Delhi High Court: Sole Proprietor Only Liable for Cheque Bouncing in Sole Proprietorship Case

In a recent ruling, the Delhi High Court reaffirmed that a sole proprietor is solely liable for cheques issued by their firm to settle debts. The court quashed the complaint against Sanat Kumar under Section 138 of the Negotiable Instruments Act, noting that the cheques in question were issued for a loan to an entity whose sole proprietor was not Kumar.

Justice Subramonium Prasad emphasized that “in a sole proprietorship, only the sole proprietor can be held accountable for cheques issued for debt repayment.” The complaint alleged that Kumar and Rajiv Kumar sought ₹25 lakh from Sanjay Sharma in 2016, issuing two cheques in late 2017 to repay the loan. When these cheques were presented, they were dishonored with a memo stating “payment stopped by drawer.”

After sending a legal notice in January 2018 for payment, and receiving no response, Sharma filed a complaint under Section 138. The court’s decision clarifies the liability of sole proprietors in such financial matters.

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