Supreme Court Half Yearly Digest 2025: Negotiable Instruments Act

Negotiable Instruments Act, 1881; Section 138 - Code of Criminal Procedure, 1973 - Sections 2(wa), 372, 378 (4), 378 (6) - Dishonour of Cheque - Special Leave to Appeal - Appeal against order of acquittal – Victim's right to appeal - Whether an appeal would be maintainable under the proviso to section 372 of CrPC against an order of acquittal passed in a case instituted upon a private complaint under section 138 by treating complainant in such a proceeding as a victim under section 2(wa) CrPC – Held, a complainant in a cheque dishonour case for the offence under section 138 of Negotiable Instrument Act is a “victim” within the meaning of section 2(wa) of CrPC. The complainant can proceed as per the proviso to section 372 CrPC. Complainant need not invoke section 378(4) CrPC and could file appeal as 'victim' as per section 372 proviso. (Para 7.11) Celestium Financial v. A Gnanasekaran, 2025 LiveLaw (SC) 666 : 2025 INSC 804

Negotiable Instruments Act, 1881; Section 141 – Dishonour of Cheque – Liability of Company Directors – Held, a complaint under Section 141(1) does not require specifying the precise administrative role of directors to establish liability for cheque dishonour. General averments that a director was "in charge of and responsible for" the company's business are sufficient at the complaint stage, without needing verbatim statutory language. The complainant must only plead the accused's role generally, as specific administrative details are within the special knowledge of the company or director. The burden lies on the director to prove they were not in charge during the trial. Magistrate's order issuing process upheld; High Court's order quashing proceedings set aside. [Paras 34–38] HDFC Bank Ltd. v. State of Maharashtra, 2025 LiveLaw (SC) 624 : 2025 INSC 759 : AIR 2025 SC 2707

Negotiable Instruments Act, 1881; Section 138 - Application of Res Judicata in Criminal Proceedings - The principle of res judicata applies to criminal proceedings, barring re-litigation of issues conclusively determined in earlier proceedings. Factual findings by a criminal court are binding on both parties in subsequent proceedings involving the same issue. However, res judicata does not apply to proceedings dismissed as withdrawn or not decided on merits. The Court quashed subsequent cheating case under Section 420 IPC, as prior proceedings under the NI Act established that demand drafts were issued for distinct liabilities, unrelated to the dishonoured cheques, rendering the new prosecution an abuse of process. [Paras 19 & 20] S.C. Garg v. State of Uttar Pradesh, 2025 LiveLaw (SC) 436 : 2025 INSC 493

Negotiable Instruments Act, 1881; Section 138 - Complainant has no onus to prove financial capacity at the threshold. Once the drawer admits to signing the cheque, the presumption under Section 139 of the NI Act cannot be rebutted merely by questioning the complainant's debt-giving capacity, especially when such a defence was not raised in the reply notice by the accused. The High Court wrongly imposed an initial burden on the complainant to prove financial capacity and loan details. (Para 21 & 22) Ashok Singh v. State of Uttar Pradesh, 2025 LiveLaw (SC) 383 : 2025 INSC 427 : AIR 2025 SC 1931

Negotiable Instruments Act, 1881; Section 141 - A signatory of a cheque, if in charge of a firm's affairs, can be prosecuted without impleading the firm. Since the accused was the signatory and a partner in charge, the complaint was maintainable without impleading the firm. (Para 19 & 20) Ashok Singh v. State of Uttar Pradesh, 2025 LiveLaw (SC) 383 : 2025 INSC 427 : AIR 2025 SC 1931

Negotiable Instruments Act, 1881; Section 138 - Reply to the Statutory Notice - This was a case where very material documents in the form of two letters addressed by the appellant were suppressed in the complaint and the statement on oath under Section 200. In the statement on oath, the respondent-complainant vaguely referred to a 'false notice reply', but a copy of the reply was not produced by the respondent along with the complaint. Setting criminal law in motion by suppressing material facts and documents is nothing but an abuse of the process of law. Hence, the High Court ought to have interfered and quashed the complaint. Complaint and cognizance order set aside, leaving civil remedies open. (Para 20 - 23) Rekha Sharad Ushir v. Saptashrungi Mahila Nagari Sahkari Patsansta Ltd., 2025 LiveLaw (SC) 355 : 2025 INSC 399 : AIR 2025 SC 1857

Negotiable Instruments Act, 1881; Section 138 – Return of a dishonoured cheque simpliciter does not create an offence under Section 138 NI Act. The cause of action arises only when a demand notice is served and payment is not made within the stipulated fifteen-day period. (Para 9) Vishnoo Mittal v. Shakti Trading Company, 2025 LiveLaw (SC) 314 : 2025 INSC 346 : AIR 2025 SC 1741

