Rule of Criminal liability against vicarious liability – Under Section 138 of the Negotiable Instruments Act, 1881 it is only drawer of the cheque who can be prosecuted
The Apex Court in the recently decided case, Aparna A. Shah vs. M/s Sheth Developers Pvt. Ltd. and Anr., decided on July 1, 2013 by Justices P. Sathasivam and Jagdish Singh Khehar, distinguished the scope of rule in the cases involving criminal liability against vicarious liability with specific reference to who would be liable for an offence of Dishonour of cheque punishable under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act).
The Apex Court in Aparna Shah case (supra) affirmed the view adopted by it in its earlier judgment passed in Jugesh Sehgal v. Shamsher Singh Gogi [(2009) 14 SCC 683] that it is only the “drawer” of the cheque who can be made liable for the penal action under the provisions of the N.I. Act.
Rule of criminal liability against vicarious liability:
The concept of vicarious liability was introduced in penal statutes like Negotiable Instruments Act to make the Directors, partners or other persons, in charge of and control of the business of the Company or otherwise responsible for its affairs; the Company itself being a juristic person.
The rule lays down that:
• The penal provision must be strictly construed in the first place.
• There is no vicarious liability in criminal law unless the statute takes that also within its fold.
• In the absence of any provision laid down under the statute, a Director of a Company or an employee cannot be held vicariously liable for any offence committed by the Company itself.
Position of law in matters relating to dishonour of a cheque:
• The liability here primarily falls on the drawer.
• If the drawer is a Company, then Drawer Company and is extended to the officers of the company.
The above position makes a depart from the normal rule in the cases involving criminal liability which is against vicarious liability.
To conclude, following can be summarised as a position in law while determining liability in cases constituting an offence of dishonour of cheque:
• Proceedings filed under Section 138 cannot be used as an arm twisting tactics to recover the amount allegedly due.
• No one to be held criminally liable for an act of another.
• The culpability attached to dishonour of a cheque can, in no case “except in case of Section 141 of the N.I. Act” be extended to those on whose behalf the cheque is issued.
• If offence is committed by a Company (under Section 141 of the N.I. Act), the criminal liability will extend its officers. It makes every person who, at the time the offence was committed, was in-charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence.
• Section 141 create criminal liability and contains conditions which have to be satisfied before the liability can be extended.
• However, in a situation involving proprietary concern and joint account holders, the rule is different.
o If the drawer of the cheque is the sole proprietor, only he will be held liable and not any other person in the concern.
o No person can be held liable merely on the ground that he was a joint account holder along with other person (eg. Husband and wife) though had neither drawn nor issued the cheque. The situation however would have been different, had the complaint apart from being under Section 138 of the N.I. Act also included Section 420 of the Indian Penal Code, 1860.
o Where drawer of a cheque fails to make the payment on receipt of a notice, then the provisions of Section 138 of the Act could be attracted against him only, even if the cheque was drawn to a joint bank account, to be operated by either of the account holder.
o Where cheque has been issued from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. This principle is an exception to Section 141 of the N.I. Act.