(NI Act section 138).
The Supreme Court ruled that a person cannot be prosecuted with dishonoring a check under section 138 of the NI Act just because he or she is a grantor of a loan or a partner of a firm which take loan.
Furthermore, a person cannot be prosecuted with vicarious liability for cheque dishonor under section 141 of the NI Statute simply because he possesses civil liability under the partnership act.
A petition was filed against Bank of Baroda by an appellant in the high court. M/s. Global Packaging was given a loan and a cash credit facility by the bank, and in order to repay the loan, the company issued three checks worth 25, 00,000 INR each.
Due to insufficient funds in the account, the check bounced. The cheque bears the signature of Simaiya Hariramani, who is the firm's signatory authority.
The bank sent a notice under section 138 of the NI Act to Simaiya Hariramani and the other partner, as well as registered a complaint against Simaiya Hariramani and the other partner under section 138 of the NI Act. However, the firm was not named as a defendant in the entire case.
The appellant and Simaiya Hariramani were found guilty under section 138 of the National Insurance Act. Against this, the appellant filed a petition at the high court, but it was dismissed.
Later, the appellant went to a higher court, which ruled that a person is convicted and punished under section 141 of the NI Act only if one of the act's two requirements is met. However, this conviction is only valid if the company or firm is the primary perpetrator and commits the crime.
As a result, the high court's verdict, which validated the conviction or issued a sentenced order by the session court, was overturned by the apex court.