S.138 Negotiable Instruments Act | Supreme Court Round-Up 2025 : Judgments On Cheque Dishonour Cases

Company Independent and Non-Executive Directors Aren't Automatically Liable Upon Filing Of ComplaintIn KS Mehta Vs. Morgan Securities and Credits Pvt. Ltd., 2025 LiveLaw (SC) 286, a bench of Justices BV Nagarathna and SC Sharma clarified that non-executive and independent directors of a company cannot be held vicariously liable for the company's obligations under the Negotiable Instruments Act, 1881 (NI Act), unless their direct involvement in the company's financial transactions is established.The Court held that merely holding the position of non-executive and independent director of the company would not make them liable for the company's default unless their active involvement is proved. It added that only directors responsible for the company's day-to-day affairs and business operations can be made liable for the company's default.IBC Moratorium Acts As A Shield For Ex-Directors If A Cause Of Action Arises After MoratoriumIn a notable ruling of Vishnoo Mittal v. M/s Shakti Trading Company, 2025 LiveLaw (SC) 314, a bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah held that if the cause of action for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) has arisen after the declaration of moratorium with respect to the company as per the Insolvency & Bankruptcy Code, 2016 (IBC), then the proceedings under S.138 NI Act cannot be continued against the ex-director of the company.The Court reasoned that upon imposition of the moratorium, the board of directors' powers are suspended, and management of the corporate debtor is taken over by the Insolvency Resolution Professional (IRP). As a result, directors cannot be held liable for actions they are no longer authorized to take.Cause of Action For Filing Cheque Dishonor Complaint Arises After Lapse Of 15 Days Of Demand Notice For Repaying The Debt AmountIn the same ruling of Vishnoo Mittal (supra), the Court explained that the cause of action for S.138 NI Act arises not on the dishonour of the cheque but when the amount remains unpaid after the expiry of fifteen days after the demand notice.Cheque Dishonor Complaint Must Be Filed Before Magistrate Having Jurisdiction Where Payee Maintains Bank Account, Not Where Cheque Is Presented For CollectionA bench of Justices Sanjay Kumar and SC Sharma in Prakash Chimanlal Sheth Versus Jagruti Keyur Rajpopat reiterated that the territorial jurisdiction for a complaint for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act is with the Court having jurisdiction over the place where the payee maintains his bank account through which the cheque was delivered for collection.The jurisdiction is not where the cheque was physically presented for encashment through the account, but at the place where the account is maintained.The Appellant had deposited these cheques at Kotak Mahindra Bank's Opera House Branch in Mumbai. However, the Appellant's bank account was maintained at the Bendurwell Branch in Mangalore. When the cheques got dishonoured, he filed a complaint there under the Negotiable Instruments Act. However, the Magistrate in Mangalore dismissed the complaint on the ground that jurisdiction lay where the cheques were physically presented, i.e., Mumbai, a view later upheld by the High Court. However, the Supreme Court later set aside the High Court's decision directing the Mangalore Court to proceed with the complaint.Magistrates Must Not Issue Summons To Accused Without Verifying Complaint's Credentials A bench of Justices Abhay S Oka and Ujjal Bhuyan in Rekha Sharad Ushir v. Saptashrungi Mahila Nagari Sahkari Patsansta Ltd., 2025 LiveLaw (SC) 355 recently quashed a complaint filed for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act (NI Act) after noting that the complainant suppressed material facts and abused the judicial process by withholding loan documents. It said that the law cannot be set into motion by issuing a process on a complaint without satisfying that there were sufficient grounds to proceed against the accused. The Court underscored the Magistrate's duty to apply its mind before setting criminal law into motion.No Pre-Cognizance Summons To Accused In Cheque Dishonour CasesA bench of Justices Manmohan and NV Anjaria in Sanjabij Tari v. Kishore S. Borcar & Anr., 2025 LiveLaw (SC) 952 clarified that an accused need not be heard at the pre-cognizance stage of complaints filed for dishonour of cheque as per Section 138 of the Negotiable Instruments Act. The Court agreed with the Karnataka High Court's judgment in Ashok Vs. Fayaz Aahmad, that there is no requirement to issue summons to the accused at the pre-cognizance stage under Section 223 of the Bharatiya Nagarik Suraksha Sanhita for NI Act complaints. The Court reasoned that Section 138 cases constitute a significant portion of criminal dockets, particularly in metropolitan courts, and therefore require systemic reforms to avoid...

S.138 Negotiable Instruments Act | Supreme Court Round-Up 2025 : Judgments On Cheque Dishonour Cases

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