S-138 Vicareous Liability
Y Singh N Rajput
(Querist) 05 November 2010
This query is : Resolved
A, an MD of a Pvt Ltd Company issues 4 number of cheques to B. B has no business relationship with the Company as a supplier or money lender. B gets 3 cheques bounced. B served notice and filed a case under S-138 against Company, MD and another director (-2nd signatory to the cheque).
A had given reply in due time after getting notice – saying that the cheque were issued to get then discounted to meet Company’s immediate needs. But, B did not pay any money and got the cheques discounted. The Company has no liability to pay to B.
B claims the MD had borrowed a large sum from him in his personal capacity to run the company and A had mortgaged his personal flat. (B did not file any civil suit to recover the principal amount from A- and A sold is property later on). B further states that A had issued from Company’s Bank Account towards payment of due interest.
The question is whether the Company is liable to pay money on account of personal liability of its directors? Whether S-138 would be applicable in such a situation?
It may further be added to clarify that B was a State Govt Servant and he had no capacity to lend such large amount. He said that he had borrowed money from a common friend C, now his POA to contest case. C is not a holder in due course as the cheques were not endorsed in his favour.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 05 November 2010
POA can not appear in NI 138 case. More ever if the pleadings are not for dues of co , the company is not liable.
Y Singh N Rajput
(Querist) 05 November 2010
HAPPY DIWALI
THANKS A LOT FOR YOUR PROMPT RESPONSE.
Raj Kumar Makkad
(Expert) 05 November 2010
As the cheques of the company were issued which were signed by two of its directors though it may be illegally but company is liable only to the extent of criminal case pending under section 138 NI Act but no recovery suit can be filed against it in the light of given facts. Only two directors shall be responsible in 138 NI case as directors of the company and no other person of the company shall have to suffer due to this litigation. company may expel such persons as both of them relinquished their duty and crossed their limits.
R.Ramachandran
(Expert) 06 November 2010
Yes, Mr. Sashikumar is quite right.
So long as it can be proved that the cheques were not issued in discharge of any legally enforceable debt, no case u/s. 138 NI can succeed. Similarly, recovery suit cannot also succeed unless there is proof of liability.
PJANARDHANA REDDY
(Expert) 06 November 2010
ALL 138 CASES ARE ALL HARASSMENT OF DRAWER OF THE CHQ IN CRIMINAL COURTS, WITHOUT ANY LEGALLY ENFORCEABLE LIABILITY/DEBT -SEC 139 OF PRESUMPTION BECOMES REBUTTAL, THERE BY NO CASE IN 138.
Advocate. Arunagiri
(Expert) 06 November 2010
POA can represent the complainant.
IF the MD had borrowed in his personal capacity, invested the same amount in the company and issued the company cheque as a collateral security, the company is bound by it. There is a case for 138.
Y Singh N Rajput
(Querist) 06 November 2010
Dear Advocate Arunagiri
Please inform me -
1. who will have to prove that the same amount was invested in the Company-
complainant or accused?
2. The complainant says the cheques were issued as interest to loan to Mr. X who issued cheques as MD of Company A.
(Clearly, the cheques were not issued as a collateral security.)
3. Whether this extra exercise of proof does not expand scope of NIA Act?
Please comment further.
Kiran Kumar
(Expert) 06 November 2010
I agree with Mr. Arunagiri's view that Power of Attorney can appear on behalf of complainant.
but as far as presumption of legally enforceable debt is concerned it is not an absolute presumption in fact the legally enforceable debt has to be proved by way of cogent evidence.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 06 November 2010
Yes Mr Reddy pl put your views regularly since other views are from the people who seems to have no actual experience of court cases.
Please do not take offense of my observations.
1) The offense u/s 138 only against the whom legal liability is there. There are no of SC judgments followed by HC that for vicarious liability under NI act unless specific pleadings with evidence is not there no action possible.
2) Regaring POA there are citations of SC posted on this site even by non legal persons that POA can not enter into the shoes of complainant.
Raj Kumar Makkad
(Expert) 06 November 2010
Shashi has corrected me. Thanks a lot.
DEFENSE ADVOCATE.-firmaction@g
(Expert) 06 November 2010
Very good of you Mr Makkad., pl also take care of non legal persons dishing out legal advice on all topics.
PALNITKAR V.V.
(Expert) 13 November 2010
The discussion was quite interesting. While it is true that the POA can not step into the shoes of the complainant, he can represent the complainant in Court to conduct the case as his agent. As far as liability of the MD and the company is concerned, unless there is pleading and proof that money was paid for the company and the cheques were issued to discharge the debt, the company can not be made liable. Mr Shashikumar has pin pointed the true position in law.
