"Make the Company Main Accused", says SC

In a recent judgment – Bijoy Kumar Moni Vs Paresh Manna 2024 INSC 1024, the?Supreme Court (SC) says, “Also make the Company as Main Accused along with the Director/Authorized Signatory”.

?

Brief Facts:

In 2006, Paresh Manna (a director of Shilabati Hospital Pvt. Ltd.) borrowed Rs. 8.45 L from Bijoy Kumar Moni. Paresh signed a cheque of Rs. 8.45 L (as a director of a hospital; and not in his personal capacity and not from his personal bank account) drawn on the hospital’s bank account which got dishonoured due to insufficient funds.

Bijoy got issued a notice and thereafter, filed a complaint only against Paresh (and not against Shilabati Hospital) as a director of Shilabati Hospital u/s 138 r/w 141 of NI Act.

The trial court convicted Paresh and sentenced one-year imprisonment and imposed a fine of Rs. 10 L. The Sessions Court upheld the conviction, sentence and fine. However, the Calcutta High Court (CHC) acquitted Paresh because Shilabati Hospital was not arraigned as an accused. SC upheld the CHC’s decision.

?

SC’s Observations:

SC stated that merely mentioning Paresh as a director of Shilabati Hospital Pvt. Ltd. is not sufficient to make Shilabati Hospital liable for the offense u/s 138 r/w 141 of NI Act. If the dishonoured-cheque was drawn on the company’s bank account, only the director cannot be solely held liable for dishonour of the cheque without making the company as main accused in the complaint u/s 138 of NI Act.

[Doctrine of separate legal personality – a director of the company and the company are two separate legal entities. Shilabati Hospital (principal offender) must have been made as main Accused # 1 and Paresh as Accused # 2 in the complaint which was not done in this case.]

SC emphasized that only the person who draws the cheque can be held liable under the NI Act. In this case, Shilabati Hospital (through its director), however, was not made as the main accused in this complaint.

SC specified that a penal liability cannot be stretched too far – Shilabati Hospital committed the offence and Paresh (as an individual) cannot be convicted. An individual director of a company cannot be held criminally liable for the crime committed by the company unless the company itself is also implicated. And without establishing specific roles/connections, individual directors cannot be held liable for the offences committed by the company.

SC accepts that bringing a civil action (recovery suit) against Paresh or Shilabati Hospital; or initiating proceedings u/s 138 of the NI Act afresh by impleading Shilabati Hospital are hopelessly time-barred.

However, the possibility of Parseh having committed the offence of cheating cannot be ruled out. Prima facie, the mens rea (guilty mind) of the accused (here, Parseh) speaks for itself. And SC suggested Bijoy to lodge an appropriate FIR against Paresh and which should be investigated accordingly and thoroughly by the police.

Lessons:

1.?????? Make the company (principal offender) as ‘main accused’ and its directors as ‘accused’ else the authorized signatory alone will not be held liable u/s 138 of NI Act. (Page nos. 17, 51, 56)

2.?????? Make unambiguous averments in the complaint and establish the specific roles/connections between the directors and the company to make them liable for the offences committed by the company. (Page no. 31)

3.?????? Sec. 141 of NI Act does not apply to a proprietorship firm as it has no separate corporate identity. (Page nos. 52, 53)

#Legal hashtag#LawStudents hashtag#NegotiableInstrumentsAct hashtag#ChequeBouncing hashtag#law hashtag#lawyers hashtag#lawstudents hashtag#InHouseCounsel hashtag#CorporateCounsel hashtag#InHouseLawyer hashtag#LawyerLife hashtag#LegalIndustry hashtag#LawyersOfLinkedIn