The Delhi High Court has reaffirmed that in cases of cheque dishonour involving sole proprietorship firms, only the sole proprietor can be held liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The court, in a judgment delivered by Justice Subramonium Prasad, quashed the summoning order issued against Sanat Kumar, one of the accused in a cheque dishonour case, stating that the liability for such cases lies solely with the proprietor of the firm that issued the cheque.
Background of the Case
The case arose from a financial transaction in 2016, where Sanjay Sharma, the complainant, extended a loan of Rs. 25 lakhs to Rajiv Kumar and Sanat Kumar. In repayment of the loan, Rajiv Kumar, the proprietor of a firm called Regal Cruiser Travels, issued two post-dated cheques: one for Rs. 15 lakhs dated November 15, 2017, and another for Rs. 15 lakhs dated December 15, 2017. Both cheques were drawn on Punjab National Bank, Sitapur Mazra, Uttarakhand, and were deposited by Sanjay Sharma with his bank, ICICI Bank, Dilshad Garden, Delhi.
However, the cheques were dishonoured with the return memo stating “payment stopped by drawer.” In response, Sanjay Sharma issued a legal notice to both Rajiv Kumar and Sanat Kumar on January 17, 2018, demanding payment for the dishonoured cheques. When no payment was forthcoming, Sharma filed a complaint under Section 138 of the NI Act, which deals with the dishonour of cheques for insufficient funds or other reasons that lead to non-payment.
On June 6, 2018, the trial court issued summons to both Rajiv Kumar (Accused No.1) and Sanat Kumar (Accused No.2). However, Sanat Kumar challenged this summoning order before the Delhi High Court, arguing that he could not be held liable as the cheques were issued by Rajiv Kumar in his capacity as the sole proprietor of Regal Cruiser Travels.
Legal Issues Addressed
The primary issue before the Delhi High Court was whether Sanat Kumar, who was not the sole proprietor of the firm, could be held liable under Section 138 of the NI Act. Sanat Kumar’s legal counsel argued that as Rajiv Kumar was the sole proprietor of Regal Cruiser Travels, the legal responsibility for the dishonoured cheques rested with him alone, and not with any other individual, including Sanat Kumar.
GST records were submitted to confirm that Regal Cruiser Travels was indeed a sole proprietorship owned by Rajiv Kumar. Under established legal principles, only the proprietor of such a firm can be made liable for financial obligations, including dishonoured cheques.
Court’s Observations and Decision
Justice Subramonium Prasad, while ruling on the matter, reiterated that the law is clear on the liability of sole proprietors under Section 138 of the NI Act. The court noted, “It is settled law that in a case of a sole proprietorship firm, the sole proprietor alone can be held liable for a cheque issued by the firm for repayment of any debt.”
Since Rajiv Kumar was the sole proprietor of Regal Cruiser Travels, the court concluded that there were no grounds to summon Sanat Kumar in the matter. The court emphasized that the essential ingredients required to establish liability under Section 138 of the NI Act were not made out against Sanat Kumar, as he was neither the issuer of the cheques nor the proprietor of the firm that had issued them.
As a result, the Delhi High Court quashed the summoning order issued against Sanat Kumar and dismissed the complaint against him. The court’s order stated, “Since the ingredients of Section 138 of the NI Act are not made out against the Petitioner, the complaint and the summoning order qua the Petitioner alone stand quashed.”
The proceedings against Rajiv Kumar, however, continue, as the court’s ruling pertained only to Sanat Kumar’s liability.
Sanat Kumar was represented by a team of advocates including Mr. Aadil Singh Boparai, Mr. Varun Bhati, Ms. Srishti Khanna, and Mr. Abhishek Dubey. The respondent, Sanjay Sharma, was represented by Mr. Rameshwar Singh Rana and Mr. Mahender Singh, with the respondent also appearing in person.
Case Details
– Case Title: Sanat Kumar vs. Sanjay Sharma
– Case Number: CRL.M.C. 5509/2022
– Bench: Justice Subramonium Prasad
