'Inactive dir not accountable for cheque bouncing'

New Delhi, Oct 8: In a major relief to inactive directors of a company, the Supreme Court has held that in cases of cheque bouncing, only directors in control and incharge of day-to-day affairs of the company could be prosecuted.

The apex court, while quashing the proceedings against two of the directors of M/s Karnataka News Net (KNN), Bangalore, under section 138 of the Negotiable Instrument Act (NIA), has ruled that specific allegations must be made in the complaint against all the accused that they were in control of day-to-day affairs of the company at that time as per the provision of section 141 of NIA.

A bench comprising Justices S B Sinha and Dalveer Bhandari in their judgement set aside the impugned ruling of the Karnataka High Court refusing to quash the proceedings against the appellants Sabitha Krishnamurthy and others.

KNN had taken a loan of Rs 2.25 lakhs from R B S Channabasavaradhya on an interest rate of 24 per cent per annum and two cheques of Rs 1.24 lakh each dated June 23 and 30, 2001, were issued which were later dishonoured for want of sufficient funds.

The court in its judgement held, ''Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable of commission of such an offence would be vicariously liable. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act 1956 is concerned only if the requisite statements which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable. Strict compliance of the statutory requirements would be insisted.''

''In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court must insist strict compliance of the statutory requirements. In the event ultimately the prosecution is found to be frivolous or otherwise malafide, the court may direct registration of case against the complainant for malafide prosecution of the accused.

The accused would also be entitled to file a suit for damages.'' The court also took note of the fact that even the sworn affidavit of evidence by the son of the complainant did not contain any statement that the appellants were in charge of the business of the company. In fact, the two appellants were not even the directors of the company at the time.

The Apex court also quashed the proceedings pending in the court of judicial magistrate, Bangalore.

UNI