Legal Advice

Cheque issued in personal capacity : Liability under section 138 NI Act

Question: I am principal of a private school. During the lockdown some construction works were done in my school. The management had directed me to make the payment and they will reimburse the entire amount. A cheque I issued in my personal capacity which I later on stopped to payment. Because the management has refused to make payment. Management said that the cost of works was too high and they will conduct an audit of construction works.  I informed the contractor that please wait till the completion of the audit. But he presented the cheque for encashment. Since, I have stopped the cheque for payment hence, the contractor sent a demand notice. Later on he filed a complaint under section 138 of the NI Act. Please advise what I should do to absolve myself from the criminal liability.

Advise

You are liable under Section 138 of the Negotiable Instrument Act, however, you have issued that cheque in your personal capacity. It does not matter that you are a school principal and that cheque was issued in the direction of management. 

You have made yourself personally liable for the payment. However, the management has stalled the payment till the findings of the audit report. When you issued that cheque, you had taken liability to pay the cost of construction work. When the cheque has bounced you have committed an offence punishable under Section 138. 

The contractor had the right to claim payment because he did construction in the school. It is not clear from your question who had given the contract. If the management was granted such a contract then the contractor cannot recover that amount from you. 

But you have borne that liability by issuing a cheque in discharge of that liability. Hence, you would be liable for the dishonour of cheque. There are three essential ingredients for attracting a liability under Section 138 NI Act.

  • Accused should be the drawer of the cheque.
  • He should have drawn the cheque on an account maintained by him with a banker for payment of money to another person. 
  • The said cheque has been issued for discharge in whole or part, of any debt or liability. 

In P. J. Agro Tech Ltd vs Water Base Ltd (2010) 12 SCC 146; the Supreme Court has held that a person who draws a cheque on an account maintained by him for paying the payee, alone attracts liability. 

Hence, you have committed an offence i.e. dishonour of cheque. You cannot absolve yourself because:

  • You have issued a cheque in discharge of liability.
  • That cheque was dishonoured by drawee bank due to stop payment. 
  • You did not discharge that liability in pursuance of demand notice.

Shivendra Pratap Singh

Advocate

High Court Lucknow