Who is liable in a company-issued bounced cheque?

Answer

A:

When a company-issued cheque bounces, liability is decided under Section 138 and 141 of the Negotiable Instruments Act, 1881.

Company

• The company itself is the primary offender since the cheque was issued in its name

• Directors and Officers in charge

• Those who were in charge of and responsible for the conduct of business at the time of the cheque bounce can be held liable.

• This usually includes Managing Director, Whole-time Directors, and key managerial persons handling day-to-day affairs.

• Authorised Signatory

• The person who actually signed the cheque on behalf of the company is always liable along with the company, even if they are not a director.

• Independent or Non-Executive Directors

• They are not automatically liable. Unless it is proved that they were involved in the business operations or cheque issuance, they cannot be prosecuted.

• Nominee Directors or Sleeping Partners

• They are not liable unless there is evidence of direct involvement in the company’s management or the transaction.