Prosecution Under Section 138 Quashed Where Cheque Was Signed by Non-Account Holder

A single-judge bench of Justice G. Girish heard a petition under Section 482 CrPC filed by two accused, Tijo George and Tony George, seeking quashal of proceedings in S.T. No.2696/2017 before the Judicial First Class Magistrate Court-I, Ettumanoor arising from the alleged dishonour of a cheque under Section 138 of the Negotiable Instruments Act. The petitioners had earlier been acquitted in a separate case, S.T. No.27/2017, and contended that that acquittal or other infirmities in the complaint warranted termination of the second prosecution.

The High Court allowed the petition and quashed the proceedings in S.T. No.2696/2017. The court held that criminal liability under Section 138 could attach only to the drawer who maintained the account on which the cheque was drawn, and not to a signatory who did not maintain the account. The court observed that the complaint itself admitted that the cheque was drawn on an account maintained in the name of the proprietorship "P.K. Financiers" represented by the first petitioner, while the cheque was signed by the second petitioner. The court noted that "The execution of a cheque in the above manner could never give rise the criminal liability under Section 138 of the NI Act either upon the signatory to that cheque who was not maintaining the account, or upon the person who has been maintaining the account who had not signed and executed the cheque." The Court, in its reasoning, observed: "Accordingly, we hold that under Section 138 of the N.I. Act, when the prosecution is initiated against an individual or a proprietary concern, it is only the drawer of the cheque who can be prosecuted, provided that the account is maintained by the said person. Neither the non signatory can be prosecuted nor can prosecution be sustained against a person in whose name the account is not maintained. The cumulative ingredients of the offence as laid down in Jugesh Sehgal (supra) will have to be strictly satisfied." Relying on the Division Bench precedent in B.S. Bhasi v. K.M. Purushotham Das, the court held the prosecution in the present case to be "inherently unsustainable" and allowed the petition.

Background The complainant alleged that the petitioners, who ran a money-lending concern named P.K. Financiers, had availed an Rs.85 lakh loan during 2012–2013 and had issued three cheques towards repayment, two of Rs.30 lakh and one of Rs.25 lakh. The cheque central to S.T. No.2696/2017 (No. 592704 dated 10.05.2017 for Rs.30,00,000) was said to be drawn on the account of the proprietor (the first petitioner) but was signed by the second petitioner as authorised signatory. The cheque was returned dishonoured for insufficiency of funds and a legal notice was issued; prosecution followed. The petitioners contended that they were innocent, that one of the earlier prosecutions (S.T. No.27/2017) had already resulted in acquittal, and that the complaint in S.T. No.2696/2017 was legally unsustainable because the signatory was not the account-holder.

The High Court first observed that an acquittal in one prosecution arising out of dishonour of a different cheque would not, by itself, automatically terminate proceedings in another matter; the trial court had to evaluate evidence independently. However, on the specific factual matrix of S.T. No.2696/2017—where the account was maintained in the name of the proprietor but the cheque bore the signature of a non-account-holding signatory—the court held that Section 138 liability did not arise. The court followed and applied the legal principle from B.S. Bhasi that, in matters involving individuals or proprietary concerns, penal liability under Section 138 could not be extended to a non-signatory or to a person in whose name the account was not maintained. The petition was allowed and the proceedings against the petitioners in S.T. No.2696/2017 were quashed. No interim directions or additional liberties were recorded beyond the quashal.

Case Details: Case No.: CRL.MC No. 3656 of 2020 Case Title: TO QUASH THE FURTHER PROCEEDINGS ANNEXURE A1 COMPLAINT IN ST NO.2696 OF 2017 OF JUDICIAL MAGISTRATE OF FIRST CLASS - I, ETTUMANOOR AGAINST THE PETITIONERS/A1 & A2 ON THE GROUND OF ACQUITTAL OF ACCUSED IN ST NO.27 OF 2017 OF JUDICIAL MAGISTRATE OF FIRST CLASS - II, ETTUMANOOR Appearances: For the Petitioner(s): Adv. Shri. Rajagopal Padippurackal For the Respondent(s): Adv. Sri. T.N. Manoj (for R2 – complainant Tomas Sebastain); Sri. Sudheer G., Public Prosecutor (for State of Kerala)