The Delhi High Court has held that the mere fact that a cheque was drawn on the personal account of a director does not automatically absolve a company of liability under Section 138 of the Negotiable Instruments Act, 1881 (‘NI Act’) at the summoning stage. Justice Anup Jairam Bhambhani observed that if such a cheque is linked to a personal guarantee for company obligations, it is not possible to infer at the preliminary stage that it wasn’t issued to discharge a debt owed by the company.
Background
The petitioner, SRK Devbuild Pvt Ltd (appearing through its Liquidator), sought the quashing of a summoning order dated August 23, 2018, issued by the Metropolitan Magistrate-01, Patiala House Courts. The criminal complaint (CC NI Act No. 12918/2018) arose after a cheque for ₹2 crores, dated June 5, 2018, was dishonoured.
The company also challenged a June 7, 2023 order that dismissed a stay application filed by the Official Liquidator. Notably, the company had entered Corporate Insolvency Resolution Process (CIRP) in January 2020 and was ordered into liquidation in February 2021—well after the cheque’s dishonour in June 2018.
Arguments of the Parties
For the Petitioner: Counsel for SRK Devbuild argued that the company could not be arrayed as an accused because the cheque was drawn on the personal account of Accused No. 2, Mr. Subhash Chand Aggarwal, and not the company’s bank account. They contended that there were no specific allegations imputing liability to the company and that the Magistrate had summonsed the parties mechanically, violating principles laid down in Pepsi Foods Ltd. vs. Special Judicial Magistrate.
For Respondent No. 2: The contesting respondent argued that the cheque reflected a composite liability of the company and was issued by the director in discharge of legally enforceable obligations arising from commercial agreements and a Personal Guarantee Deed dated March 31, 2017. They further noted that the directors had persistently defaulted in their appearances before the trial court, leading to the issuance of bailable and non-bailable warrants.
Court’s Analysis and Observations
The Delhi High Court scrutinized the relationship between the director’s personal account and the company’s liability, providing a detailed analysis of the legal landscape surrounding summoning orders and insolvency.
1. Personal Account vs. Corporate Liability The court rejected the petitioner’s argument that drawing a cheque from a personal account shielded the company. Justice Bhambhani noted that the director had stood guarantee for the company’s performance. The court observed:
“The subject cheque, though admittedly drawn on the personal account of one of the directors-Mr. Subhash Chand Aggarwal, was drawn inter alia in accordance with the Deed of Personal Guarantee dated 31.03.2017… Therefore, it is not possible to infer, least of all at this stage, that the subject cheque was not issued in discharge of a debt or liability owed by the petitioner-company.”
2. Impact of IBC and Liquidation Addressing the interplay with the Insolvency & Bankruptcy Code, the court emphasized the timeline of the offence. Since the cheque was issued and dishonoured in 2018, the liability was established nearly two years before CIRP began. The court held:
“The liability of the petitioner-company under section 138 of the NI Act… arose well before the CIRP or liquidation proceedings, and therefore, whether or not that liability would be effaced by subsequent events, would have to be seen in the course of the trial.”
3. Judicial Standards for Summoning Orders The High Court extensively cited Supreme Court precedents, including Mehmood Ul Rehman vs. Khazir Mohammad Tunda and Sunil Todi vs. State of Gujarat, to define the scope of a Magistrate’s duty at the pre-summoning stage. The court clarified that while a Magistrate must be satisfied that a prima facie case exists, they are not required to conduct a mini-trial or pass a heavily detailed order.
“The Magistrate is not to act as a post office in taking cognizance… application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication… the High Court under Section 482 CrPC is bound to invoke its inherent power.”
However, specifically for Section 138 proceedings, the court noted:
“Though the Magistrate is required to consider the averments in the complaint… the Magistrate is not required to give detailed reasons at the stage of issuing summons in proceedings under section 138 of the NI Act.”
The Decision
The High Court found that although the Magistrate’s order dated August 23, 2018, was brief and omitted a detailed narration of the offence’s ingredients, the record—comprising the complaint, subject cheque, dishonour memo, and statutory notice—sufficiently disclosed a prima facie case.
“In the present case, though the Magistrate has omitted to narrate in the impugned summoning order as to how a prima-facie case is made-out… this court would refrain from interfering with the impugned summoning order, though the ingredients of the offence do not find any mention in it,” the court ruled.
Consequently, the petition was dismissed, and the stay on the trial court proceedings was vacated.
Case Details:
Case Title: SRK Devbuild Pvt Ltd Through Its Liquidator Mr. Ravi Kapoor vs. Government of NCT of Delhi & Anr
Case Number: CRL.M.C. 5337/2024
Bench: Justice Anup Jairam Bhambhani
Date: February 26, 2026
