Alka Khandu Avhad v. Amar Syamprasad Mishra & Anr., 2021- Person Who Has Not Drawn The Cheque Cannot Be Prosecuted u/s 138 NI Act Even In Case Of Joint Liability

DATE: 8th March, 2021
JUDGES

• Dhananjaya Y. Chandrachud
• M. R. Shah

PARTIES

• Alka Khandu Avhad (APPELLANT)
• Amar Syamprasad Mishra & Anr. (RESPONDENT)

SUBJECT: The present case deals with sections 138 and 141 of Negotiable Instruments Act, 1881 which criminalises dishonour of cheque and lays down provisions for offences done by companies respectively. The question before the court was whether both the accused were jointly liable or not when the bank account is not jointly maintained.

AN OVERVIEW

1. In the present case, the Supreme Court is hearing an appeal against the decision of High Court through which the court dismissed the application preferred by the appellant and refused to quash the complaint filed against the appellant for the offences punishable u/s 138 and 141 of Negotiable Instruments Act, 1881.
2. The appellants are husband and wife and were represented by the complainant who is a lawyer in a legal proceeding. The complainant then raised a professional bill for the legal work done by him to represent accused after which the husband handed over a cheque to the complainant for the payment. However, the cheque issued by the husband got dishonoured.
3. After the cheque got dishonoured, the complainant served a legal notice through which he asked the appellants to pay a sum of Rs. 8,62,000 within 15 days. The said notice was not acknowledged by the appellant, neither the payment was made.
4. Aggrieved, the lawyer filed a complaint against both the accused for offences u/s 138 of the negotiable instruments act. It was contended by the complainant that it was a joint liability of the accused as he represented both of them.
5. The wife then filed a criminal writ petition in the High Court to quash the complaint against her contending that she was neither a signatory to the dishonoured cheque nor there was a joint bank account. This appeal was dismissed by the High Court, thus, the wife has approached the Supreme Court through the present appeal.

IMPORTANT PROVISIONS

NEGOTIABLE INSTRUMENTS ACT,1881

• Section 138- Dishonour of cheque for insufficiency, etc., of funds in the account. —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 provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation- For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.

• Section 141-Offences by companies-

1. 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: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: [Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.]
2. Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation- For the purposes of this section,-

(a) “company” means any body corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.

ISSUES: The major issues before the Supreme Court in the present case are as below:

• Whether the accused no. 2 can be prosecuted for offence u/s 138 of NI Act or not?
• Whether the accused were jointly liable or not?
• Whether section 141 of the Negotiable Instrument Act is applicable in the present circumstances or not?

ANALYSES OF THE JUDGEMENT

• The prime contention of the appellant in the present judgement is that the accused no. 2 was neither a signatory to the cheque nor the cheque was drawn from the bank account of the appellant. The said cheque was issued by her husband and the account was not a joint account. The ingredients of Section 138 of the NI Act are, also not satisfied, thus, she cannot be prosecuted for offence under the said section. While answering this contention the court observed that the cheque was issued by the husband, was drawn from his account and was signed by him. Thus, the court was content that the account was not a joint account.
• While answering the first issue, the court looked upon the provision of section 138 NI Act and stated that the conditions to be satisfied for prosecution u/s 138 are as below:

1. the cheque is drawn by a person and on an account maintained by him with a banker,
2. 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
3. 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.

• Referring to the above conditions, the court stated that the section does not speak about joint liability. The court stated “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. 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.”
• While answering the third issue of the applicability of section 141 of NI Act, the court observed that the contention of the complainant that company means association of individuals cannot be accepted. Two private individuals cannot be said to be “other association of individuals”.
• Thus, the court held that the High Court committed an error in not quashing the complaint against the accused no.2 and thus allowed the appeal and quashed the complaint against the wife.

CONCLUSION

• Section 138 of the Negotiable Instruments Act was enacted to impose criminal liability on persons who first issue a cheque for the discharge of liability and then dishonour it and actually never had the intention to pay the debts.
• Some conditions have been laid down to be satisfied before prosecution which was not satisfied in the present case.
• Thus, the court rightly quashed the complaint against the wife as she was neither the signatory of the cheque, nor the cheque was drawn from her account. Therefore, it is rightly decided that she cannot be prosecuted u/s 138.

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