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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Nisha Textiles, a company, issued a cheque that was dishonoured and Section 138 was attracted. Which statement about liability under Section 141 is correct?

When a company commits the offence, both the company and every person in charge of and responsible for its business at the time are deemed guilty under Section 141. Mere shareholders are not liable, and a person can escape by proving lack of knowledge or due diligence.

  1. AEvery person in charge of and responsible to the company for its business at the time of the offence, as well as the company, is deemed guiltyCorrect
  2. BOnly the company can be prosecuted, never its directors
  3. COnly the managing director is liable, whether or not he was in charge
  4. DAll shareholders of the company are liable equally

Explanation

Under Section 141, when the offender is a company, the company and every person who was in charge of and responsible for the conduct of its business at the time are deemed guilty. A person can escape if he proves lack of knowledge or due diligence. Shareholders as such are not liable.

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