Supreme Court Judgments- Section 138 NIA, 1881
1. Sec 138 NI Act - Accused Relies On Income Tax Returns To Show Complainant Did Not Have Financial Capacity; Supreme Court Affirms Acquittal
Case Title: Rajaram Sriramulu Naidu (D) vs Maruthachalam (D), 2023 LiveLaw (SC) 46
Coram: Justices B R Gavai and M M Sundresh
The Supreme Court reiterated that the standard of proof for rebutting the presumption under Section 139 of the N.I. Act is that of preponderance of probabilities. Reliance was placed upon Basalingappa v. Mudibasappa.
The Court noted that the certified copies of the Income Tax Returns established that the complainant had not declared that he had lent Rs.3 lakh to the accused. Besides this, the Court also observed that the complainant(s) did not have the financial capacity to lend money as alleged. (Para 24-31)
2. Section 138 NI Act | Conviction Cannot Be Confirmed Overriding Agreement Between Parties To Compound The Offence : Supreme Court
Case Title: BV Seshaiah vs State of Telangana & B Vamsi Krishna vs State of Telangana., 2023 LiveLaw (SC) 75
Coram: Justices Krishna Murari and V Ramasubramanian
The Supreme Court, while setting aside a conviction in a cheque dishonour case, held that when parties to a litigation proceeding have entered into an agreement to compound a compoundable offence, High Courts cannot override such compounding and impose their will on the parties. (Para 11)
3. NI Act | In Cheque Case Against Company, Persons Can't Be Made Accused Only Because They're Managing Company's Business : Supreme Court
Case Title: Ashok Shewakramani V. State Of Andhra Pradesh., 2023 LiveLaw (SC) 622
Coram: Justices Abhay S Oka and Sanjay Karol
The Supreme Court held that under Section 141 of the N.I. Act, a person will become vicariously liable when a company is accused of the offence under Section 138 of the Act, only if such a person was "in charge of" and was "responsible to the company for the conduct of the business of the company" at the time the offence was committed.
Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible for the company conduct of the business of the company, the Court said. (Para 19 and 20)
4. S.141 NI Act - Only That Person Who Was Responsible For Conduct Of Company's Affairs At The Time Of Cheque Dishonour Is Liable: Supreme Court
Case Title: Siby Thomas v. Somany Ceramics Ltd., 2023 LiveLaw (SC) 869
Coram: Justices CT Ravikumar and PV Sanjay Kumar
The Supreme Court, while quashing a criminal complaint for cheque under Section 138 read with Section 141 N.I. Act, opined that: “A bare perusal of Section 141(1) of the NI Act, would reveal that only that 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 alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.” Pertinently, the complaint was registered against the a partner of the partnership firm which issued the cheque. (Para 16)
5. S.138 NI Act | Availability Of Funds In Other Bank Accounts Not A Defence; Cheque Dishonour Relates To Specific Account: Supreme Court
Case Title: Harpal Singh Vs. The State of Haryana., 2023 LiveLaw (SC) 1046
Coram: Justices Hrishikesh Roy and Sanjay Karol.
The Supreme Court held that in proceedings initiated for bounced cheques, the defence that there are sufficient funds in the other bank accounts cannot be appreciated. The Court explained: “In a proceeding under Section 138 of the Negotiable Instruments Act, the accused cannot rely upon other bank accounts for the dishonoured cheque which relates to specific bank account of the accused.” (Para 6)
High Court Judgments- Section 138 NIA, 1881
6. Complainant U/S 138 NI Act Must Specifically Assert That Power Of Attorney Holder Has Knowledge Of Impugned Transaction: Kerala High Court
Case Title: Razak Mether v. State of Kerala and Anr., 2023 LiveLaw (Ker) 24
Coram: Justice A. Badharudeen
The Kerela High Court, while placing its reliance upon A.C.Narayanan v. State of Maharashtra &anr, reiterated that a complaint filed under Section 138 of the Negotiable Instruments Act through power of attorney holder is perfectly legal and competent. However, it observed that the power of attorney holder can depose and verify on oath before the Court, for proving the contents of a complaint, only when he has witnessed the transaction as an agent of the payee/ holder in due course or possess due knowledge regarding the said transactions.
