Company Not Automatically Free From Cheque Bounce Liability If Director Issued Cheque From Personal Account, Rules Delhi High Court

The Delhi High Court has held that the mere fact that a cheque was issued from the personal bank account of a company director does not automatically absolve the company of liability in a cheque dishonour case.

Court observed that where such a cheque is connected to a personal guarantee given for the company’s obligations, it cannot be concluded at the initial stage that the cheque was not issued in discharge of the company’s liability.

The bench of Justice Anup Jairam Bhambhani made the observation while dismissing a petition filed by SRK Devbuild Pvt Ltd, which had approached the high court seeking to quash a summoning order issued by a trial court in a case under the Negotiable Instruments Act, 1881.

“…considering that the summoning order is dated 23.08.2018, and since this court has perused the complaint, the requisite documents, including the subject cheque, the cheque dishonour memo, and the statutory notice issued under section 138 of the NI Act, that have been placed before it, this court would refrain from interfering with the impugned summoning order, though the ingredients of the offence do not find any mention in it”, the court ruled.

The company had challenged the summoning order dated August 23, 2018 passed by the Metropolitan Magistrate 01 at Patiala House Courts in a complaint filed under Section 138 of the Act. The criminal complaint arose after a cheque worth ₹2 crores dated June 5, 2018 was dishonoured. Apart from the summoning order, the company also sought to challenge an order dated June 7, 2023 through which the trial court had dismissed an application seeking stay of proceedings filed by the Official Liquidator.

During the proceedings before the high court, counsel appearing for the petitioner argued that the company should not have been arrayed as an accused in the case. They contended that the cheque in question had been issued from the personal bank account of one of the directors, Subhash Chand Aggarwal, and not from the account of the company. According to the petitioner, there were no specific allegations in the complaint which could attribute liability to the company.

The petitioner also argued that the trial court had issued summons without proper application of mind and had done so mechanically. In support of this argument, reliance was placed on the judgment of the Supreme Court of India in Pepsi Foods Ltd. vs. Special Judicial Magistrate, which emphasises that criminal courts must carefully examine the allegations before summoning an accused.

The respondent opposed the petition and submitted that the cheque represented a composite liability arising out of commercial dealings involving the company. It was argued that the director had issued the cheque in discharge of legally enforceable obligations arising from agreements between the parties and from a Personal Guarantee Deed executed on March 31, 2017.

The respondent further pointed out that the accused persons had repeatedly defaulted in appearing before the trial court during the proceedings, which eventually led the court to issue both bailable and non bailable warrants against them.

While examining the matter, the high court closely scrutinised the connection between the director’s personal account and the company’s liability. Court noted that the cheque had been issued in terms of the personal guarantee furnished by the director in relation to the company’s obligations.

Court observed, “The subject cheque, though admittedly drawn on the personal account of one of the directors-Mr. Subhash Chand Aggarwal, was drawn inter alia in accordance with the Deed of Personal Guarantee dated 31.03.2017… Therefore, it is not possible to infer, least of all at this stage, that the subject cheque was not issued in discharge of a debt or liability owed by the petitioner-company.”

The high court also examined the argument relating to the company’s insolvency proceedings. The company had entered the Corporate Insolvency Resolution Process in January 2020 and was later ordered to be liquidated in February 2021. These developments occurred nearly two years after the cheque had been issued and dishonoured.

On this aspect, court observed that the offence under Section 138 had arisen much earlier and therefore the subsequent insolvency proceedings could not automatically wipe out the liability at this stage.

Court stated, “The liability of the petitioner-company under section 138 of the NI Act… 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.”

Court also referred to several judgments of the Supreme Court while discussing the scope of a Magistrate’s powers at the stage of issuing summons. The Court relied on decisions including Mehmood Ul Rehman vs. Khazir Mohammad Tunda and Sunil Todi vs. State of Gujarat to explain that a Magistrate must be satisfied that a prima facie case exists but is not required to conduct a detailed examination of evidence at that stage.

Court noted, “The Magistrate is not to act as a post office in taking cognizance… application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication… the high court under Section 482 CrPC is bound to invoke its inherent power.”

It further clarified, “Though the Magistrate is required to consider the averments in the complaint… the Magistrate is not required to give detailed reasons at the stage of issuing summons in proceedings under section 138 of the NI Act.”

After examining the record, the high court observed that although the Magistrate’s summoning order was brief and did not elaborate on all the ingredients of the offence, the documents placed on record were sufficient to disclose a prima facie case.

“In the present case, though the Magistrate has omitted to narrate in the impugned summoning order as to how a prima-facie case is made-out… this court would refrain from interfering with the impugned summoning order, though the ingredients of the offence do not find any mention in it,” the court ruled.

In view of these findings, the Delhi High Court dismissed the petition filed by SRK Devbuild Pvt Ltd and vacated the stay that had earlier been granted on the trial court proceedings. The matter will now continue before the trial court in accordance with law.

Case Title: SRK Devbuild Pvt Ltd Through Its Liquidator Mr. Ravi Kapoor vs. Government of NCT of Delhi & Anr

Bench: Justice Anup Jairam Bhambhani

Date of Judgement: February 26, 2026