Negotiable Instruments Act, 1881; Section 138 – Insolvency and Bankruptcy Code, 2016; Section 14 & 17 - Where the cause of action for an offence under Section 138 NI Act arises after the imposition of a moratorium under Section 14 IBC, proceedings under Section 138 of the NI Act cannot be initiated against the Director of the Corporate Debtor. Upon the imposition of a moratorium and the appointment of an Interim Resolution Professional (IRP) under Section 17 of the IBC, the management of the Corporate Debtor vests in the IRP, and the powers of the Board of Directors are suspended. Consequently, the Director lacks the capacity to fulfil the demand raised by a notice under Section 138 NI Act. The judgment in P. Mohan Raj v. M/s Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258 is distinguishable, as in that case, the cause of action under Section 138 NI Act arose before the imposition of the moratorium. Proceedings under section 138 of the NI Act are quashed, when the cause of action arises after the imposition of moratorium, and the director of the company has been suspended from his duties, and the IRP has taken over the management of the company. (Para 11 - 13) Vishnoo Mittal v. Shakti Trading Company, 2025 LiveLaw (SC) 314 : 2025 INSC 346 : AIR 2025 SC 1741

Code of Criminal Procedure, 1973; Section 406 - Negotiable Instruments Act, 1881; Section 138 - Whether a complaint under Section 138 of the N.I. Act can be transferred under Section 406 Cr.P.C. on grounds of lack of territorial jurisdiction? Held, a complaint under Section 138 of the N.I. Act cannot be transferred under Section 406 Cr.P.C. for lack of territorial jurisdiction. Power to transfer cases under Section 406 Cr.P.C. is discretionary and must be exercised sparingly. Mere inconvenience or hardship to the accused, such as travel or language barriers, does not justify transfer unless there is a reasonable apprehension of injustice. (Para 49 & 65) Shri Sendhuragro and Oil Industries v. Kotak Mahindra Bank, 2025 LiveLaw (SC) 292 : 2025 INSC 328

Code of Criminal Procedure, 1973; Section 406 - Negotiable Instruments Act, 1881; Section 138 - Whether the phrase “expedient for the ends of justice” in Section 406 Cr.P.C. encompasses cases where the court lacks territorial jurisdiction under Section 138 of the N.I. Act? Held, the phrase “expedient for the ends of justice” in Section 406 Cr.P.C. does not include cases where the court lacks territorial jurisdiction. (Para 65) Shri Sendhuragro and Oil Industries v. Kotak Mahindra Bank, 2025 LiveLaw (SC) 292 : 2025 INSC 328

Code of Criminal Procedure, 1973; Section 406 - Transfer of Trial – Principles - Whether the Supreme Court can transfer a case under Section 406 Cr.P.C. if the court where the complaint is filed lacks territorial jurisdiction? Held, lack of territorial jurisdiction alone not sufficient ground. Broad factors to be considered include: (i) Prosecution acting in collusion with the accused. (ii) Likelihood of accused influencing witnesses or causing harm to complainant. (iii) Comparative inconvenience and hardship to parties and witnesses. (iv) Communally surcharged atmosphere affecting fair trial. (v) Hostile persons interfering with the course of justice. These factors are illustrative, not exhaustive. Ensuring a fair trial is the paramount consideration. (Para 49) Shri Sendhuragro and Oil Industries v. Kotak Mahindra Bank, 2025 LiveLaw (SC) 292 : 2025 INSC 328

Code of Criminal Procedure, 1973; Section 406 - Negotiable Instruments Act, 1881; Section 138 and 142 (2) - Petitioner sought the transfer of a criminal complaint filed under Section 138 of the N.I. Act by Kotak Mahindra Bank Ltd. from the Judicial Magistrate First Class, Chandigarh, to the Metropolitan Magistrate, Coimbatore, Tamil Nadu. The petitioner argued that the entire transaction, including the loan processing, EMI deductions, and SARFAESI proceedings, occurred in Coimbatore, and no cause of action arose in Chandigarh. The petitioner also cited inconvenience, language barriers, and harassment as grounds for transfer. The Supreme Court reiterated that under Section 142(2) of the N.I. Act, as amended in 2015, the jurisdiction for complaints under Section 138 lies with the court where the cheque is delivered for collection through the payee's bank account. The court in Chandigarh had jurisdiction as the cheque was presented for collection there, even if the transaction occurred in Coimbatore. The petitioner's grievances did not meet the threshold for transfer, as the Chandigarh court had valid jurisdiction under Section 142(2) of the N.I. Act. The Supreme Court dismissed the transfer petition, holding that no case was made out for transferring the proceedings from Chandigarh to Coimbatore. It is always open for the petitioner accused to pray for 2 exemption from personal appearance or request the Court that he may be permitted to join the proceedings online. (Para 65) Shri Sendhuragro and Oil Industries v. Kotak Mahindra Bank, 2025 LiveLaw (SC) 292 : 2025 INSC 328

