Source: Allahabad High Court 

Why in News? 

Recently, the Allahabad High Court in the matter of Kishore Shankar Signapurkar v. State of U.P. and anr has held that if the director signing the cheque has been summoned then it shall be presumed that the company has also been summoned. 

What was the Background of Kishore Shankar Signapurkar v. State of U.P. and anr Case? 

• In the present case, the applicant is the director of the company M/s Signapurkar's Leather House Pvt.Ltd. Against whom the complaint was filed by the respondent under Section 138 of the Negotiable Instrument  Act, 1881 (NI). 
• The respondent, M/s Indcoat Shoe Component Ltd alleged that the applicant issued 12 cheques in his name. 
• The respondent alleged that the cheques were dishonoured at the time of encashment as the applicant stopped payment. 
• Aggrieved, the respondent sent the demand notices to the applicant and the applicant failed to comply with them. 
• The respondent filed a complaint against the applicant under NI Act and summons were issued against the company’s director. 
• The Applicant challenged the summons under Section 482 of the Code of Civil Procedure, 1908(CPC) before the Allahabad High Court by arguing that summon cannot be issued directly to him without summoning the company. 

What were the Court’s Observations? 

• The Allahabad High Court observed that: 
  • The instruction of “stop payment” falls within the ambit of dishonour of cheque by referring a case of Supreme Court.  
  • If the cheque or the negotiable instrument has the sign of the parties, it is sufficient to note that the party signed was involved and had due knowledge of all the transactions and shall be held liable under Section 141 of the NI Act. 
  • To charge under Section 141 it is important to make the company liable. 
  • The burden of proof shall lie on the person claiming that he had no involvement, and he was not aware of the commencement of the offence by providing evidence to substantiate the same. 
• The Allahabad High Court held that: 
  • The issuing of summon on the applicant shall be deemed as the summon is issued to the company as well. 
  • The demand notice was issued to the applicant was deemed that it has been issued to the company so the same shall be applicable to the summons as well. 
• The Allahabad High Court, based on the above observations, dismissed the application of the applicant. 

Landmark Judgement 

• Electronics Trade and Technology Development Corpn. Ltd. vs Indian Technologists and Engineers (Electronics) (P) Ltd (1996): 
  • The Supreme Court in this case held that the instruction ‘stop payment’ shall be included as dishonour of cheque. 
• K.K. Ahuja vs. V.K. Vora (2009): 
  • The Supreme Court in this case held that when a cheque is signed by any person that person shall be liable under Section 141 of NI Act if the cheque gets dishonoured. 
• Aneeta Hada vs. Godfather Travels & Tours (P) Ltd (2012): 
  • The Court held that in cases of dishonour of cheque it is important to make the company liable under Section 141 of the NI Act. 
• S.P. Mani & Mohan Dairy vs. Snehalatha Elangovan (2022): 
  • In this case the Supreme Court held that the burden of proving the liability of the offence and that a person had no knowledge of such offence shall lie on the person averting the same by producing evidence that may support his argument. 

What is Section 141 of NI Act? 

• Section 141 of NI Act establishes the principle of vicarious liability. 
• Vicarious liability is a legal concept that holds one party responsible for the actions of another. 
• According to this section, if an offence under the NI Act is committed by a company, every person who, at the time of the offence, was in charge of and responsible for the conduct of the business of the company, as well as the company itself, shall be deemed to be guilty of the offence. 
• This provision states that individuals associated with the company can be held liable for the company's actions. 

What is Corporate Criminal Liability? 

• This concept gives rise to the liability of the corporations when a criminal breach happens on the part of it. 
• A company generally has liabilities in two cases: 
  • When there is a direct involvement of the company in any offence. 
  • When there is an indirect involvement of the company through its agents or employees in any offence. 

How Liability Can be Proved under Section 141 of NI Act? 

• Establishing liability under Section 141of NI Act requires proving that the individual was actively involved in the conduct of the company's business and had a role in the commission of the offence. 
• Mere designation or being a nominal head may not be sufficient. 
• The prosecution must demonstrate a direct link between the individual's role and the commission of the offence. 
• The prosecution has to prove that the offence has been committed with consent or connivance or due to the neglect of the person. 

What were the Observations of the Court in the K. K. Ahuja v. V.K. Vora (2009) Case? 

• The court in this case observed that only the person who was directly involved and had knowledge of the commission of the offence shall be liable under Section 141 of the NI Act. 
• A list of person was suggested by the court who shall be held responsible to the company for the conduct of the business of the company :  
  • The managing director/s 
  • The whole-time director/s 
  • The manager  
  • The secretary 
  • Any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act. 
  • Any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board. 
  •  Where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors.