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Company Cheque Bounce – Directors Responsibility

Bouncing of a cheque is a criminal offense in India, which shall be punishable by imprisonment which shall not be less than 2 years and fine which will be twice the amount of default or both. Directors Responsibility Now the legal provisions for bouncing of the cheque have been strengthened to reduce the number of same. So every business should maintain the financial Reporting discipline to avoid the bouncing of the cheque.

Directors Responsibility

As per the order of the Supreme Court, all the change directors of the company shall not be responsible if the cheque is bounced because of the reason of insufficient funds in the account. There are no such rules or law which makes a director responsible for all the offense committed by the company unless he was in charge of the office at that time. Hence a director cannot be made responsible only because he held the office at the time when the offense was committed.

The responsibility for cheque bounce in a Company

As per the order of the Supreme Court, only those directors shall be responsible for the offense that was in charge of the office at the time when the offense was committed. A director can be made liable for the offense only if he was in charge of the office when the offense was done. Hence the director can be made liable when he held the office and was made in-charge for the same, and cannot be made liable on the basis of holding the directorship in the Company.

The Director shall be made liable as per the Negotiable Instrument Act 1881^[1]. The act provides various conditions to be satisfied for making the offense complete. The reason because the director is made responsible for vicarious liability. The person who is in charge of the company and responsible for running the business must be naturally aware of the notice of demand.

If any director proves that the offense was committed without his knowledge and they exercised due diligence to prevent such offense he will not be responsible. The application for the dishonor of cheque can be filed within 75 days of the bouncing of the cheque until the company can find out who was responsible for managing the affairs of the company.

Read our article:Insight into the Duties and Responsibilities of a Director in a Private Limited Company