When can a cheque bounce claim against the director of the company be quashed?

When can a cheque bounce claim against the director of the company be quashed?

A recent case, A.R. Radha Krishna vs. Dasari Deepthi & Ors reiterated the factors to be considered while examining issues pertaining to cheque bounce claims and dishonouring cheques under Section 138 of Negotiable Instrument Act 1881 against the Director of the Company in question.   

Facts of the case

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Under Sections 138 and 141 of Negotiable Instrument Act, the High Court of Telangana and State of Andhra Pradesh quashed criminal proceedings against the Respondents, i.e. Directors of M/s Dhruti Infra Projects Limited. The accusation by the Appellant was that the cheque authorized by the Managing Director of the aforementioned company was returned by the bank with the remark “Payment stopped by the Drawer”. The Respondents averred that they were non-executory Directors having no knowledge of the day to day business of the firm.

The Verdict

The highlight of the judgement by the three-judge bench comprising Justice NV Raman, Justice Mohan M Shantanagoudar and Justice Indira Banerjee on hearing the appeal against the judgement of the high court was,

“The law requires that the complaint must contain a specific averment that the Director was in charge of, and responsible for, the conduct of the company’s business at the time when the offence was committed.”

The judgement went on to read, “That the High Court, in deciding a quashing petition under Section 482 of CrPC must consider whether the averment made in the complaint is sufficient or if some unimpeachable evidence has been brought on record which leads to the conclusion that the Director could never have been in charge of and responsible for the conduct of the business of the company at the relevant time.”

Finally, the court allowed the appeal, observing,

“A perusal of the record in the present case indicates that the appellant has specifically averred in his complaint that the respondent nos. 1 and 2 were actively participating in the day-to-day affairs of the accused no.1 – company. Further, the accused nos. 2 to 4 (including the respondent nos. 1 and 2 herein) are alleged to be from the same family and running the accused no.1 – company together. The complaint also specifies that all the accused, in active connivance, mischievously and intentionally issued the cheques in favour of the appellant and later issued instructions to the Bank to “Stop Payment”. No evidence of unimpeachable quality has been brought on record by the respondent nos. 1 and 2 to indicate that allowing the proceedings to continue would be an abuse of process of the court.”

A Brief Analysis

It is amply clear by this judgement, and those in the past, that there is no formula that can be fixed in such cases; conditions vary on a case-to-case basis. For example, in a previous case named Himanshu vs. B. Shivamurthy & Anr., the bench comprising Justice DY Chandrachud and Justice Hemant Gupta stated the following conditions to be fulfilled before lodging a criminal complaint,

“(i) presentation of the cheque to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (ii) a demand being made in writing by the payee or holder in due course by the issuance of a notice in writing to the drawer of the cheque within thirty days of the receipt of information from the bank of the return of the cheques; and (iii) the failure of the drawer to make payment of the amount of money to the payee or the holder in due course within fifteen days of the receipt of the notice.”

Another case worth referring to in this context would be Gunamala Sales Private Limited vs. Anu Mehta and Ors., (2015). The appellant faced issues similar to that in the abovementioned A.R. Radha Krishna case. When the appellant approached the Supreme Court, the apex court chastised the High Court for quashing petitions by invoking its power under Section 482 of Cr.P.C. Notably, the judgement was very similar to that passed in the A.R. Radha Krishna case.

It was found out that the directors were actively involved in the day to day sales and purchases of the company in this case and hence were liable to be questioned. It was also observed by the SC that in this particular case, the impugned acted mischievously to stop the payments through the Bank and hence dismissed the High Court’s orders of quashing the appellant’s complaints.

The High Court’s responsibility

A common legal development running through all such judgements has been observed, those being the directions to the High Court. To put it directly, while the High Court must use its power u/s 482 of Cr.P.C. when the court is convinced, from the material on record and an unimpeachable quality of evidence, it should also ensure that the proceedings are not continued so as to prevent abuse of the process of the court.