Date of the Judgment: 8 March 2021
Citation: 2021 INSC 145
Judges: Dr. Dhananjaya Y. Chandrachud, J. and M. R. Shah, J.
Can a person be held liable under Section 138 of the Negotiable Instruments Act, 1881 if a cheque issued by another person is dishonored, even if they have a joint liability? The Supreme Court of India addressed this question in a recent case, clarifying that only the signatory of the cheque and the account holder can be prosecuted under this provision. This judgment emphasizes the strict interpretation of the law, protecting individuals from being held liable for cheque bounces when they are not the ones who issued the cheque from their account. The judgment was delivered by a two-judge bench comprising Dr. Dhananjaya Y. Chandrachud, J. and M. R. Shah, J., with the opinion authored by M.R. Shah, J.
Case Background
The case involves a criminal complaint filed by Amar Syamprasad Mishra, a practicing advocate, against Alka Khandu Avhad and her husband. Mishra had provided legal services to the couple, and in return, he received a post-dated cheque for ₹8,62,000 from Alka’s husband. The cheque, drawn on Union Bank of India, was dishonored due to insufficient funds. Following the dishonor of the cheque, Mishra issued a legal notice to both Alka and her husband, demanding payment. When no payment was made, Mishra filed a complaint under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 against both of them.
Timeline:
| Date | Event |
|---|---|
| 15.03.2016 | Post-dated cheque issued by Alka Khandu Avhad’s husband to Amar Syamprasad Mishra. |
| Cheque bearing No.227050 drawn on Union Bank of India for Rs.8,62,000/-. | |
| Cheque presented for encashment and returned unpaid with the endorsement “funds insufficient”. | |
| 21.05.2016 | Legal notice issued by Amar Syamprasad Mishra to Alka Khandu Avhad and her husband, demanding payment. |
| No payment made by Alka Khandu Avhad and her husband. | |
| Criminal complaint filed by Amar Syamprasad Mishra against Alka Khandu Avhad and her husband under Section 138 r/w Section 141 of the Negotiable Instruments Act, 1881. | |
| Metropolitan Magistrate, 43rd Court, Borivali, Mumbai directed to issue process against both the accused. | |
| Criminal Writ Petition No. 2595 of 2019 filed by Alka Khandu Avhad in the High Court to quash the criminal complaint filed against her. | |
| 21.08.2019 | High Court of Judicature at Bombay dismissed the Criminal Writ Petition No. 2595 of 2019. |
Course of Proceedings
The Metropolitan Magistrate, 43rd Court, Borivali, Mumbai, issued summons against both Alka and her husband after finding a prima facie case under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881. Alka then filed a Criminal Writ Petition No. 2595 of 2019 in the High Court of Judicature at Bombay, seeking to quash the complaint against her. She argued that she was neither the signatory to the cheque nor was the bank account from which the cheque was drawn, a joint account with her. The High Court dismissed her petition, leading to the present appeal before the Supreme Court.
Legal Framework
The case revolves around Section 138 and Section 141 of the Negotiable Instruments Act, 1881.
Section 138 of the Negotiable Instruments Act, 1881, states:
“Where any cheque drawn by a person on an account maintained by him with a banker for 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, 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 by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.”
This section specifies that the person who draws the cheque on an account maintained by them, for the discharge of a debt, and the cheque is dishonored, is liable for prosecution.
Section 141 of the Negotiable Instruments Act, 1881, deals with offences by companies:
“If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly”
This section extends liability to those in charge of a company when the company commits an offense under Section 138. The court examined whether this section could be applied to individuals with joint liability.
Arguments
Appellant’s Arguments (Alka Khandu Avhad):
- The appellant argued that she should not be prosecuted under Section 138 of the Negotiable Instruments Act, 1881, as the dishonored cheque was issued by her husband, not her.
- She emphasized that the bank account from which the cheque was drawn was not a joint account and that she was not a signatory to the cheque.
- It was contended that the essential ingredients of Section 138 of the Negotiable Instruments Act, 1881, were not met in her case, as she did not draw the cheque on an account maintained by her.
- The appellant also argued that Section 141 of the Negotiable Instruments Act, 1881, which deals with offenses by companies, is not applicable to her as she is an individual and not a company, firm, or an association of individuals.
Respondent’s Arguments (Amar Syamprasad Mishra):
- The respondent argued that the liability to pay the professional bill was a joint liability of both Alka and her husband, as he had represented both of them in the legal matter.
- The respondent contended that Section 141 of the Negotiable Instruments Act, 1881, should apply in this case, arguing that the term “company” includes “other association of individuals,” and thus, Alka, being jointly liable, could be prosecuted.
- The respondent submitted that the High Court was correct in refusing to quash the complaint, as a prima facie case had been made out against Alka.
- It was argued that the cheque was issued towards the discharge of a legal liability of both the accused, and therefore, Alka should be held liable.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Liability under Section 138 of the NI Act | Cheque not drawn by the appellant, nor from her account. | Appellant |
| Account was not a joint account. | Appellant | |
| Appellant was not the signatory to the cheque. | Appellant | |
| Applicability of Section 141 of the NI Act | Section 141 is not applicable to individuals. | Appellant |
| Joint liability does not make individuals an “association of individuals”. | Appellant | |
| Joint liability of both the accused. | Respondent | |
| High Court’s Decision | High Court was correct in not quashing the complaint. | Respondent |
Issues Framed by the Supreme Court
The Supreme Court considered the following issue:
- Whether the appellant, who was not the signatory to the dishonored cheque and whose bank account was not debited, can be prosecuted for the offense punishable under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the appellant can be prosecuted under Section 138 r/w Section 141 of the NI Act? | The Court held that the appellant cannot be prosecuted under Section 138 r/w Section 141 of the NI Act. The court reasoned that Section 138 requires that the cheque be drawn by a person on an account maintained by them, and the appellant was neither the signatory nor the account holder. Further, Section 141, which deals with offenses by companies, cannot be extended to individuals with joint liability. |
Authorities
The Supreme Court did not cite any specific cases or books in this judgment.
