The Negotiable Instruments Act, 1881 was amended with effect from April 1, 1989 introducing a new chapter XVII dealing with penalties in case of dishonour of certain cheques for insufficiency of funds in the account. It prescribedpunishment with imprisonment for a term which may extend to one year or with fine which may extend to twice the amount of the cheque or with both. Section 141 deals with offences by companies. Under sub-section (1) there is a statutory presumption of guilt on the person who was in charge of, and was responsible to the company for the conduct of the business of the company as well as the company at the time when the offence was committed. Such a person can escape punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such an offence. Sub-section (2) makes any director, manager, secretary or other officer of the company vicariously liable for the offence only if it is proved that the offence has been committed with the consent or connivance of or is attributable to any neglect on the part of that person.

Very often the ordinary directors are summoned by the courts for the dishonour of cheques issued by the company.This will prove to be a disincentive to the professionals and experts who are inducted as directors and nominee directors of the institutions as they might find it inconvenient to accept the responsibility of directorship.

It has been point out by Supreme Court in State of Haryana vs Brij Lal Mittal and Others (JT 1998 (3) SC 584) dealing with prosecution of ordinary directors for an offence under the Drugs and Cosmetics Act, 1940, which is in pari materia with section 141 of the NI Act, "that the vicarious liability of a person for being prosecuted for an offence committed under the (Drugs and Cosmetics) Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simple because a person is a director of a company it does not necessarily mean that he fulfils both the above requirements so as to make him liable."

For invoking the vicarious liability of an ordinary director as provided in section 141(2) of the NI Act, thecomplaint should contain a positive assertion about the role played by ordinary directors. The complainant should make out a prima facie case against the accused to the satisfaction of the magistrate. The averment should be sufficient to prove the act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable.

It is apposite to refer the observations of the Supreme Court in Ms Pepsi Foods Ltd vs Special Judicial Magistrate (AIR 1998 Supreme Court 128) wherein it was observed: "The order of the magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charges home to the accused. It is not that the magistrate is a silent spectator at the time of recording or preliminary evidencebefore summoning of the accused. Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused."

In Nucor Wires Limited and Others vs HMT International Limited [(1998) 91 Company Cases 850] the Karnataka High Court laid down the following guidelines to be adopted by the trial courts while taking cognisance of complaints: "In cases where a large number of accused persons are arraigned, it is incumbent on the magistrates and other criminal courts to find out as to whether all the accused persons are properly arraigned as accused persons and while passing the order after taking cognisance before issuing process, the order should be passed in regard to the persons against who the summons or warrant will have to be issued. If the court finds that some of the accusedpersons are unnecessarily being arrayed, it is always open to the court to discharge them or direct complainant to delete their names to avoid unnecessary delay, harassment and also causing inconvenience to such person".The Supreme Court in the State of Harayana vs Bhajan Lal (AIR 1992 Supreme Court 6040) enunciated the principles laid down by it in a series of decisions relating to exercise of extraordinary power under article 226 of the constitution or the inherent powers under section 482 of the Code of Criminal Procedure 1973, and, inter alia, stated that where the allegations made in the complaint even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out any case against the accused would be one of the circumstances where such power could be exercised either to prevent the abuse of the process of any court or otherwise to secure the ends of justice.

There were instances of persons who ceased to be directors many years before thecommission of the alleged offence were impleaded as accused and summoned to appear before the magistrate. To save such persons from being unnecessarily prosecuted, the magistrates should direct the complainant to produce sufficient evidence to satisfy him that the accused persons continue to be directors of the company.

In some cases, the summons was sent to the directors at the company's address. Receipt of such summons was not brought to the knowledge of the concerned director till a warrant was issued for his appearance. The courts should discourage such complaints and direct the complainant furnish correct address for service of summons.

The tendency to prosecute ordinary directors who are not at all connected with the bouncing of cheques can be curbed by warding actual costs incurred by the accused from defending the complaint, if it is dismissed against such persons.

It is also necessary that the magistrates should keep in view the following prescriptions contained in Nucor Wires case (supra) atthe time of taking cognisance of offence: (1) There must be specific allegation in the complaint as to the part played by the accused in the transactions.

(2) There must be clear and unambiguous allegations as to how all the directors are in charge of and responsible for the conduct of the business of the company.

(3) There must be clear description and also allegations that the offence was committed with their knowledge and that they had not exercised due diligence to prevent the commission of such offence.

(4) The court should make an attempt t find out whether on the available allegations the offence was committed with the consent or connivance or attributable to any neglect on the part of the directors.

It is hoped that the caution and guidelines contained in the judicial procurements would be strictly observed and followed before ordering issuance of summons to ordinary directors for an offence under section 138. The courts may well consider dispensing with the requirement of the accusedobtaining bail on his appearance and should be liberal in exempting the accused from personal appearance. The magistrate should also hear and dispose of the applications made by the accused for their discharge at the earliest. The above measures will augur well for saving the ordinary directors from persecution.

The author is chief general manager (legal) with IDBI and the views expressed in this article are his own.