Vicarious liability under Section 141 NI Act is inapplicable to individuals connected with sole proprietorship concerns.

In brief

The question

1. Whether a prosecution under Section 138 can be sustained against a Petitioner who is neither the drawer, signatory, nor account holder?

The court held

It held that a non-signatory spouse in a sole proprietorship cannot be held vicariously liable.

It also directed

The Court allowed the revision and quashed the proceedings in Case No. CS/35126/2022 against the Petitioner.

The prosecution was deemed a manifest abuse of process due to the defective demand notice and suppression of the entity's true legal status. The Petitioner was discharged, and the Trial Court was directed to proceed only against the remaining accused (Proprietor and Entity) with expedition.

01Facts

The Petitioner (Accused No. 3), wife of the proprietor of "Dhathri Fuels" (Accused No. 2), challenged the issuance of process by the 7th Judicial Magistrate, Calcutta, under Section 138 of the Negotiable Instruments (NI) Act.

¶ 1

The dispute arose from a dishonored cheque of ₹36,07,687/- issued to an NBFC.

¶ 5, 7

Evidence showed the entity was a sole proprietorship owned exclusively by the husband; the Petitioner was neither a partner nor an authorized signatory.

¶ 6

Furthermore, the statutory demand notice issued by the Complainant claimed only ₹7,607/-, despite the cheque value exceeding ₹36 lakhs.

¶ 7

The Complainant failed to appear during the revisional proceedings despite notice.

¶ 3, 18

02Issues

i.1. Whether a prosecution under Section 138 can be sustained against a Petitioner who is neither the drawer, signatory, nor account holder?

¶ 9(ii)

ii.2. Whether vicarious liability under Section 141 of the NI Act applies to a sole proprietorship concern?

¶ 9(iii)

iii.3. Whether a demand notice with a gross discrepancy in the amount satisfies the mandatory requirement of Proviso (b) to Section 138?

¶ 9(iv)

iv.4. Whether the Magistrate failed to conduct the mandatory inquiry under Section 202 Cr.P.C. (Section 225 BNSS) for an accused residing outside territorial jurisdiction?

¶ 9(v)

03Law Applied

Section 138 of the NI Act, which restricts liability to the "drawer" of the cheque.

¶ 27

The principle in Jugesh Sehgal v. Shamsher Singh Gogi, establishing that the account must be maintained by the accused.

¶ 28

Section 141 of the NI Act and Bijoy Kumar Moni v. Paresh Manna, which holds that a sole proprietorship is not a "company" or "firm" for the purposes of vicarious liability.

¶ 33-34

Proviso (b) to Section 138 and K.R. Indira v. Dr. G. Adinarayana, requiring a demand for the exact "said amount of money".

¶ 40, 43

Section 202 Cr.P.C. and Vijay Dhanuka v. Najima Mamtaj, regarding mandatory inquiry for out-of-station residents.

¶ 47-48

Provisions in the judgment · 7 · Linked ones open on LawLens

Bharatiya Nagarik Suraksha Sanhita, 2023 Section 528 Section 225

Code of Criminal Procedure, 1973 Section 482 Section 202

Negotiable Instruments Act, 1881 Section 138 Section 141

General Clauses Act, 1897 Section 27

04Reasoning

The Court reasoned that under Section 138, liability is strictly in personam.

¶ 34

Since the GST certificate and bank mandates proved "Dhathri Fuels" was a sole proprietorship, the Petitioner (wife) could not be roped in via Section 141 as the entity lacked a corporate or partnership persona.

¶ 34-36

The Court noted the Complainant used "calculated ambiguity" by describing the entity as a "proprietorship/partnership" to mislead the Trial Court.

¶ 54-55

Furthermore, the demand notice for ₹7,607/- against a cheque of ₹36 lakhs was declared non-est as it failed the statutory requirement of demanding the "said amount," thus preventing a cause of action from maturing.

¶ 41-44

Finally, the Court found the Magistrate’s mechanical issuance of process against a Karnataka resident without a Section 202 Cr.P.C. inquiry was a jurisdictional error.

¶ 49-51