Delhi High Court, has ruled that being a signatory to a cheque does not, on its own, make a person guilty of the offence under Section 138 of the Negotiable Instruments Act.
According to Justice Anup Jairam Bhambhani, the offence is committed when a cheque is returned unpaid by the bank due to a lack of funds.
The observations were made by the court while hearing a petition challenging a summoning order issued by the Metropolitan Magistrate on September 19, 2019 in a complaint case filed under Section 138 of the NI Act.
The petitioner’s counsel claimed that the cheques were presented for encashment and returned for insufficient funds on October 25, 2018, and that the petitioner was not involved in the company’s business or affairs on that date because he had retired more than nine months before.
In issuing notice on the plea, the court stated that a simple reading of Section 138 of the NI Act reveals that the “return” of a cheque by a bank “unpaid” due to insufficient funds in the account on which the cheque is drawn is the genesis of an offence.
Justice Bhambhani stated that, while the petitioner co-signed the cheques, he retired from the company more than nine months before the cheques were presented, and thus could not have ensured sufficient funds in the company’s bank account to honour the same, even if he had so desired.
The court stayed the proceedings in the criminal complaint against the petitioner until further orders, setting the matter for hearing on March 29, 2023.