TaxTMI 
TaxTMI 
2026 (3) TMI 1057
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....ss of financing and leasing. The Petitioner allegedly approached Respondent No. 2 for availing a vehicle loan in respect of a vehicle bearing Model ZT-35. In pursuance thereof, a loan agreement dated 01.10.2013 was executed between the parties and a sum of Rs. 42,39,000/- was disbursed to the Petitioner. It is further stated in the complaint that, towards discharge of her liability, the Petitioner issued cheque bearing No. 502209 dated 27.11.2019 for an amount of Rs. 25,38,877/- drawn on HDFC Bank Limited, Vasundhara Branch, Ghaziabad, Uttar Pradesh, in favour of Respondent No. 2. Upon presentation, the said cheque was returned unpaid with the endorsement "insufficient funds" vide return memo dated 05.12.2019. Consequent thereto, after sending the legal notice, the instant complaint under Section 138 of the Negotiable Instruments Act, 1881 was filed and the summoning order dated 01.02.2020 was issued. ARGUMENTS FOR THE PETITIONER 3. Counsel for the petitioner contends that the petitioner's husband carries on business under the name and style of M/s Square Construction Private Limited, a partnership firm comprising of her husband - Manjot Kumar Singh and one Manoj Yaduvanshi a....
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.... the complaint under Section 138 of the Negotiable Instruments Act, 1881 pending before the Court of the Judicial Magistrate First Class, Samalkha, Panipat. Pursuant thereto, the Petitioner appeared before the said Court on 11.09.2025 and was admitted to bail. It is submitted that the petitioner was neither served with a legal notice as contemplated under proviso (b) to Section 138 of the Negotiable Instruments Act, 1881, nor was she aware of the filing of the complaint. It is also contended that the complaint does not disclose as to how she was personally liable or connected with the alleged transaction. Copies of the paper book were obtained by her only on 08.12.2025 and that she could not be served at the initial stage owing to the restrictions imposed during the COVID-19 pandemic and she acquired knowledge of the proceedings at a much later point in time. 6. Counsel vehemently contends that the Judicial Magistrate First Class, Samalkha, Panipat, lacks the territorial jurisdiction to entertain and proceed with the present complaint. It is submitted that the complaint has been instituted by Respondent No. 2 before the learned Judicial Magistrate First Class, Samalkha, Panipat,....
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....against is shown to be in charge of and responsible for the conduct of the business of such entity at the relevant time. It is submitted that the Petitioner is the wife of one Manjot Kumar Singh, who is stated to be a partner of M/s Square Construction Private Limited. The Petitioner is neither a partner of the said firm nor involved in its day-to-day affairs or management. The vehicle/machinery in question, for which the loan was availed, was purchased in the name of the partnership firm and not in the individual name or capacity of the Petitioner. The assertions made in the complaint and the statutory demand notice, to the effect that the Petitioner approached Respondent No. 2 for availing the loan, are ex facie false and misleading. In fact, it was the partners of the firm who obtained the loan from Respondent No. 2. It is submitted that, in the present proceedings, neither the partnership firm nor its partners have been arrayed as accused. In the absence of the firm being impleaded and prosecuted as the principal offender, the question of fastening vicarious liability upon the Petitioner does not arise. The Respondent No. 2 has deliberately chosen to implicate only the wife of ....
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....tion 141 of the Negotiable Instruments Act can be attracted only where the person sought to be proceeded against was, at the relevant time, in overall control of and responsible for the day-to-day affairs of the business of the company or firm. In this context the Hon'ble Supreme Court, in Standard Chartered Bank v. State of Maharashtra and Others, 2016 (2) RCR (Cri) 778 has held that a complaint under Section 138 of the Negotiable Instruments Act is not maintainable in the absence of the company being made a party to the proceedings. Applying the said settled principle to the facts of the present case, the complaint filed by Respondent No. 2, having been instituted without impleading the partnership firm as an accused, is legally untenable. 10. Counsel contends that at the time of availing the loan facility, Respondent No. 2 had obtained several cheques from the partnership firm as security and had also procured cheques from the personal account of the husband of the Petitioner, which was a joint account held by the Petitioner and her husband. The cheque in question forms part of such security cheques. The Respondent No. 2 has misused the said security cheques and the amount cl....
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.... the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice. xxx xxx xxx xxx xxx xxx xxx 141. Offences by companies.-(1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves tha....
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....ee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. 13. Section 142(2)(a) of the Negotiable Instruments Act, 1881, governs the question of territorial jurisdiction in prosecutions under Section 138 where the cheque is delivered for collection through an account. The provision lays down that the offence shall be inquired into and tried only by a court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account is situated, provided the cheque is delivered for collection through that account. 14. At the outset, it is necessary to delineate the character of the defect arising from non-compliance with Section 142(2)(a) of the Negotiable Instruments Act. The provision regulates territorial jurisdiction and identifies the particular court within whose local limits the complaint under Section 138 is to be inquired into and tried. It does not concern the inherent subject-matter jurisdiction of ....
