Cheque Bounce Case: Non-Signatory Wife Not Liable Under Section 138 NI Act

Cheque Bounce Case: Non-Signatory Wife Not Liable Under Section 138 NI Act

The High Court on 8 May held that proceedings under Section 138 of the Negotiable Instruments Act cannot be continued against a person who is neither the drawer nor the signatory of the dishonoured cheque. Justice Uday Kumar quashed the criminal proceedings initiated against N. Mamatha Nagesh, who had been arrayed as an accused in a cheque bounce complaint filed by Inditrade Fincorp Limited. The Court observed that liability under Section 138 arises only against the person maintaining the account from which the cheque was issued. The Court mentioned that

“The statutory requirement under Section 138 is that the cheque must be drawn on an account maintained by the accused.”

The complaint arose from the dishonour of a cheque allegedly issued towards discharge of liability connected with a business concern operated by the petitioner’s husband. The cheque had been drawn from the husband’s individual bank account. The petitioner approached the High Court seeking quashing of the proceedings, contending that she was neither a signatory to the cheque nor a joint account holder. It was further submitted that the business was a sole proprietorship concern of her husband and not a partnership firm or company in which she had any legal role.

The respondent-finance company had impleaded the petitioner as Accused along with her husband. Before the Court, the petitioner argued that she was a complete stranger to the transaction and could not be prosecuted merely because of her marital relationship with the principal accused. The court highlighted that:

“Vicarious liability under Section 141 of the NI Act is confined to companies, firms and associations and cannot be extended to individual or sole proprietorship transactions.”

The High Court accepted the contention of the petitioner and held that the concept of vicarious liability under the Negotiable Instruments Act applies only in cases involving juristic entities such as companies and firms. Since the cheque in question had been issued from the personal account of the husband, the wife could not be prosecuted in the absence of any direct role in the transaction.

The Court further observed that continuation of proceedings against the petitioner would amount to an abuse of the process of law and noted that criminal prosecution cannot be used as a tool for exerting pressure on family members who are not legally liable for the transaction. Accordingly, the criminal proceedings were quashed against the petitioner.

To Read Full Judgment, Download PDF Given Below: