New Delhi, July 29 (PTI): The Supreme Court has ruled that in a cheque bounce case, the liability of a company’s director can be inferred only if it can be proved that the accused was in charge for the conduct of the company at the time of the alleged offence.

Merely because a person is involved with the negotiations to obtain a loan cannot make him or her liable for the offence relating to a cheque bounce, Justices S.B. Sinha and H.S. Bedi said while setting aside an order for the Andhra Pradesh high court.

Interpreting section 141 of the Negotiable Instruments Act, the apex court said the liability of a person arose from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office.

The appellant, Srikant Singh, had filed a special leave petition against the high court’s ruling, which upheld a magistrate’s order holding the former liable for a cheque bounce offence since he happened to be the director of the company.

It was alleged that Singh was the director of a company named Rishab Alchem India, which took a loan of Rs 10 lakh from M/s North East Securities Ltd.

Rishab Alchem issued a cheque for repayment of the loan, which bounced. A complaint was then registered against various company officials, including Singh.

However, Singh took the plea that he had resigned from the firm at the time when the said cheque was issued and hence could not be prosecuted.