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....he CrPC, which lays down that no finding, sentence or order shall be set aside merely because the proceedings were conducted in the wrong territorial area, unless it is shown that such error has in fact resulted in a failure of justice. 18. In Purshottam Jethanand v. The State of Kutch, AIR 1954 SC 700, the Hon'ble Supreme Court held that where a Magistrate, though not empowered, takes cognizance of an offence under Section 190(1)(a) or (b) of the Code of Criminal Procedure, such defect does not ipso facto vitiate the proceedings. It was observed that the irregularity stands cured by virtue of Section 529 of the Code of Criminal Procedure, 1868 (corresponding to Section 460 of the Code of Criminal Procedure, 1973), provided that the act was done in good faith and no prejudice has been caused to the accused. It was further held that even if an objection is raised regarding the Magistrate's competence at a later stage, the defect would be deemed cured if the Magistrate had bona fide assumed the existence of such power while taking cognizance and no failure of justice has resulted therefrom. 19. Thus, for Section 460(e) to apply, three essential conditions must be satisfied: fir....
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....) of the Negotiable Instruments Act. However, I am of the opinion that such an error squarely falls within the scope of Section 460(1)(e) of the CrPC. The defect relates to the act of taking cognizance under Section 190(1)(a) and provided it was done in good faith, it constitutes a curable irregularity rather than a nullity. 22. The next contention advanced on behalf of the Petitioner that no vicarious criminal liability can be fastened upon her under Section 141 of the Negotiable Instruments Act, 1881 is wholly untenable and is liable to be rejected at the threshold. The submission proceeds on a fundamentally flawed premise that the Petitioner is sought to be prosecuted merely by reason of her matrimonial relationship with one of the partners of the firm or on account of a civil liability emanating from a loan transaction. The record, however, unmistakably demonstrates that the prosecution is founded not on any derivative or remote liability, but on the Petitioner's own conscious and voluntary act of issuing and signing the cheque in question. The averments contained in the complaint read thus: - "2. That the accused had approached the complainant at its Branch office ....
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....signature on a cheque drawn on a joint account as a guarantor and co-borrower, towards discharge of a liability, she assumed direct and personal statutory responsibility for the payment represented thereby. Such liability cannot be diluted on a plea that the Petitioner was not involved in the day-to-day affairs of the partnership firm. A person who signs and issues a cheque, even if as a guarantor/co-borrower of a loan is directly liable under Section 138 of the Act, irrespective of whether the underlying transaction pertains to a partnership firm or was on account of a personal obligation. 25. Further, under the Indian Contract Act, 1872, the liability of a guarantor is co-extensive with that of the principal debtor, unless otherwise provided by the contract. A person who undertakes such liability cannot evade responsibility by subsequently characterising the same as purely "civil" in nature, when the statutory ingredients of a criminal offence under Section 138 of the Negotiable Instruments Act stand prima facie satisfied. The offence under Section 138 is a distinct statutory offence, and the civil character of the underlying transaction neither effaces nor eclipses the crimin....
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.... such cheque for discharge of a legally enforceable debt or liability and its subsequent dishonour. Where the accused is herself the drawer and signatory of the cheque, criminal liability under Section 138 is direct and personal. In such a situation, the absence of the partnership firm as an accused does not render the complaint legally untenable. 28. The mandate of Section 141 of the Negotiable Instruments Act, 1881, comes in play when the offence is committed by the Company/Firm. The expression "offence" used under Section 141 of the Negotiable Instruments Act, 1881 is in the context of dishonour of the cheque and not 'non-payment of liability.' While the default is non-payment of borrowed amount is undisputedly by the partnership firm, however, the Negotiable Instruments Act, 1881, only has to consider about who is the drawer of the cheque and whether such cheque was drawn in discharge of a legally enforceable liability or not. Once the above test is satisfied, the drawer of cheque renders himself liable to be prosecuted. The petitioner being surety, becomes liable to discharge liability enforceable against the principal debtor. 29. The submission that the Petitioner is so....
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....used even though cheques had been issued for the Company. The ratio of the said judgments has no application to a case where the accused is herself the drawer of the cheque and is sought to be prosecuted for her own act under Section 138 of the Negotiable Instruments Act. 33. In view of the foregoing discussion, I am of the opinion that the non-impleadment of the partnership firm does not render the complaint against the Petitioner unsustainable. The contention raised on behalf of the Petitioner is, therefore, rejected. 34. The next contention advanced on behalf of the Petitioner assailing the statutory demand notice issued under proviso (b) to Section 138 of the Negotiable Instruments Act, 1881 is equally devoid of merit and cannot be accepted. Upon a perusal of the record and the settled legal position, this Court finds no substance in the plea that the complaint is vitiated either on account of non-service of notice or due to any alleged defect in its contents. At the outset, it must be emphasised that the issuance of a demand notice under proviso (b) to Section 138 is a condition precedent for launching prosecution. What is required is that the notice be sent to the corre....
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....t, all that it ensures is that such cheque which is issued as "security" cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceeding initiated under Section 138 of the NI Act. Therefore, there cannot be a hard-andfast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an "on demand promissory note" and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute.....