Section 138 NI Act: Can Authorised Signatory Be Prosecuted for Company Cheque Used for Personal Liability?

In the complex world of business transactions, cheque bounces can lead to serious legal consequences under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). A common dilemma arises: Is prosecution under Section 138 maintainable against the authorised signatory for a cheque issued for his personal liability in the account maintained by the company? This question pits personal accountability against corporate veils, often leaving directors and signatories uncertain about their exposure.

This blog post delves into the legal nuances, drawing from judicial precedents and statutory provisions. We'll examine when personal liability kicks in, the role of Sections 138 and 141, and practical takeaways. Note: This is general information, not legal advice. Consult a qualified lawyer for specific cases.

Understanding Section 138 and Its Scope

Section 138 criminalizes the dishonour of a cheque due to insufficient funds, applicable to cheques issued for discharge of a legally enforceable debt or liability. The provision targets any person who draws the cheque, making the drawer primarily liable [