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No joint liability under Section 138 Negotiable Instruments Act unless the account on which cheque was drawn is jointly maintained: Supreme Court

No joint liability under Section 138 Negotiable Instruments Act unless the account on which cheque was drawn is jointly maintained: Supreme Court

Section 138 of the Negotiable Instruments Act provides with the provision of punishment for the dishonor of cheques on the grounds of insufficiency of funds or that the cheque exceeds the amount arranged to be paid from that bank account by an agreement made with the bank of the person who issued the cheque.

To constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled:

● A person must have drawn a cheque on a bank account maintained by him;
● The cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;
● That cheque has been presented to bank within a period of three months from the date on which it is drawn;
● That cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honor the cheque or issuance of stop payment instructions by the Drawer to the Drawee Bank or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank or when there is deliberate mismatch of signature of cheque;
● The payee or the holder in due course of the cheque 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 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
● The drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;
● The complaint is to be filed before the Court of Chief Judicial Magistrate/Chief Metropolitan Magistrate within 30 days of the date of expiry of the 15 days-time period of receipt of the notice;

These conditions were given in the case of Kusum Ignots and Alloys ltd (v.) Pennnar Peterson Securities Ltd[1](2000) 2SCC 745.

The apex court pronounced a landmark judgment in the case of Alka Khandu Avhad (v.) Amar Syamprasad Mishra[2]2021 SCC OnLine SC 189 and another stating that the person who has not drawn the cheque cannot be prosecuted under section 138 of Negotiable Instruments Act even in case of Joint Liability. In the present case the original petition was filed by a lawyer namely Mr. Amar Syamprasad Mishra before the high court of Bombay against a married couple when the cheque issued to lawyer for his professional bill got dishonored. This cheque acted as an instrument for the payment of the bill for the legal work done by the lawyer to represent the married couple in a legal proceeding. In the present case the cheque was issued by Mr. Khandu Kacharu Avhad (Husband of Alka Khandu Avhad) alone. Mr. Amar Syamprasad Mishra prayed that the couple should be held liable for the offence punishable under Section 138 of the Negotiable Instruments Act as it was the joint liability of both the husband and wife to pay his bill. The accused wife, Mrs. Alka Khandu Avhad moved to the High Court of Bombay seeking to terminate the criminal proceeding against her [3](2019 SCC OnLine Bom 1630: (2020) 2 BC 371). She stated that her primary reason for contention is that she was neither a signatory to the cheque dishonored nor the account associated with the dishonored cheque is a joint account maintained by her along with a husband. This case was dismissed by the high court of Bombay.

In the Appeal to the Supreme Court, the Apex court bench observed few conditions before a person can be prosecuted under Section 138 of Negotiable Instruments act[4]Para 15 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgment. They are:

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 the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account.

The Apex court declined and rejected the contention of Mr. Amar Syamprasad Mishra that both the husband and wife are liable under Section 138 of the Negotiable Instruments act. The Supreme Court held that “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.”[5]Para 16 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgmentOn the question of Whether Section 141 of the Negotiable Instruments Act is applicable to the current circumstances the Supreme Court held that “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.”[6]Para 18 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgment

Hence the Apex Court allowed the Appeal by Mrs.Alka Khandu Avhad and quashed the complaint against her.

References

1 (2000) 2SCC 745
2 2021 SCC OnLine SC 189
3 (2019 SCC OnLine Bom 1630: (2020) 2 BC 371
4 Para 15 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgment
5 Para 16 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgment
6 Para 18 of the 2019 SCC OnLine Bom 1630: (2020) 2 BC 371 judgment

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