Where the cheque is drawn by the MD of a Company on his personal capacity, Company is not liable even if it is for discharging the dues of Company; SC

The Supreme Court of India has held in a recent judgment Mainuddin Abdul Sattar Shaikh vs. Vijay D Salvi (Criminal Appeal No. 1472 of 2009), that the accused in a proceeding under Section 138 of the Negotiable Instruments Act can be made liable there under even if the Company had not been named in the notice or the complaint, as on facts it held that there was no necessity for the complainant to prove that the said accused was in charge of the affairs of the company, by virtue of the position he held. The Court drew and applied the analogy from the proposition of law laid down in P.J. Agro Tech Limited and Ors. Vs. Water Base Limited [(2010) 12 SCC 146] that ‘where the cheque is drawn by the employee of the appellant company on his personal account, even if it be for discharging dues of the appellant-company and its Directors, the appellant-company and its Directors cannot be made liable under Section 138’The aforesaid ruling of the Apex Court came in the following fact situation :In the year 1999, the complainant (appellant before the Apex Court) booked a flat at Khargar Project proposed to be developed by M/s. Salvi Infrastructure Pvt. Ltd. through the accused-respondent by paying him Rs.74,200/-. In acknowledgment of the said amount, the accused respondent issued two receipts to the appellant, for a sum of Rs.59,000/- and Rs.14,200/-, respectively.By the year 2003, as alleged by the appellant, the aforesaid project of the respondent did not materialize. After much persuasion, the accused respondent drew cheque No.075073 for Rs.74,200/- in favour of the appellant, of an account maintained by him with his banker towards refund of the aforesaid booking amount.The cheque was drawn by the respondent in his individual capacity and not in the capacity as a Director of M/s. Salvi Infrastructure Pvt. Ltd. or as Proprietor of Salvi Builders and Developers.When the appellant presented the said cheque on 1.08.2003 to his Bank for realization, the same was returned unpaid.Hence, the appellant sent notice of demand dated 25.8.2003 through his advocate under Section 138(b) of the Negotiable Instruments Act, 1881 (hereinafter referred to as “the NI Act”), to the respondent.As the accused respondent failed to pay the amount within 15 days of the notice of demand, the appellant filed a complaint under Section 138 of the N.I. Act.The aforesaid complaint filed by the appellant was taken up by the Metropolitan Magistrate, 33rd Court, Ballard Pier, Mumbai, and vide his order dated 15.12.2005 passed in C.C. No.5194/2003, the Metropolitan Magistrate acquitted the respondent on the following grounds: Firstly, the Company M/s. Salvi Infrastructure Pvt. Ltd. was not made the accused and instead the respondent was made accused in his personal capacity; Secondly, the cheque could not be said to have been issued for the discharge of whole or part of the liability because it exceeded the liability; and thirdly, it had not been proved that the respondent was a person liable to make the payment for M/s. Salvi Infrastructure Pvt. Ltd.Being aggrieved by the order passed by the Metropolitan Magistrate, the appellant filed an application for leave to appeal under Section 378 of Cr.P.C. along with a Criminal Application No.646 of 2006 under Section 378(4) of Cr.P.C., before the Bombay High Court. The High Court by judgment and order dated 9.10.2007 dismissed the said application on the ground that the reasoning set out by the Trial Court in its order did not call for reconsiderationAggrieved by the dismissal of his application for leave to appeal by the Bombay High Court, the complainant preferred an appeal, by special leave, before the Apex Court.The Counsel for the complainant contended that under Section 138 of the NI Act, it is the drawer of the cheque who is made punishable for offence under Section 138 of the NI Act; that the Courts below have failed to appreciate that in the present matter the cheque in question was drawn by the respondent and not by the Company of which the respondent is the Managing Director-the cheque being drawn by him in his personal capacity on an account maintained by him with his Banker; and that the Courts below have wrongly concluded that notices under Section 138(b) of the N.I. Act were sent to all the Directors of the Company since such a conclusion was not supported by any evidence inasmuch as there was only one acknowledgment card on record, showing receipt of notice under Section 138(b) of the Act, by the respondent.The complainant also contended that the Courts below did not appreciate that the accused respondent in his statement under Section 313 Cr.P.C. had admitted that he was paid Rs.74,200/- as earnest money and that he had issued receipt for the same and thus there is no substance in the argument of the respondent that the cheque for Rs.74,200/- cannot be said to have been issued for discharge of whole or part of liability, because it exceeded the liability.The plea taken by the respondent in...

Where the cheque is drawn by the MD of a Company on his personal capacity, Company is not liable even if it is for discharging the dues of Company; SC

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Where the cheque is drawn by the MD of a Company on his personal capacity, Company is not liable even if it is for discharging the dues of Company; SC

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