Case Note & Summary
The applicant, Shehzad Valimohammad Merchant, was a director of Landmark Real Estate Developers Limited. The company entered into a Memorandum of Understanding for settlement of accounts with the respondent, and issued post-dated cheques, including cheque No.034405 dated 31/01/2017 for Rs.2,94,805/-. The cheque was dishonoured. The complainant sent a statutory notice under Section 138 of the Negotiable Instruments Act, 1881 to three addressees: Mr. Vali Mohamed Ismail Merchant at his residential address, the same person at another address (Digital Planet), and the applicant at his residential address in Andheri. The notice was not sent to the registered office of the company. The complainant then filed a complaint under Sections 138 and 142 of the NI Act, and the Metropolitan Magistrate issued process against the applicant as Accused No.3. The applicant challenged the issuance of process and the appellate order upholding it. The main legal issue was whether the notice under Section 138 was validly served on the company when it was sent to the director's residential address instead of the registered office. The applicant argued that the notice must be served on the drawer, i.e., the company, and not on individual directors. The respondent contended that the notice was sufficient as it was sent to the director who was in charge. The court analyzed the requirements of Section 138 and held that the notice must be sent to the drawer of the cheque, which is the company. Sending notice to a director at his residential address, without it being the registered office or a known address of the company, does not constitute valid service. The court also noted that there were no specific averments in the complaint that the applicant was in charge of and responsible for the conduct of the business, as required under Section 141 for vicarious liability. Therefore, the court quashed the process and the appellate order against the applicant.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Notice Requirements - Section 138 NI Act, 1881 - The statutory notice under Section 138 must be sent to the drawer of the cheque, which in case of a company is the company itself, and not to individual directors at their residential addresses unless they are the drawers. The court held that sending notice to a director at his residence, without it being the registered office or known address of the company, does not constitute valid service on the company, and thus the complaint against the director is not maintainable. (Paras 1-15) B) Negotiable Instruments Act - Vicarious Liability of Directors - Section 141 NI Act, 1881 - For a director to be held vicariously liable for an offence under Section 138, there must be specific averments that the director was in charge of and responsible for the conduct of the business of the company at the time the offence was committed. The court held that in the absence of such averments, the director cannot be prosecuted merely because he is a director. (Paras 10-15)
Issue of Consideration
Whether the issuance of process against a director of a company for dishonour of a cheque drawn on the company's account is valid when the statutory notice under Section 138 of the NI Act was not served at the registered office of the company but at the director's residential address.
Final Decision
The court allowed the application and quashed the process issued against the applicant and the appellate order upholding it.
Law Points
- Notice under Section 138 NI Act must be sent to the registered office or known address of the company
- not merely to a director's residential address
- Notice to director individually is insufficient unless he is the drawer
- Vicarious liability of director requires specific averment of role in day-to-day affairs