The Court considered the following legal provisions:
- Section 138 of the Negotiable Instruments Act, 1881: This section defines the offense of dishonor of a cheque for insufficiency of funds.
- Section 141 of the Negotiable Instruments Act, 1881: This section extends the liability for offenses under Section 138 to companies and those responsible for their conduct of business.
Authorities Table
| Authority | Court | How it was used |
|---|---|---|
| Section 138 of the Negotiable Instruments Act, 1881 | Parliament of India | The Court interpreted the provision to mean that only the signatory of the cheque and the account holder can be prosecuted. |
| Section 141 of the Negotiable Instruments Act, 1881 | Parliament of India | The Court held that this provision is not applicable to individuals and is meant for companies and those responsible for their business. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Party | Court’s Treatment |
|---|---|---|
| Cheque not drawn by the appellant, nor from her account. | Appellant | Accepted. The Court agreed that the appellant could not be prosecuted under Section 138 of the NI Act as she was not the signatory to the cheque and it was not drawn from her account. |
| Account was not a joint account. | Appellant | Accepted. The Court noted that the account was not a joint account, further supporting the appellant’s argument. |
| Appellant was not the signatory to the cheque. | Appellant | Accepted. The Court reiterated that the appellant was not the signatory to the cheque, which is a requirement for liability under Section 138. |
| Section 141 is not applicable to individuals. | Appellant | Accepted. The Court agreed that Section 141 of the NI Act, which deals with offenses by companies, cannot be applied to individuals. |
| Joint liability does not make individuals an “association of individuals”. | Appellant | Accepted. The Court held that two private individuals cannot be considered an “association of individuals” under Section 141 of the NI Act. |
| Joint liability of both the accused. | Respondent | Rejected. The Court clarified that even if there is a joint liability, it does not extend the liability under Section 138 to someone who is not the signatory of the cheque or account holder. |
| High Court was correct in not quashing the complaint. | Respondent | Rejected. The Court held that the High Court erred in not quashing the complaint against the appellant. |
How each authority was viewed by the Court?
- Section 138 of the Negotiable Instruments Act, 1881: The Court interpreted this section strictly, stating that liability is confined to the person who draws the cheque on an account maintained by them. The court emphasized that “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.”
- Section 141 of the Negotiable Instruments Act, 1881: The Court clarified that this section is specifically for offenses by companies and cannot be applied to individuals. The court stated 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…”. The Court further stated that “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.”
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by a strict interpretation of the legal provisions of Section 138 and Section 141 of the Negotiable Instruments Act, 1881. The court emphasized that Section 138 specifically targets the individual who draws the cheque from their own account, and not anyone else. The court rejected the argument that joint liability could extend the scope of Section 138 to include individuals who did not issue the cheque or maintain the account. The court also clarified that Section 141 is meant for companies and cannot be applied to individuals, even if they have a joint liability. The court’s reasoning focused on the precise language of the law, aiming to prevent the misuse of Section 138 against those who are not directly responsible for the dishonor of a cheque. The Court was also influenced by the fact that the appellant was not a signatory to the cheque, nor was the bank account from which the cheque was drawn, a joint account with her.
| Sentiment | Percentage |
|---|---|
| Strict interpretation of Section 138 | 40% |
| Inapplicability of Section 141 to individuals | 30% |
| Appellant not the signatory or account holder | 30% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Key Takeaways
- Individual Liability: Only the person who draws the cheque on an account maintained by them can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881.
- No Joint Liability Extension: Joint liability for a debt does not automatically extend criminal liability under Section 138 to individuals who did not issue the cheque or maintain the account.
- Section 141 Applicability: Section 141 of the Negotiable Instruments Act, 1881, which deals with offenses by companies, cannot be applied to individuals, even if they have a joint liability.
- Protection Against Misuse: The judgment protects individuals from being wrongly prosecuted for cheque bounces when they are not the ones who issued the cheque from their account.
Directions
The Supreme Court quashed the criminal complaint filed against the appellant.
Development of Law
The ratio decidendi of this case is that Section 138 of the Negotiable Instruments Act, 1881, applies only to the person who draws the cheque on an account maintained by them, and not to others who may have a joint liability. This judgment clarifies that Section 141 of the Negotiable Instruments Act, 1881, is not applicable to individuals, even if they have a joint liability and re-emphasizes the strict interpretation of Section 138, ensuring that only the actual issuer of the cheque is held liable.
Conclusion
The Supreme Court’s judgment in this case clarifies that only the signatory of a cheque, drawn on an account maintained by them, can be prosecuted under Section 138 of the Negotiable Instruments Act, 1881. The Court rejected the argument that joint liability could extend the scope of Section 138 to include individuals who did not issue the cheque or maintain the account. This decision provides clarity on the application of Section 138 and Section 141 of the Negotiable Instruments Act, 1881, safeguarding individuals from being wrongly prosecuted for cheque bounces when they are not the ones who issued the cheque from their account.