2022 (12) TMI 1517 - HC - Indian Laws

Dishonour of Cheque - insufficient funds - Vicarious liability of petitioner - petitioner was in no way engaged with the business or affairs of respondent No.2, since he had retired more than 9 months earlier - HELD THAT - Merely being a signatory to a cheque does not, in and of itself, make a person guilty of the offence under section 138 of the NI Act. The offence is triggered at the stage when a cheque is returned unpaid by the bank inter-alia for insufficiency of funds. For guilt to be imputed to an officer of a company, at the very least, the officer should have been responsible for the business and affairs of the company and for honouring the cheque on the date that the cheque was returned unpaid. In the present case, it is clear that though the petitioner co-signed the cheques in question, he had retired from the company more than 09 months before the cheques came to be presented; and could not therefore have ensured sufficient funds in the bank account of the company to honour the cheques, even if he had so desired. The deeming provision contained in section 141 NI Act would not apply to the petitioner, since he was no longer in charge of the affairs of the respondent company on the date that the offence defined in section 138 was committed - Re-notify on 29th March 2023.

Summary

Issues involved: Impugning summoning order u/s 138 of NI Act based on retirement before cheque presentation.

Summary:
In the present case, the petitioner challenged the summoning order dated 19.09.2019 made by the Metropolitan Magistrate u/s 138 of the Negotiable Instruments Act, 1881. The petitioner, a signatory to the post-dated cheques issued on behalf of the company, retired from employment before the cheques were presented for encashment. The petitioner argued that he was not responsible for the company's affairs at the time of cheque return due to retirement. The petitioner's counsel highlighted official communications of retirement and appointment of alternate officer by the company. The petitioner's name was not reflected in the List of Signatories submitted by the complainant. The Metropolitan Magistrate summoned the petitioner solely based on being an authorized signatory without considering the retirement status and lack of involvement in the company's affairs at the time of cheque return.

Upon prima facie examination of the petition and annexed documents, the court issued notice to respondent No.1. The court emphasized the pre-conditions of section 138 of the NI Act, including the issuance of a written notice of demand for payment before an offence is deemed to be committed. Section 141 of the NI Act holds persons responsible for the conduct of the company liable for offences under section 138. However, being a signatory alone does not establish guilt under section 138; the offence is triggered upon the cheque's return unpaid. The court noted that the petitioner, having retired before the cheque presentation, could not have ensured sufficient funds in the company's account to honor the cheques.

Consequently, the court stayed further proceedings concerning the petitioner in the criminal case until further orders. The case was re-notified for 29th March 2023.