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Personal Liability Limited To Drawer Under Section 138 Nia And Does Not Extend To Company: High Court Of Jammu & Kahmir And Ladakh

Sanskriti Tiwari ,
  11 June 2024       Share Bookmark

Court :
High Court of Jammu & Kashmir and Ladakh
Brief :

Citation :
CRM(M) No. 915/2022

CASE NAME:

Sh. Vaibhav Singh vs Sh. Tushar Gaind

CASE DATE:

24th May, 2024

PARTIES INVOLVED:-

  • Appellant:-

1.    Sh. Vaibhav Singh

  • Respondents:-

1.    Sh. Tushar Gaind

2.    SNP Events and Entertainment

3.    Sh. Sachin Kumar

BENCH/JUDGE:

Justice Rajnesh Oswal

IMPORTANT PROVISIONS:-

1.    Section 138 of the NI Act:- 

Deals with the dishonour of cheques due to insufficient funds in the account or if it exceeds the amount arranged to be paid from that account.

2.    Section 141 of the NI Act:- 

Provides for vicarious liability for the offence committed under section 138.

SUBJECT:-

The complainant filed a complaint against the petitioner and respondent Nos. 2 and 3 under Section 138 of the NIA for the dishonour of cheque related to a Rs. 20.16 lacs loan. The petitioner sought to quash the complaint, arguing he was no longer a director and didn’t issue the cheque. The court quashed the proceedings against the petitioner.

OVERVIEW:-

  • The respondent No. 1/complainant, Mr. Tushar Gaind, filed a complaint under section 138 of the NI Act against the petitioner and respondent Nos. 2 and 3, pending in the Special Excise Mobile Magistrate court, Jammu. 
  • He alleged that respondent No. 2, a company where respondent No. 3 and the petitioner were directors, borrowed Rs. 20.16 lacs in total from 2018 to 2021 for business purposes.
  • Respondent No. 3 issued a cheque from his personal account for repayment, which was dishonoured. The complainant served a legal notice and upon non-payment, filed the complaint. 
  • The petitioner sought to quash the trial court’s order, arguing he was no longer a director and did not issue the cheque. 

ISSUES RAISED BEFORE THE COURT:-

  1. Whether the petitioner could be held liable under section 138 of the NI Act despite the fact that the dishonoured cheque was issued by respondent No. 3 from his personal account?
  2. Whether vicarious liability be applied to the petitioner despite not being the drawer of the cheque?

CONTENTIONS RAISED ON BEHALF OF THE PETITIONER:-

  • The learned counsel for the petitioner, Mr. Ajay Abrol argued that the petitioner had been falsely implicated in the complaint as he had ceased to be a director of respondent No. 2-company from 25.03.2021, a fact that was deliberately concealed from the trial court by respondent No. 1.
  • He asserted that the cheque in question was issued by respondent No. 3 from his personal account and not by the petitioner or the company and since the cheque was issued by respondent No. 3 in his personal capacity, any liability for its dishonour should fall solely on respondent No. 3. 

CONTENTIONS RAISED ON BAEHALF OF THE RESPONDENT:-

  • The learned counsel for the respondent, Mr. Rohit Kohli, contended that the loan was advanced to respondent No. 2-company at the request of the petitioner and respondent No. 3. The petitioner and respondent No. 3 were directors of respondent No. 2-company when the loans were given, making them responsible for the repayment.
  • He further stated that the cheque, although issued by respondent No. 3 from his personal account, was in repayment of the loan taken for the benefit of respondent No. 2-company. 

COURT’S ANALYSIS:-

  • The court stated that it was an admitted fact that the cheque in question was issued by respondent No. 3 from his personal account, not by the petitioner or respondent No. 2-company.
  • The petitioner’s argument that he ceased to be a director of respondent No. 2-company before the cheque was issued was considered relevant.

JUDGMENT:-

The court quashed the complaint and proceedings against the petitioner under section 138 of the Negotiable Instrument Act. It held that since the cheque in question was issued by respondent No. 3 from his personal account and not by the petitioner or the company, the petitioner could not be held liable for its dishonour. 

The court also noted that the petitioner had ceased to be a director of respondent No. 2-company before the cheque was issued, further strengthening the petitioner’s case. Therefore, the court ruled in favor of the petitioner and disposed of the case accordingly.

CONCLUSION:-

Despite initial implication in a section 138 complaint of the Negotiable Instrument Act, the petitioner was exonerated by the court. The ruling highlighted the necessity of establishing direct involvement and legal responsibility, reinforcing the principles of fairness and accountability in legal jurisprudence surrounding financial transactions.
 

 
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