Section 138 liability follows the drawer of the cheque; a company cannot be prosecuted unless the cheque was issued on its behalf.

Criminal liability under Section 138 of the Negotiable Instruments Act attaches to the drawer of the dishonoured cheque. Where the cheque was admittedly issued by an employee in his own name and not shown to have been issued on behalf of the company, prosecution of the company could not be sustained. A dispute about whether the company had agreed to refund money through that employee concerned the underlying contractual arrangement and did not by itself create cheque-dishonour liability. The proceedings against the company were therefore held not maintainable and were quashed.

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Issues: Whether criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 could be maintained against a company when the cheque was issued by an employee in his own name and not on behalf of the company.

Analysis: Liability under Section 138 attaches to the drawer of the cheque. A dispute as to whether the company had agreed to refund the amount through a particular employee related to the underlying contractual arrangement and did not by itself create criminal liability for dishonour of a cheque not drawn by the company. As the cheque was admittedly issued by the employee and not stated to have been issued on behalf of the company, prosecution of the company for the dishonour of that cheque could not be sustained.

Conclusion: The proceedings against the company were not maintainable and were quashed in favour of the petitioner.

Ratio Decidendi: For an offence under Section 138 of the Negotiable Instruments Act, criminal liability lies with the drawer of the dishonoured cheque, and a company cannot be prosecuted on that footing unless the cheque is shown to have been issued on its behalf.

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