Case Name – Bijoy Kumar Moni v. Paresh Manna & Anr.

A man convicted of dishonoured cheque was acquitted by a bench of Justices JB Pardiwala and R Mahadevan on the grounds that the cheque was issued on behalf of a firm that was not arraigned as an accused. The accused signed the check in his capacity as a director of the company, and the court rejected the claim that there was no need to implead the company because the check was issued to settle personal debt.

Had the company Shilabati Hospital Pvt. Ltd. been arraigned as an accused in the complaint case before the Trial Court, the complainant would still have had the opportunity to prove, with the help of the presumption under Section 139, that the check was in payment of a legally enforceable debt, even if it had been issued for the discharge of the accused’s personal liability towards the complainant.

However, the High Court correctly ruled that no prosecution could have been brought against the accused in his individual capacity since the check drawer had not been charged as an accused. The Court clarified that the accused could only be held accountable under Section 141 of the NI Act, but that this could not have been accomplished without the firm being prosecuted as an accused party.

A dishonoured cheque made out to Paresh Manna, a director of Shilabati Hospital Pvt. Ltd., purportedly to settle a personal obligation of Rs. 8,45,000, was the basis for the appeal. Bijoy Kumar Moni, the complainant, said that in 2006, he gave Manna financial support and that Manna then wrote a check drawn on the hospital’s account to pay back the loan. Because there were not enough money, the check was returned.

Following Moni’s accusation, Manna was found guilty, given a one-year prison sentence, and mandated to pay Rs. 10,000,000 in compensation. The Calcutta High Court overturned the Sessions Court’s decision to uphold the conviction, holding that Manna could not be held accountable under Section 141 of the NI Act since the hospital issued the check and the firm had to be tried as an accused as well.

Supreme Court Decision The complainant contended before the Supreme Court that the debt was personal and unrelated to the business, emphasizing that the accused never stated throughout the trial that the loan was for the business’s advantage. However, the accused insisted that the check was written in his official role as Director of Shilabati Hospital Pvt. Ltd. and that he could not face charges until the company was charged as an accused party.

The Supreme Court emphasized that only the check drawer may be held accountable under Section 138 of the NI Act. By stating that an authorized signature acts on behalf of the company, which still serves as the check drawer, the Court reaffirmed the idea of independent corporate personality. It cited a number of cases that made it clear that in order for Section 138 to apply, a check must be drawn on an account that the accused maintains.

Delegating authority to manage or transact from an account does not change the fact that the account is maintained by the account holder, the Court noted, and the phrase “on an account maintained by him with a banker” in Section 138 of the NI Act creates a specific relationship between the banker and the account holder.

The Court emphasized that unless the legislative conditions under Section 141 are met, accountability cannot be extended to people who are only authorized signatories. The Court pointed out that the firm must be charged as the primary perpetrator in order to be held liable for vicarious liability under Section 141 of the NI Act. The director or authorized signatory could not be held accountable until the corporation was arraigned as an accused party.

According to Section 138 of the NI Act, the drawer company must be found to be the primary offender before the other directors or those in charge of and accountable to the company for the way the business is conducted can be deemed culpable through a deeming fiction. Naturally, there would be no need to hold the other parties vicariously accountable for the offense committed under Section 138 of the NI Act if the drawer company was not culpable. The respondent was not responsible vicariously since Shilabati Hospital Pvt. Ltd. was not a party to the proceedings, the Court ruled.

The Court dismissed the claim that the purpose of Section 138 of the NI Act would be defeated if cases such as this one were excluded. An accused person attempted to dismiss a case under Section 138, arguing that he was only an authorized signatory for a proprietorship and could not be held accountable, according to a ruling by the Madras High Court. However, the High Court ruled that the signature might be responsible under Section 138 as the “drawer” of the check. The rationale of the High Court was rejected by the Supreme Court. It reiterated that an authorized signatory acting on behalf of a principal cannot be regarded as the drawer of the check and that only the drawer of the check is subject to liability under Section 138.

The Court underlined that because Section 138 is a punitive law, it must be construed rigorously. In this instance, the check was drawn on a hospital-maintained account rather than the accused’s personal account, even though the accused signed it. Consequently, Section 138’s requirements were not fulfilled.

According to Section 138 of the NI Act, the check that was returned due to insufficient funds must have been taken from an account that the individual in question held. If Section 138 of the Act is read to imply that a person is responsible if a check is returned due to insufficient money, even if the check is drawn on an account that is not his, it would be a violation of the statute’s text. The Court ruled that such an interpretation would result in ludicrous and completely unexpected outcomes.

The Court noted that the complainant would have suffered as a result of the rejected check and that the period of limitations for the civil case had passed, even though it found no grounds for responsibility under Section 138. Although the complainant was unable to file a new case under Section 138, there was still a chance that the accused had engaged in fraud or deception. The appeal was denied, and the court allowed the complainant to contact the police for a possible formal complaint of cheating.