Only the Drawer of a Cheque Can Be Prosecuted Under Section 138 NI Act: Punjab & Haryana High Court Quashes Complaint Against Joint Account Holder

Legal Notice to Wrong Person is a Fatal Defect": High Court Holds Defective Notice Renders Proceedings Incurably Illegal. In a significant judgment, the Punjab and Haryana High Court has ruled that only the drawer of a cheque can be held liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), even if the cheque is issued from a joint account. The court also held that service of a legal notice to the wrong person vitiates the entire proceedings, rendering them incurably illegal.

Delivering the verdict  Justice Harpreet Singh Brar quashed the complaint filed under Section 138 NI Act against Charanjeet Singh, a joint account holder, and his wife Jasbir Kaur, on the ground that Charanjeet Singh had not signed the dishonoured cheque in question. Additionally, the legal notice demanding repayment was erroneously addressed to a different individual, "Rishi Jain," instead of the petitioners.

The court observed: "Under Section 138 of the NI Act, only the 'drawer' of the cheque can be prosecuted. A joint account holder cannot be held liable unless they have actually signed the cheque. Mere operation of the joint account does not create liability under the Act."

The case arose from a loan dispute between respondent Kulwant Singh and petitioners Charanjeet Singh and Jasbir Kaur. The respondent claimed that the petitioners had borrowed Rs. 7,50,000/- from him and had issued a cheque (No. 047132, dated 12.06.2019) from their joint account towards repayment. However, when the cheque was presented for encashment, it was dishonoured due to insufficient funds.

Kulwant Singh then served a legal notice dated 05.07.2019 demanding repayment, but it was erroneously addressed to "Rishi Jain" instead of the actual signatory of the cheque. Realizing the mistake, a corrigendum-cum-rejoinder was issued on 24.07.2019 in an attempt to rectify the error. Subsequently, when payment was not made, Kulwant Singh filed a complaint under Section 138 NI Act, leading to the summoning of both Charanjeet Singh and Jasbir Kaur.

The petitioners challenged the complaint and the summoning order before the High Court under Section 482 Cr.P.C., seeking quashing of all proceedings.

"Only the Signatory of the Cheque Can Be Prosecuted": Court Relies on Supreme Court Precedents

Quashing the complaint, the High Court relied on the Supreme Court's decision in Mrs. Aparna A. Shah v. M/s Sheth Developers Pvt. Ltd. (2013) 4 SCC (Cri) 241, which categorically held that only the person who signs the cheque can be held liable under Section 138 NI Act.

The court quoted the Supreme Court’s observation: "Under Section 138 of the NI Act, in cases where a cheque is issued from a joint account, liability cannot be fastened on a person who has not signed the cheque. The mere fact that the account is jointly maintained does not create an automatic presumption of culpability against all account holders."

Applying this principle, the High Court ruled that Charanjeet Singh could not be prosecuted simply because he was a joint account holder, as he had not signed the cheque.

"Legal Notice to Wrong Person is a Fatal Defect": Proceedings Vitiated Due to Non-Compliance with Section 138(b) NI Act

The High Court further found serious procedural defects in the complaint, particularly concerning the legal notice required under Section 138(b) NI Act.

Section 138(b) mandates that before initiating prosecution, the payee must serve a demand notice to the drawer of the cheque within 30 days of dishonour. However, in this case, the original notice was addressed to "Rishi Jain" instead of the petitioners.

The court held that: "Serving a notice under Section 138(b) NI Act is a mandatory requirement. The notice must be properly addressed to the drawer of the cheque. The mistake in addressing the notice cannot be rectified through a corrigendum issued beyond the statutory period. The defective notice vitiates the entire proceedings, rendering them incurably illegal."

The corrigendum was issued on 24.07.2019, well beyond the 30-day statutory period, which the court found unacceptable and non-compliant with the law."Quashing Justified Under Section 482 Cr.P.C. to Prevent Abuse of Process"

Exercising its inherent powers under Section 482 Cr.P.C., the High Court quashed the complaint and all subsequent proceedings, noting that continuing the case would amount to an abuse of the legal process.

The judgment emphasized: "In cases where the complaint is based on a fundamentally defective legal notice and the accused is not the actual drawer of the cheque, the entire proceedings become unsustainable. Courts must prevent abuse of process by quashing such cases under Section 482 Cr.P.C."

Conclusion: Landmark Judgment Reinforces Strict Interpretation of Section 138 NI Act

This ruling reaffirms key legal principles concerning cheque dishonour cases:

Only the drawer of the cheque can be prosecuted under Section 138 NI Act. A joint account holder cannot be held liable unless they have personally signed the cheque.

Serving a legal notice to the correct person within the statutory period is mandatory. A defective notice vitiates the entire proceedings and cannot be cured by issuing a corrigendum beyond the 30-day statutory period.

Section 482 Cr.P.C. can be invoked to quash proceedings in cases of fundamental legal defects to prevent misuse of criminal law.

By quashing the proceedings, the Punjab & Haryana High Court has upheld the strict interpretation of penal statutes, reinforcing safeguards against arbitrary prosecution in cheque dishonour cases.