Last updated: May 23rd, 2024 6:28 PM

Company Cheque Bounce - Directors Responsibility

In India, cheque bounce is a criminal offence punishable with imprisonment for a term of up to two years or with a fine twice the amount of the cheque or both. Recently, the provisions relating to cheque bounce have been further strengthened to reduce the number of trivial cases and speed up the process of payment collection. Therefore, it is important for small & medium-sized businesses to understand their rights & responsibilities of a cheque bounce and maintain financial discipline to avoid cheque bounces. In this article, we look at the implications of a company cheque bounce and the Director's responsibility.

All Directors are Not Responsible

The Supreme Court has held that all the directors of a company would not be prosecuted if a cheque issued by the Company was dishonoured because of insufficient funds. There are no rules that make Director of a company responsible for all aspects and the responsibility would depend on the roles assigned such as Director, Manager or Secretary. Hence, the liability for issuance or dishonour of cheque could not lie with a person simply because they held an office or a position in a company.

Responsibility for Cheque Bounce in the Company

As per the Supreme Court order, only those who were in charge of and responsible for the conduct of the business of the company at the time of the commission of an offence will be liable for criminal action. If a Director was not in charge of and was not responsible for the conduct of business at the relevant time, he/she will not be liable for the criminal offence. Hence, liability arises from one being in charge of and responsible for the conduct of the business at the relevant time when the offence was committed and not on the basis of one merely holding a designation or office in a company.

Director Responsible for Cheque Bounce

The Director responsible for the issuance of the particular cheque would, however, be liable for cheque bounce under the Negotiable Instruments Act.Know more about cheque bounce implications or section 138 notice.