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Responsibilities of a Director in case of Bouncing of Cheque

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What are the responsibilities of a director in case of bouncing of cheque?

What is bouncing of Cheque? 

Dishonor of cheques, commonly known as bouncing of cheque is a serious offense and the laws are quite strict about it. If someone is proven guilty then he can either end up in jail for a maximum of 2 years or will be asked to pay twice the amount mentioned in the cheque or get both punishments.

Cheque bounces happen because of a variety of reasons but insufficient funds in the account of the payer is one of the biggest reasons.

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Director's responsibility in case of bouncing of cheque

If a company issues a cheque and it gets bounced then the primary responsibility will be that of the director or manager or other key managerial personnel who has signed the cheque.

Supreme Court has ruled that all the directors will not be held responsible if a company's cheque gets dishonored. It ruled in its judgment that just because directors hold a post in a company that doesn't mean that they will become liable for the offense. It also said that it is solely the liability of the director or manager who had issued the cheque.

Hence, all directors will not be liable just because they hold a top management post in a company.

Director(s) who were responsible for or were in-charge of the conduct of business while the offense took place will solely be liable for the dishonor of cheque. Thus the liability depends upon the role and responsibility and not on ones designation. This is a ruling given by the Supreme Court of India.

Just to share if you want to know more about various duties of a Director in a Private Limited Company, you can read our series of articles here

Bouncing of Cheque under Negotiable Instruments Act, 1881

According to Section 138 of Negotiable Instruments Act, 1881, a payee must not directly seek the Court in case of dishonor of cheque.

He must first send a notice under Section 138 of the Act to the payer within 30 days of cheque bounce.

Then he must wait for receipt of payment for another 30 days from the date of sending notice. If its not received then he should initiate any legal action. 

For more information you can visit www.registrationsindia.com

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