2023 (12) TMI 517 - HC - Indian Laws

Dishonour of Cheque - scope of section 138 of NI Act - vicarious liability on petitioner or not - whether the petitioner herein would come within the ambit of Section 138 of the Act and be impleaded as an accused in the complaint before the learned MM? - HELD THAT - As per Section 138 of the Act, if the drawer of the cheque fails to make the payment on receipt of the legal notice, he is liable to be prosecuted under Section 138 of the Act. In the present proceedings, admittedly, the impugned cheque has not been issued/ drawn by the petitioner and it has been issued by her brother from his bank account wherein the petitioner is not an account holder. As such, in view of the provisions of Section 138 of the Act, the petitioner, under the present circumstances, cannot be held liable for something not concerning her. Further, though the petitioner, along with her brother, is a Director, shareholder and authorised representative of an entity, namely, A.R. Restaurant India Pvt. Ltd., however, the respondent has not filed any complaint against the said entity. In view thereof, the petitioner has hardly any role to play qua the cheque involved in the present dispute. Thus, the petitioner ought not to have been made an accused in the complaint by the respondent. More so, whence no vicarious liability can be fastened upon the petitioner. It is trite law that penal provisions should be construed strictly and the emphasis is on the words, such person‟ which relates to the person, who has drawn the cheque in favour of the payee. The complaint is quashed - petition allowed.

Summary

Issues involved:
The primary issue for consideration is whether the petitioner falls within the ambit of Section 138 of the Negotiable Instruments Act, 1881 and should be impleaded as an accused in the complaint.

Details of the Judgment:

Issue 1: Quashing of Complaint Case
The petitioner sought the quashing of Complaint Case No.4061/2020 under Section 138 of the Act. The complaint arose from a dishonored cheque allegedly issued by the petitioner and her brother. The petitioner argued that she was frivolously included as an accused as the cheque was not drawn by her, nor issued from her bank account, nor bore her signatures. Citing legal precedents, the petitioner contended that only the drawer of the cheque can be prosecuted under Section 138. The respondent, however, claimed that the petitioner was actively involved in the transaction and had received payments from the respondent previously. The Court examined the relevant provisions of the Act and concluded that the petitioner could not be held liable as the cheque was not issued by her, and she had no direct involvement in the transaction. The Court quashed the complaint against the petitioner.

Issue 2: Interpretation of Section 138 of the Act
The Court analyzed Section 138 of the Act, which deals with the dishonor of cheques due to insufficient funds. It noted that the drawer of the cheque is the person liable for prosecution under this section. Referring to legal definitions, the Court emphasized that the petitioner, not being the drawer of the cheque in question, could not be prosecuted under Section 138. The Court highlighted that penal provisions must be strictly construed, and proceedings can only continue against the drawer of the cheque. Citing relevant case law, the Court reiterated that joint liability does not extend to prosecution under Section 138 unless the person is a signatory to the cheque drawn on an account maintained by them. Consequently, the Court allowed the petition and quashed the complaint against the petitioner.

This judgment clarifies the legal principles surrounding the liability of individuals under Section 138 of the Negotiable Instruments Act, emphasizing the importance of strict interpretation of penal provisions and the necessity for direct involvement in the transaction for prosecution.