Delhi High Court Quashes Complaint Against Sole Proprietor in Cheque Bouncing Case
In a significant ruling, the Delhi High Court addressed the legal responsibilities of sole proprietorships in cases of cheque bouncing. The case, titled Sanat Kumar v/s Sanjay Sharma, centered around petitioner Sanat Kumar and a complaint regarding dishonored cheques issued for a loan repayment.
The High Court reiterated that, in the context of a sole proprietorship firm, it is the sole proprietor who bears responsibility for cheques issued by the firm. This was highlighted when the court quashed the complaint and summons against Sanat Kumar under Section 138 of the Negotiable Instruments (NI) Act. The court found that the cheques in question were issued to repay a loan from the complainant to an entity whose sole proprietor was distinct from the petitioner.
Justice Subramonium Prasad, presiding over the case, pointed out that “it is settled law that in a case of sole proprietorship firm, the sole proprietor alone can be held liable for a cheque issued by a sole proprietorship firm for repayment of any debt.” The background of the case revealed that the complainant, Sanjay Sharma, lent Rs. 25 lakh to Rajiv Kumar in 2016. Following this, cheques were issued in November and December 2017 for repayment. However, when presented for payment, these cheques were dishonored, marked as “payment stopped by drawer.”
In January 2018, the complainant sent a legal notice, demanding payment for the dishonored cheques. When this demand was not met, he moved forward with a complaint under Section 138 of the NI Act, leading to the issuance of summons to the accused in June 2018. While both Rajiv Kumar and Sanat Kumar were named in the complaint, only Sanat Kumar challenged the summoning order.
Kumar argued that since Rajiv Kumar was recognized as the sole proprietor of the entity that had taken the loan, the complaint under Section 138 NI Act could not be maintained against him. The High Court considered the GST records submitted by the petitioner and confirmed that the requests for financial assistance were indeed linked to Regal Cruiser Travels, a sole proprietorship owned solely by Rajiv Kumar.
Consequently, the High Court concluded that the elements necessary to uphold a complaint under Section 138 of the NI Act against Sanat Kumar were not present. The court quashed the complaint and summoning order against him, emphasizing the legal principle that only the individual who holds sole proprietorship can be held liable for debts incurred by that business.
This ruling underscores the importance of clearly delineating responsibilities within proprietorships and the legal protections available to individuals when they are not directly liable for the operations of their business entities.
Case title: Sanat Kumar v/s Sanjay Sharma
Counsel for the Petitioner: Advocates Aadil Singh Boparai, Varun Bhati, Srishti Khanna, and Abhishek Dubey
Counsel for Respondent: Advocates Rameshwar Singh Rana and Mahender Singh
