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

Tara Enterprises, a company, issued a cheque that was dishonoured under Section 138. The notice was served and payment was not made. Which statement about liability is correct under Section 141?

The company and every person in charge of and responsible for its business at the time of the offence are deemed guilty under Section 141. A person can avoid punishment by proving the offence occurred without his knowledge or that he exercised all due diligence.

  1. AOnly the company is liable; directors can never be prosecuted
  2. BEvery 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 guilty, but a person who proves lack of knowledge or due diligence is not punishedCorrect
  3. COnly the company's auditor is liable
  4. DOnly the payee of the cheque is liable to pay the penalty

Explanation

Under Section 141, when a company commits an offence under Section 138, the company and every person in charge of and responsible for the conduct of its business at that time are deemed guilty. A person can escape if he proves the offence was committed without his knowledge or that he exercised all due diligence. Option A is wrong because directors in charge can be prosecuted.

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