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

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

Observing that the offence is triggered at the stage when a cheque is returned unpaid by the bank for insufficiency of funds, Justice Anup Jairam Bhambhani said:

"For guilt to be imputed to an officer of a company, at the very least, 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 made the observations while dealing with a plea challenging a summoning order dated September 19, 2019 passed by the Metropolitan Magistrate in a complaint case registered under section 138 of NI Act.

It was the petitioner's case that he was one of the signatories to the cheques which were post-dated for July 30, 2018 and August 30, 2018. 

The said cheques were issued on behalf of a company namely M/s. Ortel Communication Ltd. where the petitioner was employed as Chief Technology Officer, at the time of signing of the cheques. However, he retired with effect from January 6, 2018.

The petitioner's counsel submitted that the cheques were presented for encashment and returned for insufficient funds on October 25, 2018 and the petitioner was in no way engaged with the business or affairs of the company on that date since he had retired more than nine months earlier.

Issuing notice on the plea, the court said a bare perusal of Section 138 NI Act reveals that the genesis of an offence is the "return" of a cheque by a bank "unpaid" for insufficiency of funds in the account on which the cheque is drawn.

Justice Bhambhani said that though the petitioner co-signed the cheques, he had retired from the company more than nine months before the cheques came to be presented and thus could not have ensured sufficient funds in the bank account of the company to honour the same, even if he had so desired.

"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 said.

Listing the matter for hearing next on March 29, 2023, the court stayed the proceedings in the criminal complaint qua the petitioner until further orders.

Title: MAN MOHAN PATNAIK v. CISCO SYSTEMS CAPITAL INDIA PVT.LTD & ORS.

Citation: 2022 LiveLaw (Del) 1201

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