No Vicarious Liability Without Direct Issuance of Cheque,’ Rules Jammu & Kashmir High Court

High Court Quashes Proceedings Against Vaibhav Singh in Cheque Dishonor Case Under Section 138 NI Act The High Court of Jammu & Kashmir and Ladakh at Jammu has quashed the complaint against Vaibhav Singh in a cheque dishonor case, emphasizing that there is no liability under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) without direct issuance by the accused or the company. The judgment, delivered by Justice Rajnesh Oswal, clarifies the scope of vicarious liability under the NI Act and reinforces the importance of direct involvement in the issuance of cheques for liability to be established.

The case stems from a complaint filed by Taushar Gaind against Vaibhav Singh and others, alleging that a cheque issued by Sachin Kumar, a director of SNP Events and Entertainment Private Limited, was dishonored. The complainant, Gaind, had advanced multiple loans totaling Rs. 20.16 lakhs to SNP Events based on assurances from Singh and Kumar. In June 2021, Kumar issued a cheque from his personal account as part of the repayment, which was subsequently dishonored. Gaind then filed a complaint under Section 138 of the NI Act against all involved parties, including Singh.

Issuance of Cheque and Liability: The court underscored that the cheque in question was drawn from Sachin Kumar’s personal account, not from the company’s account. “Admitted fact that cheque was issued by respondent No. 3 from his personal account,” the judgment noted. This critical fact nullified any direct liability of Vaibhav Singh under Section 138 of the NI Act, as he was neither the drawer nor the signatory of the cheque.

Section 141 of NI Act and Vicarious Liability: Justice Oswal emphasized the conditions under Section 141 of the NI Act, which pertain to vicarious liability for company-related offenses. The court highlighted, “No liability can be fastened under Section 138 NI Act on a person other than the drawer of the cheque.” Since the cheque was not issued by the company, the provisions of Section 141 do not apply to Singh.

Citing precedents such as S.P. Mani and Mohan Dairy vs. Dr. Snehalatha Elangovan and Alka Khandu Avhad v. Amar Syamprasad Mishra & Anr, the court reinforced its decision. It stated, “If the drawer is a company, the offense is primarily committed by the company. By virtue of Section 141, the guilt for the offense extends to those in charge of the company’s operations. However, in this case, the cheque was issued by an individual, not the company.”

Justice Oswal remarked, “Once the cheque has not been issued by the petitioner, but by the respondent No. 3 in the account maintained by him only, the petitioner cannot be prosecuted for the dishonor of the cheque issued by the respondent No. 3.”

The High Court’s decision to quash the complaint against Vaibhav Singh underscores the principle that liability under Section 138 of the NI Act is specific to the drawer of the cheque. This judgment sets a clear precedent, highlighting that individuals cannot be held vicariously liable for cheque dishonor unless they are directly involved in issuing the cheque. The ruling is expected to significantly impact future cases involving corporate and personal liabilities under the NI Act.

Date of Decision: May 24, 2024

Vaibhav Singh v. Taushar Gaind & Others