The Court further opined that the complainant has to make specific assertions as to the knowledge of the power of attorney in the said transaction explicitly in the complaint. (Para 11)
7. Holding Chairpersons Of Large Companies Liable For Dishonour Of Cheques Would Unfairly Expand 'Vicarious Liability' Under NI Act: Delhi High Court
Case Title: Yashovardhan Birla vs Cecil Webber Engineering Ltd & Ors., 2023 LiveLaw (Del) 320
Coram: Justice Anish Dayal
The Delhi High Court, while quashing the proceedings under Section 138 of the N.I. Act, opined that holding Chairpersons of large conglomerates or companies liable for cheques issued in day-to-day affairs of the business of a company would unfairly and unnecessarily expand the provisions of vicarious liability under the provisions of the Act.
The Court explained that the role of 'Chairman'/ 'Chairperson' is not typically of an executive nature since the Chairperson presides over the general meetings or the functioning of the company and guides its business policies, and need not interfere in the day-to-day affairs of the company. (Para 23-25).
8. Order XXIII Rule 3 CPC Cannot Be Imported To Deal With Complaints U/S 138 Negotiable Instruments Act: Jammu & Kashmir High Court
Case Title: Mohammad Ashraf Wani Vs Muzamil Bashir., 2023 LiveLaw (JKL) 89
Coram : Justice Javed Iqbal Wani
The Jammu and Kashmir and Ladakh High Court ruled that the provisions of Order XXIII Rule 3 of the CPC cannot be imported to deal with a complaint under Section 138 of the N.I. Act. The said provision of CPC prescribes that when the parties have made an arrangement to settle a dispute entirely or in part, the court, if it is satisfied, shall pass the decree to such effect and record the same.
“Magistrate could not have relied upon the aforesaid provisions of CPC while dealing with the case of a criminal offence under Section 138 of the Act which proceedings are regulated by the Code of Criminal Procedure”, the bench underscored. (Para 10)
9. Complainant U/S 138 NI Act Does Not Come Within Ambit Of 'Victim' U/S 2(wa) CrPC: Kerala High Court
Case Title: Paulose v. Baiju & Anr., 2023 LiveLaw (Ker) 328
Coram: Justice V.G. Arun
The Kerala High Court, while placing its reliance upon Mallikarjun Kodagali (Dead) represented through Legal Representatives v. State of Karnataka & Ors., held that the complainant in a prosecution under Section 138 of the Negotiable Instruments Act would not fall within the ambit of the word 'victim', as defined under Section 2(wa) Cr.P.C. (Para 5)
Section 2(wa) Cr.P.C. defines victim as "a person who has suffered any loss or injury caused by reason of the act or omission for which the accused person has been charged and the expression “victim” includes his or her guardian or legal heir".
10. S.142 NI Act | Third Party Cannot Prosecute Drawer For Dishonour Of Cheque: Kerala High Court
Case Title: Arvind Singh Rajpoot v. M/S Intersight Holidays Pvt. Ltd. & Ors., 2023 LiveLaw (Ker) 445
Coram: Justice A. Badharudeen
The Kerala High Court observed that a third party cannot prosecute the drawer of cheque for the offence punishable under Section 138 of the N.I. Act. It opined that a complaint alleging the commission of offence punishable under Section 138 of the NI Act shall be filed either by the 'payee' or by the 'holder in due course' of the said cheque, and no other person is entitled to lodge a complaint. (Para 8)
11. Illegal Fee Of Advocate Is Not A Legal Claim: Madras High Court Quashes Proceedings Against Client For Dishonour Of Cheque Paid To Advocate
Case Title: Davidraj v Pavel., Crl.OP(MD)No.19190 of 2019
Coram: Justice G Ilangovan
The Madras High Court, while quashing a complaint under Section 138 of the N.I. Act, registered against a client by his lawyer for dishonor of cheque, observed that a fee, which is per se illegal as per the Legal Practitioners Rules, will not be a legal claim and a legal liability could not be fastened upon the client to pay the same. (Para 13-15)
12. S.138 NI Act | Courts Should Grant Compensation To Complainant "Commensurate To Cheque Amount" While Sentencing Accused: Kerala High Court
Case title: Sasikumar V Ushadevi., 2023 LiveLaw (Ker) 567
Coram: Justice C.S. Dias
The Kerela High Court observed that the Court, while sentencing an accused for the offence under Section 138 of the N.I. Act, has to keep the compensatory part in mind. The Court added that the compensation should be proportional to the cheque amount, and it must not exceed twice the cheque amount. (Para 13)
