Negotiable Instruments Act | Death Of Office Holders Does Not Affect Liability Of Company To Repay Cheque Amount: Karnataka HC Reiterates

The Karnataka High Court reiterated that even if the office holder of a company dies, the company is still in existence and therefore, the company still has the liability to repay the cheque amount under the Negotiable Instruments Act (NI Act).

The Court dismissed the Criminal Petition seeking to quash criminal proceedings against a company that denies its liability to pay the cheque amount after the death of one of the officeholders.

Justice M Nagaprasanna observed, “The Apex Court holds that a drawer who signs the cheque and hands it over to the payee is presumed to be liable, unless the drawer adduces evidence to rebut the presumption that the cheque has been issued towards payment of a debt, in discharge of a liability or otherwise. The presumption is in tune with Section 139 of the Act. The death of the drawer of the cheque cannot and will not efface such presumption, as the cheque is issued on behalf of the Company. The Company is in existence, so are the Chairman and Directors. Therefore, it is for the Company or its Chairman or Directors to rebut such presumption before the Court, as it is trite that, bearers of the office of a Company may come and go, the company remains”.

Advocate B.O Chandrashekhar appeared for the Petitioners and Advocate Abhilash R appeared for the Respondent.

The Second to Sixth Accused were the directors/office bearers of the First Petitioner (M/s Jamkhandi Sugars Limited). The Company approached the State Bank of India (Bank) for financial assistance for harvesting and transportation. The Bank approved the credit facility and the Company applied for the renewal of this facility, and a cheque of Rs. 90 crores was issued as security. Unfortunately, the Chairman who signed the cheque passed away. The Second Accused became the Chairman, and loan documents were executed. However, the Company defaulted on loan payments, and the account became a non-performing asset. The Bank presented the cheque, which bounced due to insufficient funds. The Company responded by denying liability based on the cheque's posthumous presentation. The Bank then filed a private complaint under Section 200 of the Criminal Procedure Code (CrPC). The Court took cognizance of the offense and issued a summons. Aggrieved, the Plaintiffs approached the Court seeking to quash proceedings filed under Sections 138 and 142 of the NI Act

The Court referred to the Supreme Court Judgment in the case of Sripati Singh v State Of Jharkhand [2021 SCC OnLine SC 1002] and reiterated that a drawer who signs the cheque and hands it over to the payee is presumed to be liable unless the drawer adduces evidence to rebut the presumption that the cheque has been issued towards payment of a debt, in the discharge of liability or otherwise. The Court noted that the presumption is in tune with Section 139 of the Act.

Furthermore, the Court observed that the death of the drawer of the cheque cannot and will not efface such presumption, as the cheque is issued on behalf of the Company. The Court noted that the Company is in existence, and so are the Chairman and Directors. Therefore, the Court held that it is for the Company or its Chairman or Directors to rebut such presumption before the Court.

Accordingly, the Court dismissed the Petition.

Cause Title: Rajiv v The State Bank Of India

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