TaxTMI 
TaxTMI 
2026 (8) TMI 87
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.... a bona fide pursuit of justice but a strategic attempt to exert psychological pressure on her husband, the primary accused, by dragging a non-signatory spouse into a criminal trial. 3. It is imperative to record the procedural history regarding the representation of the Opposite parties. Despite exhaustive efforts to ensure the presence of the Opposite Party No. 2 (the Complainant), the said party has remained unrepresented. The Opposite Party No. 1 (State), being a formal party, also did not enter an appearance. Consequently, in light of the order of this Court dated February 23, 2026, and the Complainant's persistent default, this Court has proceeded to decide the matter on its merits, predicated strictly on the "sterling quality" materials available on record and the submissions made by the Petitioner. II. FACTUAL MATRIX 4. The genesis of the dispute lies in a commercial loan facility extended by the Complainant, a Non-Banking Financial Company (NBFC), to a business concern styled as "Dhathri Fuels." The transaction was a standard business arrangement intended for operational requirements, governed by a credit agreement executed between the lender and the business ....
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....atory, nor the maintainer of the bank account? iii. Whether the principle of vicarious liability under Section 141 of the N.I. Act can be extended to a sole proprietorship concern to implead a spouse in the absence of a corporate or partnership structure? iv. Whether a statutory demand notice containing a gross discrepancy (demanding Rs.7,607/- for a Rs.36 Lakh cheque) satisfies the mandatory requirement of Proviso (b) to Section 138, or whether it renders the notice non-est in the eyes of law? v. Whether the Learned Magistrate failed to exercise the mandatory "gatekeeping" duty under Section 202 of the Cr.P.C. (Section 225 B.N.S.S.) by issuing process against a resident of Karnataka without conducting the requisite inquiry? vi. Whether the use of the ambiguous description "proprietorship/partnership" constitutes a suppression of material facts, rendering the prosecution an abuse of the process of law? IV.SUBMISSIONS ON BEHALF OF THE PETITIONER 10. Mr. Dipta Dipak Banerjee, Learned Counsel appearing for the Petitioner has forcefully contended that the initiation of criminal proceedings against the Petitioner was not only a misadventure in l....
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....l anomaly was further brought to the attention of this Court regarding the irreconcilable discrepancy between the statutory demand notice and the cheque. It was submitted by Mr. Banerjee that a demand notice claiming Rs.7,607/- in relation to a cheque of over Rs.36 lakhs (Rs.36,07,687/-) was a non-est notice in the eyes of law, as it failed to meet the mandatory requirement of Proviso (b) to Section 138, which necessitates a demand for "the said amount of money." 16. Finally, citing the principle of "Clean Hands," it was argued by Mr. Banerjee that the Complainant had deliberately suppressed the true nature of the business entity and used vague descriptions like "proprietorship/partnership" to mislead the Court. In light of the Complainant's refusal to appear and the manifest legal defects in the case, the Petitioner prayed for the exercise of this Court's inherent power to quash the impugned proceedings in Case No. CS/35126/2022, as the continuation of the trial against her would be an exercise in futility and an instrument of harassment. V. DISCUSSION, ANALYSIS AND FINDINGS ON POINTS FOR DETERMINATION (i) DISCUSSION AND FINDINGS ON POINT NO. I: Procedural Proprie....
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....legality before the High Court, it reinforces the Petitioner's contention that the prosecution was initiated for extra-legal purposes rather than a genuine pursuit of justice. As observed in Associated Cement Co. Ltd. v. Keshvanand [(1998) 1 SCC 687], if the complainant remains absent, the court should not hesitate to pass orders in favour of the accused if the situation so demands. 23. In the present case, the "sterling quality" documents including the GST Certificate and the physical cheque, allow this Court to determine the sustainability of the prosecution without the Complainant's oral defence. The Complainant's persistent failure to appear, despite deemed service, strengthens the inference that the prosecution was initiated for purposes other than a genuine pursuit of justice. 24. I, therefore, find that this Court is legally justified in deciding this application on its merits. The service is held to be valid, and the Complainant's absence is viewed as a waiver of their right to be heard. (ii) DISCUSSION AND FINDINGS ON POINT NO. II: The "Drawer" Mandate and the Jurisdictional Bar 25. Having established that this Court is duty-bound to adjudicate ....
