Delhi HC: Company Can’t Escape Cheque Bounce Liability If Cheque Issued from Director’s Personal Account

The Delhi High Court recently clarified that a company cannot avoid cheque-bounce liability just because the cheque was issued from a director’s personal bank account; the actual responsibility must be decided during the trial.

The present case has been filed by SRK Devbuild Pvt Ltd against the government of NCT of Delhi and ANR. The petition was filed under Section 482 of the Code of Criminal Procedure, 1973, challenging a summoning order issued by a Metropolitan Magistrate in a complaint under Section 138 of the Negotiable Instruments Act.

Justice Anup Jairam Bhambhani stated that a company cannot automatically escape responsibility just because the cheque was issued from the personal bank account of one of its directors. The Court explained that the source of the cheque alone is not enough to decide whether the company is liable.

The Court further noted that in some situations, a director may issue a cheque from their personal account as part of a personal guarantee for the company’s debt. In such cases, it cannot be immediately assumed that the payment had nothing to do with the company’s liability.
Therefore, the Court emphasised that this issue needs to be properly examined during the trial stage. At the summoning stage, it would be too early to conclude that the cheque was not related to the company’s debt.

The Court said, “The liability of the petitioner company under section 138 of the NI Act, as may come to be determined in the course of the trial, 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, subject to the provisions of the IBC inter alia sections 33(5) and 35(1)(k) of that statute.”

As a result, the Court held that the company’s possible liability under Section 138 of the Negotiable Instruments Act cannot be rejected at the beginning of the case simply because the cheque was drawn from the director’s personal account.