01 July 2025 Negotiable Instruments Act >> Criminal Law   |   Cheque Bounce >> Debt Recovery  

The Delhi High Court recently dismissed a criminal appeal, affirming the acquittal of an individual previously charged under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The appeal, filed by M/s Noida Dhatu Pvt. Ltd., challenged a 2011 judgment by a Metropolitan Magistrate that acquitted Respondent No. 2, Mr. D.P. Singh, from charges related to a dishonored cheque. The High Court's decision underscores the critical distinction between a proprietorship concern and other business entities under the NI Act.

Background of the Case:

M/s Noida Dhatu Pvt. Ltd. (Appellant), a manufacturer of acoustic enclosures, had a business transaction with M/s Udai Continentals (Respondent No.1), a proprietorship concern. An advance cheque for Rs. 1,10,000, issued by Respondent No. 2, was dishonored. Following assurances from Respondent No. 2, a post-dated cheque for Rs. 60,000 was issued. This second cheque was also dishonored with the remark "payment stopped by drawer."

The Appellant subsequently issued a legal demand notice for Rs. 62,200 (including interest) and, upon non-payment, filed a complaint under Sections 138/141 of the NI Act, alongside Sections 420/406 of the Indian Penal Code (IPC). The Trial Court took cognizance and summoned the respondents.

During the trial, Respondent No. 2, Mr. D.P. Singh, consistently presented himself as the proprietor of M/s Udai Continentals, including in court filings and during his statement under Section 313 Cr.P.C. However, he later denied being the proprietor and claimed no business relationship with the complainant. The Appellant's attempt to summon Ms. Sarika Singh Kuchhawaha, who they later identified as the actual proprietor, was dismissed by the Trial Court.

The Trial Court ultimately dismissed the complaint and acquitted Respondent No. 2, leading to the present appeal.

Appellant's Contentions:

The Appellant argued that Respondent No. 2 had consistently misrepresented himself as the proprietor of M/s Udai Continentals throughout the proceedings, acknowledging his role and participation. They highlighted that he did not dispute his impleadment or claim of being wrongly described until his Section 313 Cr.P.C. statement. The Appellant also contended that the demand for interest in the legal notice was justified and not challenged by the respondent during cross-examination.

Respondent's Defence:

The counsel for Respondent No. 2 maintained that the trial court's acquittal was correct. They emphasized that Ms. Sarika Singh Kuchhawaha was the actual proprietor of M/s Udai Continentals and therefore responsible for its day-to-day affairs. Respondent No. 2 explicitly denied being the signatory of the cheque or having any business relationship with the complainant. Crucially, the testimony of a bank manager (DW-1) confirmed that Ms. Sarika Singh Kuchhawaha was the sole proprietor of Respondent No. 1, and this testimony remained unchallenged.

Court's Analysis and Findings:

The High Court meticulously analyzed the legal position regarding proprietorship concerns under the NI Act. It reiterated that a proprietorship concern has no separate legal identity from its proprietor, meaning only the proprietor can be held liable under Section 138 of the NI Act. Section 141 of the NI Act, which deals with vicarious liability for companies and firms, does not extend to proprietorship concerns as they are not juristic persons.

Citing Supreme Court judgments in Raghu Lakshminarayanan Vs. Fine Tubes and M.M. Lal v. State NCT of Delhi, the Court emphasized that a proprietary concern is merely a business name, and the proprietor is solely responsible for its affairs.

In this specific case, the Court observed that the dishonored cheque (Ex. CW-1/2) was signed by Ms. Sarika Singh Kuchhawaha as Proprietor. Furthermore, the unchallenged testimony of the bank manager (DW-1) unequivocally established Ms. Sarika Singh Kuchhawaha as the sole proprietor of M/s Udai Continentals.

The Court concluded that since Respondent No. 2 was not the signatory to the cheque and Ms. Sarika Singh Kuchhawaha was the actual proprietor, any responsibility to honor the cheque rested with her. The Appellant's failure to serve a legal demand notice on Ms. Sarika Singh Kuchhawaha or arraign her as an accused proved to be a fatal infirmity in their case.

Therefore, the High Court found no perversity in the Metropolitan Magistrate's order of acquittal, as the Appellant had failed to establish that Respondent No. 2, rather than the actual proprietor, was responsible for the payment under the dishonored cheque. The appeal was consequently dismissed.

Section 138, Negotiable Instruments Act - 1881  

Section 141, Negotiable Instruments Act - 1881  

Negotiable Instruments Act, 1881  

Section 313., Code of Criminal Procedure - 1973  

Code of Criminal Procedure, 1973  

Section 406., Indian Penal Code - 1860  

Section 420., Indian Penal Code - 1860  

Indian Penal Code, 1860