[S.138 NI Act] Personal Liability In Cheque Bounce Cases Limited To Drawer, No Liability Can Be Fastened Against Company For Cheque Not Issued By It: J&K High Court

Quashing a complaint against a company director accused of dishonoring a cheque, the Jammu and Kashmir and Ladakh High Court has observed that only the drawer of the cheque can be held liable under Section 138 of the Negotiable Instruments Act (NI Act).Citing Alka Khandu Avhad v. Amar Syamprasad Mishra &Anr”, (2021) 4 SCC 675, a bench of Justice Rajesh Oswal reiterated, “Section 138 of the NI Act does not speak about the joint liability. Even in case of a joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act”. The court made these observations in a case revolving around petitioner Vaibhav Singh, a director of SNP Events and Entertainment Pvt. Ltd. (respondent No. 2), who got entangled in a legal battle with Taushar Gaind (respondent No. 1) after a cheque issued by Sachin Kumar, another director (respondent No. 3), bounced. Gaind had loaned a total of Rs. 20.16 lacs to the company and its directors over a period of time. The cheque in question, for Rs. 3.66 lacs, was issued by Kumar towards an event tender but was dishonored by the bank. Subsequently, Gaind filed a complaint under Section 138 of the NI Act against Singh and the other directors which issued process to the petitioner. Aggrieved of the proceedings of the trial court Singh, through his lawyer Ajay Abrol, argued that he had ceased to be a director of the company on March 25, 2021, and that Gaind was aware of this fact. He further contended that the cheque was issued from Kumar's personal account and not the company's account, and hence, he could not be held liable.Gaind's lawyer, Rohit Kohli, on the other hand, argued that the loan was provided to the company at the behest of both Singh and Kumar, and therefore, they were rightly named as accused in the complaint.After considering the rival contentions and perusing the available record Justice Oswal emphasized that Section 138 of the NI Act clearly states that the offence is committed by the drawer of the cheque. The court noted that Gaind himself admitted that the cheque was issued from Kumar's personal account.In order to fortify the stand being adopted Justice Oswal referred to "S.P. Mani and Mohan Dairy vs. Dr. Snehalatha Elangovan" (2022) and "Alka Khandu Avhad vs. Amar Syamprasad Mishra & Anr" (2021) and highlighted that the offence under Section 138 is committed by the person who draws the cheque on their account.In case of a company, vicarious liability can be fastened upon directors under Section 141 of the NI Act, but only if they are proven to be responsible for the conduct of the business at the time the offence was committed, the bench underscored. “… this Court is of the considered view that once the cheque has not been issued by the petitioner, but by the respondent No. 3 in the account maintained by him only, the petitioner cannot be prosecuted for the dishonor of the cheque issued by the respondent No. 3”, the bench remarked. In light of the aforementioned observations and the fact that Singh neither signed the cheque nor was it drawn on the company's account, the court quashed the complaint against him.Case Title: Sh. Vaibhav Singh Vs Sh. Taushar GaindCitation: 2024 LiveLaw (JKL) 145Click Here To Read/Download Judgment

[S.138 NI Act] Personal Liability In Cheque Bounce Cases Limited To Drawer, No Liability Can Be Fastened Against Company For Cheque Not Issued By It: J&K High Court

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