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Introduction:

The Negotiable Instruments Act, 1881 was enacted with the intention of consolidating the law related to cheques, promissory notes and bills of exchange etc. The purpose was to regulate the use of cheques and other instrumentalities for purchasing goods and services which adds on to the credibility of the instruments. One of the most important negotiable instrument, which is used in day to day life is a cheque, which is defined under section 6 of the Act as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand and it includes the electronic image of a truncated cheque and a cheque in electronic form”. Section 138 of the Act penalizes the dishonor of cheques which means when the cheque is presented to the bank but returned unpaid and therefore a notice is sent to the drawer for the payment to be made within 15 days of the receipt of notice, but the drawer fails, which according to section 138 is when the offence is committed.

Key Points u/s 138 r/w section 141:

The period of limitation for filing the complaint u/s 138 is one month from the date when the cause of action rises. The Supreme Court in the case of Saketh India Ltd. v. Indian Securities Ltd,  (1999) 3 SCC 1, held that in order to calculate the limitation, the rule observed is to exclude the first day and to include the last, and the period of one month will be reckoned from the day immediately following the day on which the period of 15 days from the date of receipt of notice by the drawer expires. The 15th day is to be excluded for counting the period of one month.

Section 138 is a serious offence and must be interpreted strictly so that no person can indigenously, insidiously and strategically be prosecuted. In the recent cases, the director and the important management persons are vicariously prosecuted on behalf of the companies under Section 141 of the Act which assumes great importance under the act. However in those cases where the accused can successfully establish that offence u/s 138 was committed without his knowledge and that he had exercised due diligence, such person cannot be held liable for offence. Therefore, the article will throw light on the recent cases on the aspects of vicarious liability and presumption of debt on the KMPs( Key Managerial Person).

Case 1: Sunil Todi v. State of Gujarat [Crl. Appeal No. 446 of 2021]

Issue: Whether the dishonour of cheque issued as a security can be covered under legally enforceable debt?

Judgement: The Supreme Court in this case observed that the cheques are issued in order to comply with the consideration requirements of a commercial transaction. Wherein the person has issued the cheque as a security against his liability/ discharge of obligations arising out of commercial transactions, the holder can easily contemplate the cheque for the presentation in case of default by the issuer. 

Case 2: Sanjay Gupta v. The State & Anr. [Crl. Rev. P. No. 326/2021 & Crl. M. (Bail) No. 1244/2021]

The Delhi High Court held that, in accordance with the Act, when the accused admits to issuing the cheque and is signing it, a presumption of a legally enforceable debt is created in his favour. Thereafter, it is the accused's responsibility to disprove the presumption. While the accused may rely on the materials provided by the complainant and not have to present his own proof, a simple statement from the accused would not be enough to disprove the presumption.

Case 3: Dilip Hariramani v. Bank of Baroda [Crl. Appeal No. 767 of 2022 dated 09 May 2022]

The Supreme Court observed that although statutes like the Partnership Act of 1932, Indian Contract Act of 1872, Recovery of Debts Due to Banks and Financial Institutions Act of 1993, and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 impose civil liability on the Appellant to pay off a legal debt, but in order for the Appellant to be held vicariously liable under Section 141 of the Act, the accused person must:

• should be in charge of and accountable for the company or firm's daily operations; 

• should be in charge of and accountable for the company or firm's daily operations; or they should be a director, manager, secretary, or another officer of the organisation whose negligence, connivance, or incompetence allowed the offence to be committed.

Case 4: Narinder Garg & Ors. V. Kotak Mahindra Bank Limited & Ors. [W. P. (C) No. 93/2022 dated 28 March 2022]

The Supreme Court observed that the natural people charged under Section 141 of the Act are not shielded by the moratorium's operation, and they still remain legally liable for the Act's requirements. The corporate entity's resolution and revival would not release the management from their vicarious liability.

Reference:

1.https://nagaonjudiciary.gov.in/study%20material/1581514481917_NI%20Act.pdf

2.https://www.livelaw.in/law-firms/law-firm-articles-/dishonour-of-cheques-section-138-negotiable-instruments-act-1881-amicus-services-202214?infinitescroll=1

3.https://www.livelaw.in/top-stories/section-138-ni-act-no-vicarious-liability-for-cheque-dishonour-merely-beacuse-a-person-was-a-partner-or-stood-guarantor-for-loan-supreme-court-198669