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....y in personam, criminal provisions cannot be stretched to foist liability on a non-signatory. As clarified in P.J. Agro Tech Ltd. & Ors. v. Water Base Ltd. [(2010) 12 SCC 146], criminal provisions must be strictly construed; they cannot be used to foist liability on a party who falls outside the statutory definition of an offender. 30. To relegate a non-signatory wife, residing in a different state, to the rigours of a criminal trial to prove she did not sign a cheque, when the instrument itself bears a different signature and belongs to a different account holder, is a manifest failure of justice. This is not a "matter of trial" but a matter of law. 31. I, therefore, find that the Petitioner cannot be prosecuted as a "Drawer" under Section 138. To compel a non-signatory to undergo the rigours of a trial to prove a negative is a manifest failure of justice. (iii) DISCUSSION AND FINDINGS ON POINT NO. III - The Inapplicability of Vicarious Liability to Sole Proprietorships 32. Closely linked to the findings in Point II is the question of whether the Petitioner can be held "vicariously" liable.The Complainant's strategy rests on the assumption that as the wife of the p....
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....or a corporate structure renders the invocation of Section 141 a nullity in law. 36. In the present matrix, describing the entity as a "proprietorship/partnership" appears to be a strategic attempt to circumvent these restrictive boundaries. However, the "sterling quality" documents on record, specifically the GST Certificate, confirm the entity's status as a sole proprietorship. Consequently, the Petitioner, being neither the proprietor nor the signatory, cannot be held liable for the dishonour of a cheque issued by a different legal person. 37. I, therefore, find that the principle of vicarious liability is entirely foreign to the facts of this case. The continuation of proceedings against the Petitioner on the strength of a non-existent partnership is a manifest abuse of the process of law. (iv) DISCUSSION AND FINDINGS ON THE POINT NO. IV: The Fundamental Invalidity of the Defective Demand Notice 38. Building upon the conclusion that the Petitioner is a legal stranger to the instrument and the entity, I now turn to a jurisdictional defect that strikes at the very root of the prosecution, the validity of the statutory demand notice under Proviso (b) to Section 138....
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....nation addresses a significant procedural lapse that strikes at the jurisdictional validity of the summoning order. This Court must determine whether the Learned Magistrate failed to exercise the mandatory "gatekeeping" duty required when an accused resides outside the Court's territorial jurisdiction, a safeguard specifically designed to prevent the criminal machinery from being weaponized as a tool of harassment against distant residents. 46. The factual progression of this case highlights a significant geographical and procedural chasm. The Petitioner is a permanent resident of Karnataka, whereas the process was issued by a Court in Kolkata, West Bengal. Under such circumstances, the Magistrate was not merely exercising a discretion but was bound by the mandatory command of Section 202 of the Cr.P.C. (now Section 225 of the B.N.S.S.). 47. This mandate, as amended in 2006, makes it obligatory for a Magistrate to either inquire into the case personally or direct an investigation where the accused resides beyond the area of his jurisdiction. The statute explicitly commands: " ... in a case where the accused is residing at a place beyond the area in which he exerc....
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....on addresses the conduct of the Complainant and whether the cumulative effect of the misrepresentation, specifically regarding the entity's legal status and the presentation of a mismatched financial claim, constitutes a manifest abuse of the process of law and the suppression of material facts. This Court must determine if the judicial machinery has been utilized as a tool for extra-legal coercion rather than a bona fide pursuit of justice. 54. A review of the record reveals a persistent pattern of "calculated ambiguity" on the part of the Complainant. In the Petition of Complaint, the accused entity was described through the dual lens of a "proprietorship/partnership," and the Petitioner was consequently roped in as a "person in charge." However, the GST Registration Certificate and the loan agreements, documents produced by the Complainant itself categorically identify the entity as a sole proprietorship. 55. By using a slash to bridge two distinct and mutually exclusive legal concepts, the Complainant effectively misled the Learned Trial Court into applying the principles of vicarious liability under Section 141 of the NI Act. As established in Point No. III, this sec....
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....f the complaint. Consequently, the initiation and continuation of the proceedings against the Petitioner in Case No. CS/35126/2022 constitute a blatant abuse of the process of law. The judicial machinery cannot be allowed to be used as a pawn for strategic litigation. Therefore, in the interest of justice and to prevent the further harassment of the Petitioner, the proceedings as against her must be quashed. VI. SUMMARY OF LEGAL FINDINGS 61. Upon an exhaustive discussion and meticulous analysis of the legal and factual matrix, this Court arrives at the following significant legal findings: i. Liability under Section 138 of the Negotiable Instruments Act is strictly in personam. The statute creates a mandatory identity-link between the drawer, the signatory, and the account holder. Criminal liability cannot be foisted upon a person who is neither the signatory of the instrument nor the maintainer of the bank account. ii. A sole proprietorship has no legal identity or "soul" separate from its proprietor. Unlike companies or partnership firms, it is not a "body corporate" or an "association of individuals." Therefore, the proprietor and the proprietorship are, ....