Home > Recent Judgements > Under Section 138 Of The Ni Act, A Sole Proprietor Is Liable For The Dishonour Of Checks Issued To Repay Debts
Oct 01, 2024
BACKGROUND
In the case between Sanat Kumar vs Sanjay Sharma. In the year 2016, loan of 25 lakhs is alleged to have been sought against the Complainant by both Accused No.1 and the Petitioner. Two of the cheques issued by Applicant No.1 worth ₹30 lakh currency; were returned for ‘payment stopped by drawer.’ Therefore, legal action taken which resulted in filling of a complaint under the section 138 of the Negotiable Instruments Act at the office of the complainant. The Petitioner appealed the order of summoning the accused persons on the grounds that the cheques were owned by Applicant No.1 who was the sole operative of Regal Cruiser Travels; therefore, he was the only person who could have been held liable for the action. The court accepted this argument and annulled the complaint against Petitioner.
ISSUE
Whether the Petitioner can be held liable for the dishonoured cheques when the entity that issued the cheques is a sole proprietorship owned by Accused No. 1?
LEGAL PRINCIPLE INVOLVED
Under Indian law in terms of sole proprietorships, the entity owing the cheques emanates from only one person. In this case since Accused No. 1 is the sole proprietor, the courts held that only he is liable for the dishonoured cheques.
JUDGEMENT
In this situation, the finding of the Court is that the complaint as well as the summoning order for the Petitioner should be dismissed. The Petitioner contended that he incurred no liability under Section 138 of the Negotiable Instruments Act “NI Act” as the loan was taken by a sole proprietor firm Regal Cruisers Travels in which Accused No. 1 is the only proprietor. Since the cheques were signed by Rajeev Kumar as sole proprietor of the firm, the burden of legal liability under NI act Section 138 is only on the Accused No. 1 and not the Petitioner.
The Petitioner in the instant case places reliance on legal authorities insisting that where there is a sole proprietor firm and there are cheques issued by the firm, it is only the sole proprietor who can be made liable. The Petitioner having not been a sole proprietor, the Court held that no essential elements constituting an offence under Section 138 of the said Act was proved against him.
Accordingly, the complaint and the summoning round regarding the Petitioner were struck down, and the High court’s order was vacated.
ANALYSIS
The complaint and summoning order against the complainant in the cheque dishonour case filed under Section 138 of the Negotiable Instruments Act was diligently quashed by the Court. The Court noted that the loan had been taken by a proprietary concern namely Regal Cruiser Travels owned by Accused No.1. In other words, since the Dishonoured cheques were issued by the sole proprietor Accused No.1, he alone shall be liable. The Petitioner, however, being not a proprietor, could not be made accountable for the issuance of the cheque and hence the case against him could not be sustained. The petition was therefore disposed of in the above terms.
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