Two private individuals cannot be “other association of individuals” u/S 141 of NI Act: SC

Alka Khandu Avhad v. Amar Syamprasad Mishra & Anr.

Criminal Appeal No. 258 of 2021

Decided on 8th March 2021.

A division bench of the Supreme Court comprising of Justice D.Y. Chandrachud and Justice M.R. Shah decided upon this matter. The Court bought out the errors in the judgement given by the High Court by not quashing the complaint against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act.

The facts of the case state that a cheque that amounted to 8,62,000/- INR was issued by the accused to the complainant dated 15.03.2016 bearing No.227050 drawn on Union Bank of India. The same cheque was returned unpaid at the time of encashment with an endorsement of ‘funds insufficient’. There was a legal notice which was issued by the complainant to the accused demanding the amount within 15 days, the accused failed to acknowledge the notice and the amount was not paid in the above-mentioned time. This action by the appellant attracted a law suit for offence punishable under Section 138 of the Negotiable Instruments Act. It was filed in the Metropolitan Magistrate, 43rd Court, Borivali, Mumbai. The Court ordered against both the accused for the offence punishable under Sections 138 r/w Section 141 of the NI Act.

The law suit filed by the complainant was against two accused, the husband (who was the account bearer) and his wife. The wife filed a Criminal Writ Petition in the High Court- Criminal Writ Petition No. 2595 of 2019. The petition demanded for quashing the criminal complaint filed against her mainly on the ground that the appellant was neither a signatory to the cheque dishonoured nor there was a joint bank account.

In its decision, the High Court refused to quash the Criminal Complaint, which aggrieved the parties to appeal under the Criminal Appellate Jurisdiction before the Supreme Court.

The learned Counsel representing the appellant submitted that the account from which the cheque was issued is not a joint account and the wife of the accused no.1 has no liability in this matter. It was further contended that the wife is not a signatory to the cheque which has been issued to the complainant nor it has been drawn out from her account. The account from which the cheque has been drawn belongs solely to the husband (Accused No. 1) and hence, the wife has no liability under Section 138 of the Negotiable Instruments Act. The submitted that the arguments mentioned by the complainant does not satisfy the obligations of Section 138 of the NI Act. Further, it was contended that the High Court must have quashed the complaint which was raised against the appellant party.

The learned Counsel on behalf of the Complainant supported the judgement given by the High Court in which it had been mentioned that the Complainant has addressed both the accused in the petition and also gave the reference from the Trial Court, which issued summons for the appellant under Section 138 r/w Section 141 of the NI Act. It was further submitted that as the conclusion of the same, a prima facie case was being made out and the High Court rightfully refused to quash the criminal complaint against the appellant. Learned counsel appearing on behalf of the State has supported the impugned judgment and order passed by the High Court.

After hearing the contentions from both the parties, the Court considered the facts at length and crystallized the issue before them:

The dishonoured cheque was signed by original accused No. 1. Therefore, the dishonoured cheque was signed by original accused No. 1 and it was drawn on the bank account of original accused No. 1. The appellant herein-original accused No. 2 is neither the signatory to the cheque nor the dishonoured cheque was drawn from her bank account. That the account in question was not a joint account. In the light of the aforesaid facts, it is required to be considered whether the appellant herein – original accused No.2 can be prosecuted for the offence punishable under Section 138 r/w Section 141 of the NI Act? (Para 6)

Interpreting Section 138 of the Negotiable Instruments Act, the Court stated:

Section 138 of the NI Act does not speak about the joint liability. Even in case of a joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act. 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. (Para 7)

The Court held:

Two private individuals cannot be said to be “other association of individuals”. Therefore, 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. Therefore, the High Court has committed a grave error in not Quashing the complaint against the appellant for the offence punishable under Section 138 r/w Section 141 of the NI Act. (Para 8.1)

The Court allowed the appeal and the judgement of the High Court dated 21.08.2019 was set aside. The complaint case pending in the Court of the learned Metropolitan Magistrate filed by respondent No. 1 was also set aside.

View/Download judgement: Alka Khandu Avhad v. Amar Syamprasad Mishra & Anr.

Yashwardhan Bansal