Directors not responsible for dishounred cheque

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Recent Supreme Court Judgment has brought cheers on director’s faces of the companies. 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 judgment, PJ Agro Tech Ltd. Vs Water Base Ltd. The two companies have entered into an agreement for distribution of prawn feed in Andhra Pradesh. However, it did not succeed and PJ Agro authorized the other company to collect its due from customers who has 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 Instrument 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.

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