The Hindu Business Line : Notice mandatory before initiating prosecution for cheque bounce: HC

The Madras High Court has held that issue of statutory notice to every person, including directors of companies, who were sought to be prosecuted for offence under Section 138 of the Negotiable Instruments Act (dishonour of cheque) is mandatory.

Disposing of a petition by a director of a Chennai-based company challenging institution of criminal proceedings in a Chennai Metropolitan Magistrate Court for the alleged offence, a Division Bench, comprising Mr Justice M. Karpagavinayagam and Mr Justice A.C. Arumugaperumal Adityan, said that the point at issue had not yet been decided by the Supreme Court even though various High Courts had given different views.

When this question was before a single judge of this High Court, he held that prosecution against the directors without individual notices under Section 138(b) of the N.I. Act was not maintainable. In another case, another single judge held that prosecution was maintainable since the notice issued to the company meant service of notice on all directors arrayed as accused along with the company.

The Bench noted that a reading of Section 138 (dishonour of cheques) would make it clear that to prosecute a person for the offence, certain factors had to be proved. When a cheque was dishonoured, the person who issued the cheque shall be deemed to have committed the offence.

It was evident that an individual person, an incorporated person or even an unincorporated association or body of persons could be a person under Section 11 of the Indian Penal Code. Consequently, such an entity could be a person under Section 138 of the N.I. Act.

Section 138 referred to a person who had drawn the cheque, and when the cheque was dishonoured, such a person, viz, the drawer, shall be deemed to have committed the offence.

The Bench said that the object of Section 138(b) was to afford an opportunity to the person, who was the drawer of the cheque, which included the company, before proceeding against him under the penal enactment. In the circumstances, the prosecution against the petitioner/director (Mr B. Raman, Director, Shasun Chemicals & Drugs Ltd, Chennai) was not maintainable.

As such, the proceedings against the petitioner pending in the XVII Metropolitan Magistrate Court, Saidapet, Chennai, were quashed.