Question
Q: Can a director be held liable?
Answer
A:
Yes, a director can be held liable in cheque bounce cases under certain conditions, but it is not automatic. Liability depends on their role, responsibility, and involvement in the company’s affairs. Here’s a clear breakdown:
1. Company’s Liability First
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When a cheque is issued by a company and it bounces, the company itself is the primary accused under Section 138 of the Negotiable Instruments Act (NI Act), 1881.
2. When Directors Can Be Liable
Under Section 141 of the NI Act, directors and officers can be held personally liable if:
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They were in charge of and responsible for the conduct of the company’s business at the time the cheque was issued and dishonoured.
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There is specific evidence or an allegation in the complaint that they were directly responsible for the transaction or decision.
3. Independent / Non-Executive Directors
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Merely being a director by title does not make a person liable.
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Independent or non-executive directors, who are not involved in day-to-day management, are usually not held liable, unless it can be proved that they had a role in the issuance of the cheque.
4. Managing Director / Whole-Time Director
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Managing Directors and whole-time directors are generally presumed to be in charge of the company’s affairs, so they are more likely to be held liable.
5. Defences for Directors
A director can avoid liability if they prove that:
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They were not in charge of daily operations at the relevant time.
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The cheque was issued without their knowledge or involvement.
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They had taken all due diligence to prevent the offence.
A director can be held liable for a bounced company cheque if they were directly responsible for the company’s business and cheque issuance. However, independent or sleeping directors are usually not liable unless specific involvement is proven.
.By Advocate BK Singh
(Delhi High Court)
