### Personal Liability Under Section 138 NI Act Requires Proof of Legally Enforceable Debt and Board Authorization

The Petitioner, a Non-Resident Indian (USA), established a company, CompuAction Financial Services India Pvt. Ltd., and appointed his nephew (Respondent No. 2) as a Director to manage Indian operations.

In 2014, disputes arose regarding alleged mismanagement and dwindling net worth, leading to the Petitioner seeking the Respondent’s removal.

The Respondent filed complaints under Section 138 of the Negotiable Instruments (NI) Act, alleging three cheques totaling Rs. 95 lakhs were issued by the Petitioner from his personal account on 22.09.2014 to settle outstanding 10% commission/brokerage dues.

The Petitioner contended the cheques were from an old 2004-05 MICR book left in the Respondent's care and were forged/manipulated after the Respondent was removed from the Board in January 2015.

The Petitioner sought quashing of the summoning orders and the complaints.

The court applied Section 138 of the Negotiable Instruments Act, which requires that a cheque be issued for the discharge of a "legally enforceable debt or other liability".

It further considered Section 139 of the NI Act regarding the presumption in favor of the holder, noting it only triggers when basic facts of the debt are pleaded.

Regarding corporate governance, the court applied Section 196(4) of the Companies Act, 2013, which mandates that the remuneration and terms of appointment of a whole-time director must be approved by the Board of Directors and a resolution at a general meeting.

The Court found the Respondent failed to produce any Board Resolution authorizing the 10% brokerage/commission, which is a mandatory legal requirement for director remuneration under the Companies Act.

The Court scrutinized two letters (dated 1997 and 2014) produced by the Respondent to prove the debt; it observed both were created on the same computer with identical fonts/sizes despite being 17 years apart, suggesting they were fabricated on blank signed papers.

Furthermore, the Court noted that any alleged liability belonged to the Company, a separate legal entity, and the Petitioner was not personally liable for corporate debts.

Since the Respondent could not explain how the specific sum of Rs. 95 lakhs was calculated or why no entries existed in audited balance sheets for 19 years, the Court determined there was no "legally enforceable debt".

The Court ruled that the presumption under Section 139 NI Act does not apply when the complaint is bereft of requisite facts.

Consequently, the High Court quashed Complaint Case Nos. 2216/2016 and 9984/2016, along with the summoning orders and all subsequent proceedings.