NEW DELHI: Providing a loophole to ingenious persons, the Supreme Court on Friday ruled that if a person repays a personal loan through a cheque signed by him as a director of a company, then he would not be liable to be prosecuted under Section 138 of Negotiable Instruments Act if the cheque bounced..
A man took a personal loan of Rs 7 lakhs and returned the amount through a cheque drawn on an account of Shilabati Hospital, Kolkata, of which he was a director. The cheque bounced and the creditor had initiated proceedings under Section 138 of NI Act. The HC quashed the proceedings. The creditor appealed in the SC.
A bench of Justices J B Pardiwala and R Mahadevan said Section 138, being a penal provision, has to be strictly construed and a man could face prosecution only if the cheque, issued by him from an account maintained by him, gets dishonoured.
It said since the cheque was drawn from the hospital's account, the man as director cannot be prosecuted under the NI Act. There are as many as 36 lakh cheque bouncing cases pending in various courts as of 2023.
Writing a detailed judgment analysing the provision threadbare, Justice Pardiwala said, “Section 138 of the NI Act clearly postulates that the cheque returned for insufficiency of funds should have been drawn by a person on an account maintained by him.”
“It will amount to doing violence to the language of the statute if Section 138 of the Act is interpreted to mean that even if a person draws a cheque on an account not maintained by him, he shall be liable if the cheque is returned for insufficiency of funds. Such an interpretation will lead to absurd and wholly unintended results,” he said.
Referring to the dishonour of the cheque signed by the debtor as a director of Shilabati hospital, the bench said, “The mere fact that the cheque signed by the accused in his capacity as a “Director” of the Company would in the normal course be honoured by the Bank to which it was presented does not satisfy the statutory requirement of Section 138 of the Act.”
However, the bench said that though the debtor cannot be prosecuted under Section 138, he would be liable for the offence of cheating as it stands proved that he had undisputedly offered the cheque to settle the loan amount.
“In such circumstances, although it is not possible to hold the accused liable for the offence under Section 138 of the NI Act, yet the possibility of him having committed the offence of cheating cannot be ruled out. Prima facie, the mens rea (guilty mind) of the accused speaks for itself,” the bench said.
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