Person cannot be prosecuted under Section 138 NIA, when the Cheque was neither signed by him nor drawn from his account: Supreme Court

You are currently viewing Person cannot be prosecuted under Section 138 NIA, when the Cheque was neither signed by him nor drawn from his account: Supreme Court
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  • Post published:March 9, 2021
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The Court observed that even in case of joint liability, 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.  A person might have been jointly liable to pay the debt, but if such a person who might have been liable to pay the debt jointly, cannot be prosecuted unless the bank account is jointly maintained and that he was a signatory to the cheque.

The Court further observed that two private individuals cannot be said to be “other association of individuals.  Therefore, there is no question of invoking Section 141 of the Negotiable Instrument Act against the appellant, as the liability is the individual liability (may be a joint liabilities), but cannot be said to be the offence committed by a company or be it corporate or firm or other associations of individuals.

Brief Facts:

As per the case of the complainant, both the accused who are husband and wife approached the original complainant (Advocate) in a legal matter who assisted both the accused in preparing replies and notice of motion, conference, coordinating with counsel, filing Vakalatnamas and appearing through advocates’ office and also as counsel in Summary Suit.

Thereafter the original complainant raised a professional bill for the legal work done by him to represent accused Nos. 1 and 2 in the legal proceedings. The original accused No. 1 – husband of the appellant handed over to the complainant a post- dated cheque for Rs.8,62,000/-.  The said cheque was presented for encashment and the same came to be returned unpaid with the endorsement “funds insufficient”.

Thereafter, the original complainant served a legal notice dated 21.05.2016 calling upon the accused to pay the amount of Rs.8,62,000/- within 15 days from the date of receipt of the said notice. The said notice was duly served upon the accused, however, the accused neither replied to the said notice nor made the payment of the aforesaid dishonoured cheque. Therefore, a complaint was filed against both the accused for the offence punishable under Section 138 of the NI Act r/w Section 141 of the NI Act before the learned Metropolitan Magistrate, Mumbai.

The wife of the original accused no. 1 filed a Criminal Writ Petition in the High Court to quash the criminal complaint filed against her mainly on the ground that the appellant was neither a signatory to the cheque dishonoured nor there was a joint bank account and she further submitted that the appellant cannot be prosecuted for the offence punishable under Sections 138 r/w Section 141 of the NI Act, however, the High Court refused to quash the criminal complaint filed against the appellant.

Also Read:  Supreme Court | A blank cheque voluntarily signed and handed over by the accused towards some payment would attract presumption under Section 139 of the NIA, 1881

Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Judicature at Bombay the original accused No. 2 has preferred the present appeal.

Observations of the Court:

In Appeal, the Supreme Court, after considering the material on record, noted that the dishonoured cheque was issued by original accused No. 1 – husband of the appellant.  It was drawn from the bank account of original accused No. 1.  The dishonoured cheque was signed by original accused No. 1.   The appellant -original accused No. 2 was neither the signatory to the cheque nor the dishonoured cheque was drawn from her bank account. That the account in question was not a joint account.

The Hon’ble Court also said that it is required to be considered whether the appellant – original accused No. 2 can be prosecuted for the offence punishable under Section 138 r/w Section 141 of the NI Act?

In response to the aforesaid question, the Supreme Court concluded that “On a fair reading of Section 138 of the NI Act, before a person can be prosecuted, the following conditions are required to be satisfied:

i)       that the cheque is drawn by a person and on an account maintained by him with a banker;

ii)      for the payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability; and

iii)     the said cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account.

Therefore, a person who is the signatory to the cheque and the cheque is drawn by that person on an account maintained by him and the cheque has been issued for the discharge, in whole or in part, of any debt or other liability and the said cheque has been returned by the bank unpaid, such person can be said to have committed an offence. Section 138 of the NI Act does not speak about joint liability.

Even in case of 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.  A person might have been jointly liable to pay the debt, but if such a person who might have been liable to pay the debt jointly, cannot be prosecuted unless the bank account is jointly maintained and that he was a signatory to the cheque”

Also Read:  Joint complaint against an accused not maintainable under Section 138 N.I. Act: J&K High Court

The Court also found no substance in the contentions of the original complainant that the appellant– original accused No. 2 can be convicted with the aid of Section 141 of the NI Act.

The Court importantly said Section 141 of the NI Act is relating to the offence by companies and it cannot be made applicable to the individuals.  

The Court also refused to accept the contention of the counsel appearing on behalf of the original complainant who submitted that “Company” means anybody corporate and includes, a firm or other association of individuals and therefore in case of a joint liability of two or more persons it will fall within “other association of individuals” and therefore with the aid of Section 141 of the NI Act, the appellant who is jointly liable to pay the debt, can be prosecuted.

The Court further held that two private individuals cannot be said to be “other association of individuals”.  Therefore, there is no question of invoking Section 141 of the NI Act against the appellant, as the liability is the individual liability (may be a joint liabilities), but cannot be said to be the offence committed by a company or by it corporate or firm or other associations of individuals. The appellant herein is neither a Director nor a partner in any firm who has issued the cheque. Therefore, even the appellant cannot be convicted with the aid of Section 141 of the NI Act.

The Apex Court while allowing the appeal held that the High Court has committed a grave error in not quashing the complaint against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act.  The criminal complaint filed against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act, therefore, can be said to be abuse of process of law and therefore the same is required to be quashed and set aside.

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Case Details:
Title: Alka Khandu Avhad versus Amar Syamprasad Mishra & Anr.
Criminal Appeal NO. 258 OF 2021
Coram: Dr. Dhananjaya Y. Chandrachud, M. R. Shah, JJ.
Date of Judgment: 08-03-2021