Legal Heir Can't File Cheque Bounce Case Without Being Payee Or Holder In Due Course: Bombay High Court

The Bombay High Court on 29 June held that a legal heir of a deceased payee cannot maintain a complaint under Section 138 of the Negotiable Instruments Act, 1881 (which provides for criminal liability for cheque dishonour) merely by virtue of succession.

Justice Ranjitsinha Raja Bhonsale quashed three complaints filed by Nandini Ashok Rao against Dr. Sagar Raghunath Phatkare, holding that she was neither the payee nor the holder in due course of the dishonoured cheques and therefore could not initiate proceedings under Section 138 of the NI Act. The Bench observed:

“Perusal of the order would prima facie indicate that the question, as to, whether the complainant was the “payee” or the “holder in due course” has not even been considered or gone into by the learned Judicial Magistrate First Class, Devrukh. The order has proceeded on the basis that, the cheques have been issued in the name of the complainant.”

The petitions challenged the orders passed by the Judicial Magistrate First Class, Devrukh, issuing process against Phatkare in three complaints under Section 138 of the NI Act. The complainant claimed that Phatkare had borrowed Rs. 18 lakh from her husband, Ashok Rao, in 2015 and issued three cheques of Rs. 6 lakh each towards repayment.

Ashok Rao died before the cheques were presented for payment. Thereafter, his widow deposited the cheques in a joint bank account held by her and her late husband. The cheques were dishonoured for insufficiency of funds, following which she issued statutory demand notices and filed three complaints under Section 138 of the NI Act.

Phatkare challenged the complaints, contending that Nandini Rao was neither the payee nor the holder in due course of the cheques.

The Court examined Sections 7, 8, 9, 138 and 142 of the NI Act. Section 142 permits a complaint under Section 138 only by the payee or holder in due course of the cheque. It noted that the complaints did not state that Nandini Rao was either of them. It also observed that the cheques were issued in Ashok Rao's name, who died before their presentation, and there was no endorsement transferring them in her favour.

Further, the Bench held that the Magistrate had proceeded on the incorrect assumption that the cheques were issued in favour of the complainant. Relying on the Bombay High Court's decision in Vishnupant v. Kailas and the Supreme Court's decision in Naresh Potteries v. Aarti Industries, it observed that a legal heir does not automatically step into the shoes of a deceased payee to initiate prosecution under Section 138 of the NI Act. It added:

“It is not the case of the Respondent No.1 that, she was armed with an order of a Court or a judicial order proceeded to file the complaint(s) under Section 138 of N.I. Act, neither is the Respondent No.1 the “payee” or nor is there any endorsement indicating that the Respondent No.1 is “holder in due course”.”

Lastly, the Bench observed that the complainant was required to first approach the civil court and obtain an appropriate declaration establishing her entitlement before initiating criminal proceedings under the NI Act.

Accordingly, the High Court allowed all three petitions and quashed the proceedings initiated against Phatkare.

For Petitioner: Advocates S.C Mangle and Ashitosh S Jambilkar

For Respondent: Advocate S.S Chaudhari, A.P.P