IS THE PROMOTER LIABLE?

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Guest

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09 April 2011 A promoter borrowed a loan on behalf of the company and sent a cheque from the company's a/c to discharge its legal liability.the cheque was dishonoured and a claim was lodged against him.The promoter is neither a director or person in charge. is he liable for an offence u/s 138?

CS ,CMA Shambhu Kr. jha

CS ,CMA Shambhu Kr. jha (Expert)
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09 April 2011
You did not mentioned that either that loan was taken before incorporation of company or post incorporation .
That is very important in this question , better to provide detail about that we will come with the possible option.

Thanks

Guest

Guest (Querist)

09 April 2011 sir
It is post incorporation

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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01 August 2024 Under Section 138 of the Negotiable Instruments Act, 1881, an offense is committed when a cheque issued for discharging a legal liability is dishonored due to insufficient funds or if it exceeds the amount arranged to be paid by the drawer. The responsibility for such an offense typically falls on the drawer of the cheque, which in your case is the company.

Here’s a breakdown of the scenario and liability:

### Liability under Section 138 of the NI Act:

1. **Drawer of the Cheque**:
- The primary liability for a dishonored cheque lies with the drawer of the cheque. In your case, the company, as the drawer of the cheque, is primarily liable for the dishonor.

2. **Liability of the Promoter**:
- Since the promoter is not a director or a person in charge of the company's affairs, their personal liability is not typically established under Section 138.
- The promoter's involvement in borrowing the loan and issuing the cheque does not, by itself, make them personally liable for the offense under Section 138, especially if they are not a director or a person in charge of the company’s affairs.

### Other Relevant Aspects:

1. **Company’s Liability**:
- The company, as the drawer, is primarily responsible for the dishonored cheque. Legal action under Section 138 can be initiated against the company for dishonoring the cheque.

2. **Personal Liability of Promoter**:
- A promoter who is not a director or a person in charge of the company is generally not held personally liable for offenses under Section 138. Their role in the transaction does not make them liable unless they have explicitly guaranteed the loan or are involved in the company's management.

3. **Legal Recourse**:
- If a claim is lodged against the promoter, the promoter can defend themselves by demonstrating that they are neither a director nor a person in charge and that the liability falls on the company.

4. **Post-Incorporation**:
- Even if the actions occurred post-incorporation, the same principles apply. The company is liable for the dishonored cheque, and personal liability for the promoter is limited unless explicitly involved in management or having a personal guarantee.

### Conclusion:

In summary, the promoter, who is neither a director nor a person in charge, is generally not personally liable for the offense under Section 138 of the Negotiable Instruments Act. The liability primarily rests with the company as the drawer of the cheque. The promoter can argue that they should not be held personally liable for the dishonor of the cheque.

For specific legal advice and to ensure compliance, it is advisable to consult with a legal professional who can provide guidance based on the details of the case and applicable laws.

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