When Funds Move From a Relative's Account, Does Section 138 NI Act Create Liability Between the Borrower and the Payee?

A recurring situation in cheque dishonour disputes is this: A borrows money from or owes money to C, but the payment actually moves from the bank account of A's brother. When the transaction fails and C files a complaint under Section 138 of the Negotiable Instruments Act, 1881, a critical question arises — is there a legally enforceable debt between A and C that can sustain prosecution under Section 138?

The short answer, supported by consistent judicial interpretation, is generally no — at least not in the manner C hopes. Section 138 is a penal provision, and its essential ingredients must be strictly satisfied before criminal liability can be fastened on anyone.

The Core Requirement: Cheque Drawn on an Account Maintained by the Drawer

Section 138 requires that the cheque be drawn by a person on an account maintained by him with a banker. Courts have treated this as a fundamental relationship between the account holder and the bank, one that cannot be extended to third parties:

The expression... describes the relationship between the account holder and the banker. This relationship is fundamental to the application of Section 138. The act of maintaining an account is exclusively tied to the account holder and does not extend to any third party whom the account holder may authorize to manage the account on its behalf. 2025 2 Supreme 109

This means that if the funds moved from A's brother's account, the brother — as account holder and potential drawer — is the person who could face exposure under Section 138, not A.

Only the Drawer Can Be Prosecuted

The second pillar of the analysis is equally settled: it is only the drawer of the cheque who can be made liable under Section 138. The provision does not recognise joint liability of individuals who did not sign the cheque or maintain the account:

Section 138 of the NI Act does not speak about the joint liability. Even in case of joint liability, in case of individual persons, a person other than a person who has drawn the cheque on an account maintained by him, cannot be prosecuted for the offence under Section 138 of the NI Act. 2023 0 Supreme(P&H) 1310

Similarly, a person who is not a signatory to the cheque cannot be dragged into a Section 138 proceeding simply because they are related to the account holder or benefited from the transaction 2023 0 Supreme(Ker) 486.

The Legally Enforceable Debt Ingredient

Section 138's Explanation makes clear that the cheque must have been issued toward a legally enforceable debt or other liability subsisting on the date of its drawal 2023 0 Supreme(Ker) 486. Where a cheque was issued to discharge the liability of a third person — such as the brother of the accused — courts have held that this does not fasten Section 138 liability on the person who did not owe the debt 2025 Supreme(Online)(P&H) 53726.

The presumption under Section 139 — that the cheque was issued for the discharge of a debt or liability — is rebuttable. If the debt does not subsist between the drawer and the payee, the presumption fails and the complaint's foundation collapses 2026 Supreme(Online)(Tel) 6334. Courts have also clarified that debts barred by limitation, or liabilities that are unlawful or unenforceable, fall outside the scope of Section 138 2023 0 Supreme(Ker) 678 and 2024 0 Supreme(P&H) 1503.

An Important Nuance: Voluntary Assumption of Another's Debt

There is one significant qualification. If a person voluntarily assumes responsibility for discharging someone else's debt — and draws a cheque on an account maintained by him in furtherance of that arrangement — Section 138 can still apply, provided the payee can establish that such an arrangement existed 2025 2 Supreme 109:

...even those cases where a person assumes the responsibility of discharging the debt of some other person, and in furtherance thereof draws a cheque on an account maintained by him, which subsequently gets dishonoured... would be covered by Section 138 if the payee is able to establish that there was some sort of an arrangement by way of which the debt was assumed by the drawer.

So if A had issued a cheque from A's own account to repay his brother's debt to C, and the arrangement could be proved, liability could attach to A 2012 0 Supreme(Ker) 658. But where the payment itself emanates from the brother's account, that pathway is unavailable against A.

Applying the Law to This Scenario

In the facts posed — A sues or is sued by C, and the amount was transferred from A's brother's account to C:

• If a cheque was involved, it was drawn by the brother on the brother's own account; the drawer-debtor relationship ties the brother, not A, to Section 138 2025 Supreme(Online)(Tel) 55247.
• If no cheque was drawn at all — a mere electronic transfer — Section 138 is not attracted in any event, because the provision operates only upon dishonour of a cheque.
• The presumption under Section 139 in favour of the payee cannot substitute for proof of a subsisting debt between A and C.

What About Company Directors and Vicarious Liability?

A related question often arises when the account belongs to a company. Under Section 141, directors face vicarious liability only when the company is first held liable as the primary offender, and only where the director was in charge of and responsible for the company's business at the relevant time 2025 Supreme(Online)(Del) 48689. Courts have even quashed complaints where directors had lost control of the accounts due to insolvency, holding they could no longer be said to maintain the account 2025 Supreme(Online)(Del) 48689.

Practical Takeaways

1. Identify the true drawer. Liability follows the person who drew the cheque on the account he or she maintains.
2. Do not assume family relationships create liability. A brother's account is the brother's legal responsibility under Section 138.
3. Prove any debt-assumption arrangement. If A voluntarily undertook to repay his brother's debt with his own cheque, document that arrangement.
4. Consider civil remedies. If Section 138 fails against A, a civil suit for recovery against the appropriate party remains available.

Key Takeaways

Where the amount moved from A's brother's account to C, there is typically no legally enforceable debt basis to prosecute A under Section 138 NI Act, because A neither drew a cheque on an account maintained by him nor owed the debt to C. The exposure, if any, shifts to the brother as drawer. The law is precise on this point, and anything in between — assumption of debt via one's own cheque — remains the only bridge to liability. Anyone facing a similar dispute should seek advice tailored to the specific facts, as outcomes depend on evidence at trial 2024 0 Supreme(P&H) 951.