Negotiable Instruments Act, 1881; Section 138 r/w. 141 – Vicarious Liability of NonExecutive Directors – Quashing of Criminal Proceedings – Held, Non-executive and independent directors cannot be held vicariously liable under Section 141 of the NI Act for dishonor of cheques unless specific allegations demonstrate their direct involvement in the company's affairs at the relevant time. Mere designation as a director or attendance at board meetings does not create automatic liability. The complaint must contain specific averments establishing a direct nexus between the directors and the financial transactions in question. In the absence of such specific allegations and where records confirm a non-executive role without financial decision-making authority, criminal proceedings under Section 138 read with Section 141 of the NI Act against non-signatory, non-executive directors are liable to be quashed. (Para 16 & 18) K.S. Mehta v. Morgan Securities and Credits Pvt. Ltd., 2025 LiveLaw (SC) 286 : 2025 INSC 315 : AIR 2025 SC 1607 : (2025) 7 SCC 615

Negotiable Instruments Act, 1881; Section 141 - Vicarious Liability of Directors - Twin Requirements for Prosecution – Held, for an offence under Section 141 of the N.I. Act, 1881, involving dishonour of a cheque by a company, the complaint must allege that the accused person was both in charge of and responsible to the company for the conduct of its business. These are distinct requirements, and both must be explicitly stated in the complaint. Only the signatory of the cheque can be held liable, and in the absence of allegations that the appellant was in charge of the company's business, prosecution under Section 141(1) cannot be sustained. The Court set aside the High Court's order dismissing the appellant's plea to quash the complaint and allowed the appeal, without commenting on the merits of the case against other accused. (Para 5) Hitesh Verma v. Health Care at Home India Pvt. Ltd;, 2025 LiveLaw (SC) 176 : (2025) 7 SCC 623

Negotiable Instruments Act, 1881; Section 138 – Dishonour of cheque – Liability of Director – Resignation before issuance of cheque – Quashing of complaint – Held, where the appellant had resigned from the post of Director prior to the issuance of post-dated cheques by the company, and the cheques were signed by another competent person, the appellant could not be held liable under Section 138 of the Negotiable Instruments Act. It was undisputed that the appellant resigned on 21.06.2019 and the resignation was acknowledged by the Registrar of Companies on 26.06.2019, whereas the cheques were issued on 12.07.2019. Therefore, the appellant was not in charge of or responsible for the affairs of the company at the relevant time. The judgment of Malva Cotton and Spinning Mills Ltd. v. Virsa Singh Sidhu (2008) 17 SCC 147 was distinguished on facts, as in that case, the resignation was submitted after the issuance of the cheques. The appeals were allowed, and the impugned order of the High Court dismissing the petitions under Section 482 Cr.P.C. was set aside. The complaints under Section 138 NI Act against the appellant were quashed. Appeals Allowed. Adhiraj Singh v. Yograj Singh, 2025 LiveLaw (SC) 75

Negotiable Instruments Act, 1881; Section 142 - Whether the High Court was justified in quashing the complaint under Section 138 NI Act on the ground of lack of specific averments regarding the personal knowledge of the power of attorney holder in the complaint and supporting documents. The High Court relied on the decision in A.C. Narayanan v. State of Maharashtra, (2014) 11 SCC 790 to hold that the power of attorney holder lacked personal knowledge of the facts giving rise to the proceedings, as there were no specific pleadings to that effect in the Letter of Authority or affidavits. However, a conjoint reading of the Letter of Authority, the verifying affidavit, and the affidavit of evidence under Section 200 of the Cr.P.C. demonstrated that the manager and power of attorney holder of the appellant-firm, had personal knowledge of the transactions and was duly authorized to file the complaint. The complaint satisfied the requirements of Section 142 of the NI Act as it was filed by the payee through its authorized representative. The High Court's reliance on inherent powers under Section 482 of the Cr.P.C. to quash the complaint was unwarranted and contrary to the settled principle that such powers should be exercised sparingly and not interfere with a fair trial. The High Court erred in quashing the complaint based on incorrect reasoning and lack of due consideration. The appeal was allowed, and the complaint was restored to the file of the Additional Chief Judicial Magistrate for adjudication on merits. Appeal allowed. Judgment and order of the High Court quashed and set aside. Complaint restored for fresh adjudication. Naresh Potteries v. Aarti Industries, 2025 LiveLaw (SC) 1 : 2025 INSC 1 : AIR 2025 SC 886