Case Note & Summary
The petitioner, Mrs. Kanchan Sunil Mansingani, was the original accused no.2 in a complaint filed by respondent no.1, Mrs. Sharmila Raj Thackery, under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. The complainant alleged that she had paid Rs.25 lakh to accused no.1 company on 1.8.2008 for investment, and accused no.3 issued a cheque on behalf of the company on 30.7.2008 towards repayment of that amount. The cheque was dishonoured on 24.11.2008 due to insufficient funds. After statutory notice, payment was not made, leading to the complaint. The learned Magistrate issued process against all accused, including the petitioner. The petitioner filed a revision before the Sessions Court, which was rejected, and then filed this writ petition to quash proceedings against her. The petitioner raised two grounds: first, that the cheque was issued on 30.7.2008, before the complainant's payment on 1.8.2008, so there was no legally enforceable debt; second, that she had resigned as director of the company with effect from 5.9.2008, well before the cause of action arose (the dishonour and non-payment after notice). The court held that the question of legally enforceable debt is a matter of evidence and cannot be decided at the quashing stage. However, on the second ground, the court noted that the offence under Section 138 is committed when the drawer fails to pay within 15 days of receipt of notice. The notice was served on 24.12.2008, and the 15-day period expired in January 2009. Since the petitioner had resigned on 5.9.2008, she was not a director at the time the offence was committed. Therefore, she could not be held vicariously liable under Section 141. The court quashed the proceedings against the petitioner.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Vicarious Liability of Director - Section 138 r/w 141 - Petitioner resigned as director before the expiry of 15 days from notice of dishonour, which is the date of commission of offence - Held that since the petitioner was not a director at the time the offence was committed, she cannot be held vicariously liable - Proceedings quashed (Paras 5-7). B) Negotiable Instruments Act - Legally Enforceable Debt - Investment vs Debt - Section 138 - Cheque issued for repayment of investment made two days later - Held that the question whether there was a legally enforceable debt at the time of issuance of cheque is a matter of evidence and cannot be decided at the stage of quashing (Para 5).
Issue of Consideration
Whether a director who resigned before the cause of action for dishonour of cheque arose can be prosecuted under Section 138 r/w 141 of the Negotiable Instruments Act, 1881
Final Decision
The court allowed the petition and quashed the proceedings against the petitioner (accused no.2) in the complaint under Section 138 r/w 141 of the Negotiable Instruments Act, 1881.
Law Points
- Liability of director under Section 141 NI Act arises only if person was in charge of and responsible for conduct of business at the time of offence
- resignation before cause of action absolves liability
- cheque issued for investment not necessarily a debt
