Recent Important Supreme Court Judgments On Cheque Dishonour Under S 138 Negotiable Instruments Act

The Supreme Court has delivered certain crucial judgments on the Negotiable Instruments Act, 1881 (“NI Act”), ranging from issues clarifying the jurisdiction of filing of the cheque dishonor complaints to explaining when the cause of action arises for filing a complaint. The Court has also issued directives for the speedy trial of the NI Act cases. Moreover, holding that the cheque dishonor complaint is maintainable for cash debt above Rs. 20,000/- to saving company's directors from liability once the cause of action arises after imposition of moratorium under the Insolvency & Bankruptcy Code, 2016 (“IBC”), the Court also advised the magistrates to not blindly issue summons in cheque dishonor cases before going through the complaint to find out whether any material substance was suppressed by the complaint.In a nutshell, let's look at the recent important judgments on the NI Act. Company Independent and Non-Executive Directors Aren't Automatically Liable Upon Filing Of ComplaintIn KS Mehta Vs. Morgan Securities and Credits Pvt. Ltd., 2025 LiveLaw (SC) 286, a bench of Justices BV Nagarathna and SC Sharma clarified that non-executive and independent directors of a company cannot be held vicariously liable for the company's obligations under the Negotiable Instruments Act, 1881 (NI Act), unless their direct involvement in the company's financial transactions is established. The Court held that merely holding the position of non-executive and independent director of the company would not make them liable for the company's default unless their active involvement is proved. It added that only directors responsible for the company's day-to-day affairs and business operations can be made liable for the company's default. IBC Moratorium Acts As A Shield For Ex-Directors If A Cause Of Action Arises After Moratorium In a notable ruling of Vishnoo Mittal v. M/s Shakti Trading Company, 2025 LiveLaw (SC) 314, a bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah saved the directors of the companies against whom an IBC moratorium was issued, and the cause of action arises for filing a cheque dishonor case arose after imposition of the moratorium. The Court reasoned that upon imposition of the moratorium, the board of directors' powers are suspended, and management of the corporate debtor is taken over by the Insolvency Resolution Professional (IRP). As a result, directors cannot be held liable for actions they are no longer authorized to take. Cause of Action For Filing Cheque Dishonor Complaint Arises After Lapse Of 15 Days Of Demand Notice For Repaying The Debt Amount In the same ruling of Vishnoo Mittal (supra), the Court explained that the cause of action for S.138 NI Act arises not on the dishonour of the cheque but when the amount remains unpaid after the expiry of fifteen days after the demand notice. Cheque Dishonor Complaint Must Be Filed Before Magistrate Having Jurisdiction Where Payee Maintains Bank Account, Not Where Cheque Is Presented For Collection A bench of Justices Sanjay Kumar and SC Sharma in Prakash Chimanlal Sheth Versus Jagruti Keyur Rajpopat reiterated that the territorial jurisdiction for a complaint for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act is with the Court having jurisdiction over the place where the payee maintains his bank account through which the cheque was delivered for collection. The jurisdiction is not where the cheque was physically presented for encashment through the account, but at the place where the account is maintained. The Appellant had deposited these cheques at Kotak Mahindra Bank's Opera House Branch in Mumbai. However, the Appellant's bank account was maintained at the Bendurwell Branch in Mangalore. When the cheques got dishonoured, he filed a complaint there under the Negotiable Instruments Act. However, the Magistrate in Mangalore dismissed the complaint on the ground that jurisdiction lay where the cheques were physically presented, i.e., Mumbai, a view later upheld by the High Court. However, the Supreme Court later set aside the High Court's decision directing the Mangalore Court to proceed with the complaint. Magistrates Must Not Issue Summons To Accused Without Verifying Complaint's Credentials A bench of Justices Abhay S Oka and Ujjal Bhuyan in Rekha Sharad Ushir v. Saptashrungi Mahila Nagari Sahkari Patsansta Ltd., 2025 LiveLaw (SC) 355 recently quashed a complaint filed for the offence of cheque dishonour under Section 138 of the Negotiable Instruments Act (NI Act) after noting that the complainant suppressed material facts and abused the judicial process by withholding loan documents. It said that the law cannot be set into motion by issuing a process on a complaint without satisfying that there were sufficient grounds to proceed against the accused. The Court underscored the Magistrate's duty to apply its mind before setting criminal law into motion. No Pre-Cognizance Summons To Accused In...

Recent Important Supreme Court Judgments On Cheque Dishonour Under S 138 Negotiable Instruments Act

Yash Mittal

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