13. Company Executive Director Not Shielded From NI Act Proceedings Merely Because His Name Not In ROC: Telangana High Court
Coram: Justice E.V. Venugopal
The Telangana High Court has held that an Executive Director of a company will not be shielded from proceedings under the N.I. Act merely because his/her name is not reflected in the record of the Registrar of Company Affairs. (Para 14)
14. Before Issuing Summons U/S 138 NI Act, Only Prima Facie View On Presence Of Basic Ingredients Of The Offence Necessary: Delhi High Court
Case Title: Northern India Paint Colour and Varnish Co. LLP v. Sushil Chaudhary., 2023 LiveLaw (Del) 1116
Coram: Justice Amit Bansal
The Delhi High Court observed that at the stage of issuance of summons, for the purpose of Section 202 of the CrPC read with Section 145 of the N.I. Act; the MM is only required to examine whether the basic ingredients of an offence under Section 138 of the N.I. Act have been prima facie made out by the complainant. Further, the same has to be supported by the pre-summoning evidence led on behalf of the complainant. (Para 20)
15. Cheque Dishonour | No Vicarious Liability On Directors If Company Acquitted Of Offence Under NI Act: Kerala High Court
Case Title: Afsal Hussain v. K.S. Muhammed Ismail & Anr., 2023 LiveLaw (Ker) 693
Coram: Justice Sophy Thomas
The Kerala High Court held that the directors of a company are not liable to be convicted for an offence under Section 138 of the N.I. Act when the company itself is not found to have committed the offence.
The liability of persons referred to in Section 141 of the N.I Act is co-extensive with that of the company, firm or association of individuals, in a prosecution under Section 138 of the N.I Act., the Court explained. (Para 20)
16. Negotiable Instruments Act | Arbitration Proceedings And Section 138 NI Act Proceedings Can Continue Simultaneously: Delhi High Court
Case Title: Newton Engineering and Chemicals Limited and Ors v. Uem India Pvt Ltd, CRL.M.C. 5931/2023., 2023 LiveLaw (Del) 1189
Coram: Justice Amit Bansal
The Delhi High Court, while placing its reliance upon Sri Krishna Agencies v. State of A.P. & Anr., ruled that arbitration proceedings and proceedings under Section 138 of the N.I. Act arise from separate causes of action and pendency of one does not affect the other.
While holding so, the Court did not find any merit in the contention of the petitioners that the complaint under Section 138 is not maintainable in view of the ongoing arbitration proceedings between the parties. (Para 7)
17. S.138 NI Act | Offence Can Be Compounded At Initial Stage Without Complainant's Consent, Provided They Are Duly Compensated
Case Title: Anuradha Kapoor and Ors. v. State of Maharashtra and Ors., Criminal Application (APL) No. 566/2023
Coram: Justice Anil Pansare
The Bombay High Court held that a court can compound the offence in appropriate check bounce cases without the complainant's consent provided that the accused applied for compounding in the initial stages of the case and the complainant was adequately compensated. (Para 36)
18. Dishonor Of Cheque Given As Security Attracts Section 138 NI Act, Cases of 'Account Closed' And 'Payment Stopped' Also Covered: Delhi HC
Case Title: Payal Malhotra v. Sulekh Chand., 2023 LiveLaw (Del) 1231
Coram: Justice Rajnish Bhatnagar
The Delhi High Court reiterated that when a cheque given for the purpose of security is dishonored, Section 138 of the N.I. Act, will be attracted. Moreover, the Court also highlighted that the cases where cheques are dishonored for reasons “payment stopped” or “account closed” also fall within the ambit of the provision. (Para 13 and 14)
19. Cheque Dishonour | Wife Not Signatory, Cannot Be Held Liable For Cheque Signed & Given By Husband From Joint Account: Bombay High Court
Case title - Aarti Shailesh Shah vs Satish Vasant Dharukkar & Anr., CRIMINAL APPLICATION NO.747 OF 2023
Coram: Justice Sarang Kotwal
The Bombay High Court, while driving its strength from Aparna A. Shah vs M/S. Sheth Developers Pvt. Ltd. quashed and set aside the process and summons issued to a woman in a cheque bounce case, noting that only her husband was a signatory to the cheque. The cheque was issued from the couple's joint account.
In Aparna A. Shah, the Supreme Court, among others findings, had held that under Section 138 of the N.I. Act, in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder. (Para 6 and 7)
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