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Joint Account Holder's Liability who is not a Signatory for Dishonour of Cheque.

Updated: Mar 10

When multiple individuals hold a joint account and one of them acts as a signatory for issuing a cheque, it's important to understand the liability implications, particularly concerning dishonour of the cheque under Section 138 of the Negotiable Instruments Act.

Negotiable Instrument Act 1881, deals with matters related to usage of Negotiable Instruments such as Promissory Notes, Bills of Exchange and Cheques. Section 6, defines Cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Which section deals with cheque bounce and dishonour of cheque ? Section 138 of Negotiable Instrument Act deals with Dishonour of cheque for insufficiency, etc., of funds in the account. Under the act if the cheque is dishonoured by the bank and returned because of lack of funds in the account. Then it is deemed the person has committed an offence and and shall, without prejudice to any other provisions of this Act, be punished with imprisonment fora term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

What are the offences under Sec 138 that would be considered for Cheque Bounce ? An offence under Section 138 of Negotiable Instrument Act can be said to be constituted when the following ingredients are satisfied :

A person must have drawn a cheque on an account maintained by him, which was issued for discharge of a debt or a liability.

That cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of validity of the cheque, whichever is earlier.

That cheque is returned by the bank unpaid,on account of insufficient funds, or it exceeds the amount arranged to be paid from that account by an agreement made with the bank.

The payee issues a legal notice for payment of due amount to the drawer of the cheque within 15 days of receipt of information from bank regarding return of cheque as unpaid.

The drawer of the cheque fails to make payment of said amount of money within 15 days of receipt of notice.

But what if the account was maintained by a Joint Account Holder ?

When an individual signs a cheque drawn on their own account to settle a debt or obligation, and the cheque is subsequently dishonoured by the bank, it constitutes an offense under Section 138 of the Negotiable Instruments Act. Sec 138 does not explicitly address joint liability. In cases involving joint liabilities, individuals other than the one who issued the cheque from their account cannot be prosecuted under Section 138 unless they were also signatories to the cheque and the account was jointly maintained. Therefore, while a person may share joint liability for a debt, they cannot be prosecuted under Section 138 unless they meet these specific criteria of jointly maintaining the account and signing the cheque. Judgements on the Joint Account Holder Liability:

The Supreme Court in the case of Aparna A. Shah Vs Sheth Developers Private Limited after considering the language used in Section 138 of N.I Act and the parameters stated above took a view that only the drawer of the cheque can be made liable and in case of issuance of cheque from joint accounts, a joint account- holder cannot be prosecuted unless the cheque has been signed by each and every person who is a joint account holder.

In the case of Alka Khandu Avhad Vs Amar Syamprasad Mishra, the Supreme Court while considering joint liability and the prosecution of such persons under section 138 held that the said section does not speak about joint liability and in case of joint liability, a person may have been jointly liable to pay the debt, but such a person cannot be prosecuted unless the bank account is jointly maintained and that person was a signatory to the cheque.


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