Supreme Court on Joint Liability in Cheque Dishonour Cases

INTRODUCTION

 

On today’s show, we will discuss the case of Alka Khandu Avhad v. Amar Syamaprasad Mishra & Another, 2021 SCC OnLine SC 189, wherein the scope of S.138 and S. 141 of the Negotiable Instruments Act, 1881, (NI Act) in relation to joint liability was discussed by the Hon’ble Supreme Court.

 

FACTS

 

The brief facts of the case are that an Advocate who is also the Complainant in the present case, was approached by a husband and a wife (the accused persons) for some legal work. In lieu of the work performed, and the Professional Bill raised by the Complainant Advocate, the husband issued a Cheque of ₹8,62,000/- to the Complainant Advocate. However, such Cheque was dishonoured on account of insufficiency of funds due to which the Complainant Advocate preferred a Complaint under S. 138 read with S. 141 of the NI Act. This Complaint was preferred against the husband and the wife, alleging that the work done, and the professional bill raised by him, represented and was addressed to both the accused persons and hence, due to such joint liability to pay the debt towards professional bill, S. 141 of the NI Act that talks about offence by companies will also get attracted.  

 

The Trial Court issued process against the husband and the wife, aggrieved by which the wife approached the High Court, but the High Court too refused to quash the complaint. Therefore, the matter traversed to the Supreme Court.

 

S.138 AND S.141 OF NI ACT

 

Before adverting any further, it is pertinent to note that S. 138 provides for the stipulations to be followed in case there is a dishonour of a Cheque. In the same way, S. 141 talks about the contingency when the offence under S. 138 is committed by a company. S. 141 also defines “company” as “anybody corporate and includes a firm or other association of individuals.”

 

In order to understand the interpretation of S. 138 and 141, let us understand the observations of the Supreme Court.

 

OBSERVATIONS BY THE COURT

 

Firstly, the Court laid down the conditions that are to be satisfied in S. 138 (Cheque Dishonour) Cases.

a.  There must be existence of a Cheque drawn by a person on an account maintained by him with a Bank.

b. The Cheque should be drawn for payment of money for discharge of any legally enforceable debt or liability.

c. The said Cheque is returned unpaid on account on account of paucity of funds or other related reasons.

 

So, these are the three conditions that are to be satisfied in order to attract the offence of S. 138.

 

Secondly, the Court explained that S. 138 of the NI Act does not contemplate joint liability and even if there is existence of joint liability to pay a debt, only the person who has issued the Cheque and who holds the bank account, could be prosecuted under S. 138.

 

Thirdly, with respect to S. 141 of the NI Act, the Court observed that it is related to offence by companies and is not applicable on individuals since two private individuals (the husband and the wife) cannot be termed as an association of individuals within the meaning of S. 141. According to the Court, the husband and the wife are neither directors nor partners in any firm or company, and the term “other association of individuals” used in S. 141 refers to joint liability of a legal entity that is formed by association of individuals. In the instant case, though both the husband and the wife have individual liabilities, yet the same by no stretch of imagination could be termed as joint liability within the meaning of S. 141 of the NI Act.

 

Therefore, upon cumulative consideration of facts and the law, the Complaint filed by the Advocate in respect of his professional bill, was quashed by the Hon’ble Supreme Court, against the Appellant Wife, who had not even issued the Cheque.

 

That is all that was held in this case. So, what are my concluding remarks?

 

CONCLUDING REMARKS

 

In conclusion, it could be said that the Explanation appended to S. 141 that explains the meaning of “company” has to be interpreted in light of the wordings contained in it. It uses three key terms, corporate, firm and other association of individuals. Here, the term “other association of individuals” has to be understood in the context of corporates and firms. The explanation also uses the conjunctive “and” after “corporate”. Hence, under S. 141, a company would inter alia mean that other association of individuals that is “corporate.” Now, what is the meaning of “corporate”? It would mean an entity that is registered, has a common seal etc. and has other characteristics of a corporate entity, which was clearly not the case in the present matter. Thus, the Court rightly interpreted in the present case that S. 141 would not be applicable.