Court Rules Resigned Signatory Not Liable Under Section 138 of the Negotiable Instruments Act
In a significant ruling, the Rajasthan High Court, Jaipur Bench, has quashed the criminal proceedings against Mohan Lal Sharma, a former principal of St. Soldier Senior Secondary School, in a cheque dishonor case. The court, presided by Justice Anoop Kumar Dhand, held that a signatory of a cheque who has resigned from his position cannot be held liable under Section 138 of the Negotiable Instruments Act for the dishonor of a cheque issued after his resignation.
The judgment, delivered on July 14, 2026, came in response to a criminal miscellaneous petition filed by Sharma challenging the order of cognizance by the Additional Chief Judicial Magistrate, Nainwa, District Bundi. The controversy stemmed from a cheque dated April 28, 2017, which was issued after Sharma’s resignation on March 24, 2017, and subsequently dishonored due to insufficient funds.
Counsel for the petitioner, Mr. S.S. Hora, argued that since Sharma had resigned from his post prior to the issuance of the cheque, he bore no liability for its dishonor. The defense cited precedents from the Supreme Court and Madras High Court, emphasizing that once a signatory resigns, they are no longer responsible for the affairs of the organization.
The court concurred with these arguments, noting the absence of any allegations against the school’s current management or director. Justice Dhand highlighted that criminal prosecution under such circumstances constitutes an abuse of legal process and unjustly affects the individual’s liberty and reputation.
The court’s order emphasized that the complainant retains the right to pursue legal action against the actual culprits responsible for the alleged offense. This judgment underscores the importance of correctly identifying liable parties in legal proceedings concerning cheque dishonor under the Negotiable Instruments Act.
Bottom line:-
A signatory of a cheque who has resigned from his position cannot be held liable under Section 138 of the Negotiable Instruments Act for the dishonor of a cheque issued after his resignation.
Statutory provision(s): Negotiable Instruments Act, 1881 - Section 138
Mohan Lal Sharma v. Ashok Vardhan Singh, (Rajasthan)(Jaipur Bench) : Law Finder Doc id # 2946730
