Merely Being A Signatory To Cheque Does Not Make A Person Guilty Of Offence Under Section 138 NI Act: Observes Delhi HC

The Delhi High Court has observed that, on a prima facie view, merely being a signatory to a cheque does not, in and of itself, make a person guilty of the offence under section 138 of the Negotiable Instruments Act.

The bench of Justice Anup Jairam Bhambhani made this observation while dealing with a plea challenging summoning order made by the Metropolitan Magistrate under section 138 of the Negotiable Instruments Act, 1881.

It was petitioner's case that though the petitioner was one of the signatories to the cheques that are the subject matter of the criminal complaint, at the time when these were signed and issued, the cheques were post post-dated and had been issued on behalf of respondent No.2/company, where the petitioner was employed as Chief Technology Officer, at the time of signing of the cheques.

The Counsel for the petitioner submitted that the subject cheques were presented for encashment and returned for insufficient funds but the petitioner was in no way engaged with the business or affairs of respondent No.2 on that date since he had retired more than 9 months earlier.

Advocate Sandeep Mahapatra appeared for the petitioner whereas Advocate Kartik Bhalla appeared for Respondent.

The Court observed that "Upon a bare perusal of section 138 of the NI Act, it is evident that the genesis of an offence under that provision is the 'return' of a cheque by a bank 'unpaid', inter-alia for insufficiency of funds in the account on which the cheque is drawn."

The Court further noted that the provision also stipulates certain pre-conditions which must be fulfilled before the offence is taken to be committed, one of which is the issuance of a written notice of demand for payment to the drawer of the cheque within 30 days of the cheque being returned unpaid by the bank; and giving to the drawer at least 15 days from the date of receipt of notice, to make such payment.

The Court held that for guilt to be imputed to an officer of a company, the officer should have been responsible for the business and affairs of the company and for honouring the cheque on the date that the cheque was returned unpaid.

The Court noted that though the petitioner co-signed the cheques in question, he had retired from the company more than 09 months before the cheques came to be presented.

"On a first blush therefore, the deeming provision contained in section 141 NI Act would not apply to the petitioner, since he was no longer in charge of the affairs of the respondent company on the date that the offence defined in section 138 was committed.", the Court observed.

Accordingly, the Court stayed the criminal proceedings insofar as they concern the petitioner.

Cause Title- Man Mohan Patnaik v. Cisco Systems Capital India Pvt. Ltd & Ors.

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