Sole Proprietor 'Alone' Liable U/S 138 NI Act For Dishonour Of Cheques Issued To Repay Debt: Delhi High Court

While hearing a cheque bouncing case, the Delhi High Court reiterated that in respect of a sole proprietorship firm, the sole proprietor alone can be held responsible for cheques issued by the firm for repaying a debt.

In doing so, the high court quashed the complaint and summoning order issued to the petitioner–Sanat Kumar, under Section 138 of the Negotiable Instruments (NI) Act, for allegedly issuing cheques in favour of the complainant which were dishonoured. It noted that the cheques were issued to repay a loan given by the complainant to an entity whose "sole proprietor" was not the petitioner but another person. 

A single judge bench of Justice Subramonium Prasad in its order said, "It is settled law that in a case of sole proprietorship firm, the sole proprietor alone can be held liable for a cheque issued by a sole proprietorship firm for repayment of any debt". 

The complaint alleged that the accused–Rajiv Kumar and the petitioner before the high court Sanat Kumar, had sought financial assistance of Rs. 25 lakh from the complainant respondent Sanjay Sharma in 2016.

The complaint alleged that in order to repay the loan amount, two cheques were issued in November and December 2017 respectively in favour of the complainant-respondent. However, the complaint said, when the complainant respondent presented these cheques with his bank in Delhi, the same were dishonoured with the return memo “payment stopped by drawer”.

The complainant sent a legal notice to the accused in January 2018 calling upon them to make the payment for the dishonoured cheques. Since the payments were not made, the complainant respondent moved a complaint under Section 138 of the NI Act. 

Thereafter summons were issued to the accused persons in June 2018. Out of the two accused persons, only the petitioner–Sanat Kumar challenged the summoning order before the high court claiming that the "entity which took the loan is the sole proprietorship". 

Before the high court the petitioner argued that Rajeev Kumar is the sole proprietor and he had issued the cheques which had allegedly bounced; therefore the complaint under Section 138 NI Act is not maintainable against the petitioner. 

Taking note of the GST form filed by the petitioner, the high court said that it pointed to an "entity" which had sought financial assistance–Regal Cruiser Travels, which is a sole proprietorship firm and that the "sole proprietor is the Rajeev Kumar, who is Accused No.1" and not the Accused No.2 who is the petitioner before the high court. 

In view of the same the high court said, "In view of the above, since the ingredients of Section 138 of the NI Act is not made out against the Petitioner, the complaint and the summoning order qua the Petitioner alone stands quashed". 

Case title: Sanat Kumar v/s Sanjay Sharma

Citation: 2024 LiveLaw (Del) 1075

Counsel for the Petitioner: Advocates Aadil Singh Boparai, Varun Bhati,  Srishti Khanna  and Abhishek Dubey

Counsel for Respondent: Advocates Rameshwar Singh Rana and Mahender Singh

Click Here To Download Order