M J Antony: Bearer cheque-mate
Top executives have a heavy burden under the Negotiable Instruments Act
Both paper money and paper cheques are said to be floating towards the sunset as electronic payments are becoming more popular. But their presence cannot be written off for a long time. You can’t imagine an economy like ours functioning without sackfuls of cash. The number of cheques that bounce every day indicate their indispensable place.
Earlier this month, magistrates in Delhi sat on a Sunday and disposed of 41,900 cheque dishonour cases in one go. Banks took the initiative and the endeavour was guided by the Chief Justice of the high court. The courts exclusively dealing with such cheques are weighed down by piles of them. According to the 213th report of the Law Commission, which studied fast track courts on dishonoured cheque cases, more than 3.8 million cases are pending in trial courts across the country.
Law journals report a variety of cases from the high courts that reveal the dexterous stratagems of the drawers and the payees. Lawyers can nitpick on several aspects of Sections 138 and 141 of the Negotiable Instruments Act, which bring a rich harvest for them. In a case decided recently by the Punjab and Haryana High Court, a woman paid Rs 1.5 lakh merely to buy peace (Nancy Bhakoo vs Gulzar Singh). A money lender asserted that Nancy had borrowed Rs 50,000 from him and her cheque in repayment bounced. She contended that she had not sent any cheque at all and what was produced was a forged one. She also alleged that the money lender has filed many similar complaints and was a habitual litigant. Nevertheless, she offered to pay Rs 1.5 lakh to close the case, as the punishment prescribed is two years’ jail and a fine of twice the cheque amount. The high court, in its wisdom, declared that it was a “fair and just amount” and continuance of the proceedings against her would “only overburden courts with meaningless litigation.”
Despite the clearly worded provisions, they seem to have left enough loopholes for petty foggers. Therefore, the Supreme Court noted last month in its judgment, Rallis India Ltd vs Poduru Vidya: “The world of commercial transactions contains numerous unique intricacies, many of which are yet to be statutorily regulated.” In this case, the question was the liability of partners of a firm that issued “rubber” cheques, as they are called in the West. The partners denied their vicarious liability for the offence on the ground that they had retired before the date of the cheques. The payee company contended that their denial cannot be accepted at face value but their assertion should be verified at the time of the trial. The Supreme Court agreed with the latter argument and allowed the trial to go on.
Though this is a case of partnership, the court followed its earlier ruling in the case of company directors (SMS Pharmaceuticals vs Neeta Bhalla). According to Section 141, in case of a criminal offence, every person who was in charge of and was responsible for the conduct of business as well as the company shall be deemed to be guilty. The court ruled in the case that a person who complains must specify the person in charge and then the burden shifted to that person to show that he was not in charge of the business at the time of the offence, namely, the issuance of the cheque.
The position of the managing director is slightly different. As the designation indicates, they are presumed to be in charge of and responsible for the business of the company. They can also prove in a court of law that they had no knowledge of the offence or that they exercised due diligence to prevent the commission of offence. Even then they have to go to the court.
This interpretation of the law creates several complications. In the latest case, the court urged the government to take a second look at the laws on the vicarious liability of directors and partners of firms. It is not just Negotiable Instruments Act that deals with the directors’ liability. The Food Safety and Standards Act and several special laws have similar provisions. Such laws are “susceptible to abuse by unscrupulous companies to the detriment of unsuspecting third parties,” the court warned.
The Supreme Court also cautioned the high courts against quashing criminal complaints at the threshold, using their discretionary powers. In the Rallis case, the Andhra Pradesh High Court had quashed proceedings against the partners without following the Supreme Court guidelines. On the other hand, the Punjab and Haryana High Court performed legal euthanasia in the case against Nancy who had to pay a heavy price. It is a matter of conjecture as to how the Lok Adalats and Sunday legal melas settle cheque disputes by the minute. Fear of prosecution is a great deterrent to an ordinary person. On the other hand, nothing can stop those who litigate for a lark.