In cheque bounce cases, company directors can be held personally liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) if they were responsible for the company's financial decisions. However, liability depends on their role and involvement in issuing the cheque. 1. When Are Directors Liable? Under Section 141 of the NI Act, a director is liable if: The cheque was issued with their knowledge or consent. They were responsible for managing company affairs when the cheque bounced. They signed the cheque or authorized its issuance. 2. When Are Directors Not Liable? If they can prove they had no role in the transaction. If they were nominee or independent directors (not involved in daily operations). If they resigned before the cheque date and have proof. 3. Legal Consequences for Liable Directors Imprisonment up to 2 years or fine up to twice the cheque amount, or both. Civil liability, including recovery of cheque amount through execution proceedings. Directors may be barred from holding company positions under Companies Act, 2013. 4. Protection for Directors Ensure proper due diligence before signing cheques. Resign officially with proper documentation if leaving the company. Maintain written proof of non-involvement in financial transactions.

DEAR CLIENT, In India, the cheques bounce cases are primarily governed by the section 138 of the negotiable instruments act, 1881. This section has the power to criminalize the disorder of cheque due to insufficient funds or if the amount exceeds the arrangement made with the bank. Under section 141 of the NI act, if the offenders is a company, every person in charge of and are responsible for the conduct of its business at the time of the offence was committed is deemed liable. However, liability is not automatic certain conditions must be satisfied: • Active role • Knowledge and consent • Negligence Persons are exempted from the liability The following categories of individuals are generally exempt from liability in cheque bounce cases • Independent and non-executive directors • Nominee directors • Resigned directors Procedure for initiating action against directors To initial legal proceedings against company directors under the section 138 of NI act • Demand notice • Filing a complaint • Summons and appearance The punishment for the directors If the person found guilty the punishment under the section 138 of the NI act includes: • Imprisonment up to two years • Fine up to twice the amount of the dishonored cheque • Compensation courts may also order payment of the cheque amount with the interest to the complainant. Directors have the rights to defend themselves against cheque bounce charges using the following arguments. • No involvement • Due diligence • Invalid notice WE HOPE THIS CLARIFIES YOUR QUERY. PLEASE FEEL FREE TO REACH OUT FOR FURTHER ASSISSTANCE. THANK YOU.

DEAR CLIENT, In India, the liability of company directors in cheque bounce cases are primarily governed by the section 138 of the NI act, 1881 which addresses the offence of dishonor of the cheque due to the insufficient funds or if it exceeds the amount arranged to be paid. The prosecution of the directors in such a case which revolves around the principle of vicarious liability. Under these provisions, if a cheque issued by the company bounces, the payee as the right to file a complaint against the company as well the payee can file a case against the directors of the company. Directors may be liable if they were in the charge of and of responsible for the conduct of the business at the time the cheque was issued. Under the section 141 of the negotiable instruments act further this section elucidates that if the person committing the offense is a company, then every person who is at the time of the offense was in charge of and was responsible to the company for the conduct of its business and shall be deemed to be guilty of the offense. This persons in charge includes managing directors, whole time directors, and in some cases even company secretaries. However, to exempted to themselves from liability the directors must prove that they were not in charge of the operations when the cheque was issued, or that they exercised due diligence to prevent the offense. This creates the significant burden of proof on directors. WE HOPE THIS CLARIFIES YOUR QUERY. PLEASE FEEL FREE TO REACH OUT FOR FURTHER ASSISSTANCE. THANK YOU.