A non-signatory to a dishonoured cheque cannot be prosecuted under Section 138 of the NI Act.

The complainant alleged that Madhya Bihar Gramin Bank invited a tender for furniture and fixtures, which was allocated to co-accused Subrata Basu @ S. Bose.

Basu allegedly subcontracted the work to the complainant, who claimed to have completed approximately 70% of the work.

A cheque for ₹12 lakh, issued by Basu, was dishonoured with the remark “account blocked/account frozen.”

The Judicial Magistrate took cognizance against the petitioner-bank on 9 August 2016.

Whether a bank which is neither the drawer nor the signatory of the dishonoured cheque, and which did not maintain the account on which the cheque was drawn, can be prosecuted under Section 138 of the Negotiable Instruments Act?

Whether continuation of the Section 138 proceedings against the petitioner-bank amounted to an abuse of the process of the court?

The Court applied Section 138 of the Negotiable Instruments Act, 1881, which fastens criminal liability on the person who draws a cheque on an account maintained by that person for discharge of a legally enforceable debt or liability.

The Court held, relying on Alka Khandu Avhad v. Amar Syam Prasad Mishra, (2021) 4 SCC 675, that Section 138 does not contemplate joint liability and that a person other than the drawer of the cheque cannot be prosecuted for the offence merely because that person is alleged to be connected with the underlying transaction.

Proceedings that lack the foundational ingredients of Section 138 constitute an abuse of the process of the court.

The cheque was allegedly issued and signed by co-accused Subrata Basu, whereas the petitioner was not the drawer or signatory and the relevant account was not maintained by it.

The Court further noted that the contractual arrangement concerning the work was between the complainant and Basu, and that the petitioner-bank was not shown to have undertaken any obligation under that agreement.

Applying the rule in Alka Khandu Avhad, the Court concluded that the alleged status of the bank as a beneficiary or its officials’ refusal to make payment could not substitute for the statutory requirement that the accused must be the drawer of the dishonoured cheque.

Consequently, the essential ingredients of Section 138 were absent against the petitioner, making continuation of the prosecution an abuse of process.

It quashed the order taking cognizance dated 9 August 2016 and all subsequent proceedings in Complaint Case No. 1036(C) of 2016 insofar as they concerned the petitioner-bank.

Proceedings against co-accused Subrata Basu @ S. Bose were permitted to continue.

The application was accordingly allowed.