. If cheque was issued with justifiable reason and dishonored, still prosecution can go on. This causes mental torture and time loss for directors who have multiple responsibilities. Courts must distinguish between genuine default and misuse.
Factors to consider before implicating director
While deciding discharge or quashing, Magistrate and High Court should consider: The cheque amount, size of company, status and relation of complainant with company, and the particular transaction. If documentary proof shows director had no role in issuance or funds, he should not be proceeded. If there is dishonest intention and documentary evidence of involvement, then liability follows. Constitutional Courts have often said directors cannot be taken to task without material. Proceeding cannot be used to harass management. Each case must be on facts, not on mechanical application of section 141.
Conclusion
Directors liability dishonour of cheques section 138 141 requires careful approach. Object of NI Act is to protect credibility of cheque, not to criminalize business failure. AP HC in Rohinton Noria laid down that routine roping of all directors must be deprecated. In 2010, with increasing cheque bounce cases, courts must balance deterrence with fairness. Complainant must plead specific role. Magistrate must apply mind. Only then section 138 will serve purpose without becoming tool for oppression.
