Directors not responsible for dishonoured cheque

The Supreme Court ruled last week that prosecution for issuing a cheque which was dishonoured for want of credit in the bank can be initiated only against the person who issued the cheque and not against the company or directors who were not aware of it. It quashed the Madras high court order to try the company, the chairman and the managing director in the judgement, PJ Agro Tech Ltd vs Water Base Ltd. The two companies had entered into an agreement for distribution of prawn feed in Andhra Pradesh. However, it did not succeed and PJ Agro authorised the other company to collect its dues from customers who had not paid for the goods. It appointed a coordinator for the purpose. He issued a cheque to Water Base which bounced, leading to the filing of charges under the Negotiable Instruments Act.

The Supreme Court explained that the coordinator might have issued the cheque for the benefit of PJ Agro, but the directors of the latter company were not responsible for the default. (Source: www.business-standard.com)