The Debate on Section 141 of the NI Act

The world of commercial transactions contains numerous unique intricacies, many of which are yet to be statutorily regulated. More particularly, the principle laid down in Section 141 of the Negotiable Instruments Act, 1881(“NI Act”), (which is in pari materia with identical sections in other Acts) is susceptible to abuse by unscrupulous companies to the detriment of unsuspecting third parties.

The Hon’ble Supreme Court in a recent judgement1 laid down the guidelines as to how the High Court should exercise its power to quash the criminal proceeding related to offences committed by the companies under Sections 138 and 141 of the NI Act.

  1. The primary responsibility of the Complainant is to make specific averments in the Complaint so as to make the Accused vicariously liable. For fastening the criminal liability, there is no legal requirement for the Complainant to show that the Accused Partner of the Firm was aware about each and every transaction. On the other hand, Section 141 (1) of the NI Act clearly lays down that if the Accused is able to prove to the satisfaction of the Court that the offence was committed without his/her knowledge or he/she had exercised due diligence to prevent the commission of such offence, he/she will not be liable of punishment.
  2. It is not necessary to reproduce the language of Section 141 of the NI Act verbatim in the complaint since the complaint is required to be read as a whole. If the substance of the allegations made in the complaint fulfil the requirements of Section 141 of the NI Act, the complaint has to proceed in regards the law.
  3. In construing a complaint a hyper-technical approach should not be adopted so as to quash the same.
  4. The Complainant is supposed to know only generally as to who were in charge of the affairs of the Company or Firm, as the case may be. The other administrative matters would be within the special knowledge of the Company or the Firm and those who are in charge of it. In such circumstances, the Complainant is expected to allege that the persons named in the complaint are in charge of the affairs of the Company/Firm. It is only the Directors of the Company or the Partners of the Firm, as the case may be, who have the special knowledge about the role they had played in the company or the Partners in a Firm, to show before the court that at the relevant point of time they were not in charge of the affairs of the Company. Advertence to Sections 138 and 141 of the NI Act shows that on the other elements of an offence under Section 138 of the NI Act being satisfied, the burden is on the Board of Directors or the officers in charge of the affairs of the Company/Partners of a Firm to show that they were not liable to be convicted. The existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial to show that at the relevant time they were not in charge of the affairs of the Company or the Firm.
  5. The final judgement and order would depend on the evidence adduced. Criminal liability is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the Firm. But vicarious criminal liability can be inferred against the Partners of a Firm when it is specifically averred in the complaint about the status of the Partners 'qua' the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal.
  6. If any Director wants the process to be quashed by filing a Petition under Section 482 of the Code of Criminal Procedure, 1973, on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court.

The Hon'ble Apex Court further held that the object of the statutory notice before the filing of the complaint is not just to give a chance to the drawer of the cheque to rectify his omission to make his stance clear so far as his liability under Section 138 of the NI Act is concerned. It is essential for the person to whom the statutory notice is issued under Section 138 of the NI Act to give an appropriate reply. The person concerned is expected to clarify his or her stance. If the person concerned has some unimpeachable and incontrovertible material to establish that he or she has no role to play in the affairs of the Company/Firm, then such material should be highlighted in the reply to the notice as a foundation.

By - Lakshmi Raman

  1. S.P. Mani and Mohan Dairy Vs. Dr. Snehalatha Elangovan, Criminal Appeal No. 1586 OF 2022