Society office bearers can face cheque bounce prosecution if linked to transaction: SC
New Delhi: The Supreme Court has held that office bearers of a society can face prosecution under the Negotiable Instruments Act (NI Act) if there is prima facie material showing their active participation in financial transactions linked to a dishonoured cheque.
A bench of Justices Prashant Kumar Mishra and N.V. Anjaria partly allowed an appeal filed by M/s Mansi Finance (Chennai) Ltd. against a Madras High Court order which had quashed criminal proceedings against four office bearers of Ravindra Bharathi Educational Society in a cheque dishonour case.
The apex court restored proceedings against the Society’s Vice-President, Treasurer and Manager, while upholding the quashing of proceedings against an Executive Member, holding that no specific material linked him to the transaction.
The dispute arose after the finance company allegedly advanced Rs 4.5 crore to the educational society in 2018 for development and business requirements.
According to the complaint, a cheque of over Rs 5.12 crore issued towards repayment was dishonoured in November 2019 with the endorsement “Account Blocked”.
The Madras High Court had quashed proceedings against the office bearers on the ground that the complaint contained only omnibus allegations and lacked specific averments necessary to attract vicarious liability under Section 141 of the NI Act.
Setting aside the impugned order in part, the Supreme Court said that while mere designation in a company or society is insufficient to attract criminal liability, courts must examine whether the complaint and accompanying material disclose a factual foundation linking the accused to the transaction.
“Mere designation as an office bearer of a company or society is not sufficient to attract Section 141 of the NI Act. Equally, a complaint containing only a bald reproduction of the statutory language without factual foundation cannot be sustained,” the Justice Mishra-led Bench said.
The top court observed that the Vice-President, Treasurer and Manager were signatories to various antecedent financial documents, including promissory notes and the memorandum of understanding executed between the parties.
“The documentary material forming part of the complaint furnishes the factual foundation necessary for continuation of the prosecution at this stage,” the judgment held.
It added that participation in the transaction giving rise to the debt constituted “a relevant and proximate circumstance” for determining whether the office bearers were responsible for the affairs of the Society within the meaning of Section 141 of the NI Act.
However, the apex court held that no specific role had been attributed to the Executive Member apart from a general assertion that he was an office bearer of the Society.
“In the absence of any specific factual foundation connecting him with the transaction giving rise to the dishonoured cheque, the principle laid down in earlier decisions would squarely apply,” it said.
Clarifying the scope of proceedings at the quashing stage, the Supreme Court said courts are not required to assess the truthfulness of allegations or appreciate evidence at that stage.
“Whether respondent nos.1, 2 and 4 were in fact in charge of and responsible for the conduct of the affairs of the Society is ultimately a matter of evidence to be established at trial,” it said.
The apex court clarified that all contentions of the parties have been left open to be urged before the trial court, and the observations made in the judgment “shall not be construed as an expression on the merits of the allegations in the complaint”.