Company Liability Cannot Be Dismissed Merely Because Cheque Came From Director’s Personal Account: Delhi High Court

The Delhi High Court has clarified that a company’s liability under Section 138 of the Negotiable Instruments Act, 1881 cannot be rejected at the initial stage simply because the cheque in question was issued from the personal bank account of one of its directors.
 

Justice Anup Jairam Bhambhani noted that the origin of the cheque alone does not determine whether the company is free from responsibility. The Court explained that when a director issues a cheque from a personal account as part of a personal guarantee related to the company’s obligations, it cannot be immediately concluded that the payment was unrelated to the company’s debt.
 

The Court emphasized that such questions require proper examination during the trial. Therefore, at the summoning stage, it would be premature to assume that the cheque was not issued towards settling a liability connected with the company.
 

As a result, the Court held that the company’s potential liability under Section 138 of the NI Act, which deals with dishonour of cheques for insufficiency of funds, cannot be ruled out solely on the basis that the cheque was drawn from the director’s personal account.