Answer By law4u team
Responsibility of Guarantors in Cheque Bounce Cases In India, guarantors can be held liable in cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881, but their liability depends on specific circumstances. When is a Guarantor Liable? If the Guarantor Issues the Cheque If a guarantor signs and issues the cheque on behalf of the borrower, they can be held directly liable for cheque bounce. If the Guarantor is a Co-Signatory If the guarantor is a joint account holder or co-signatory, they can be prosecuted for cheque dishonor. If the Guarantor Has Given an Unconditional Guarantee If the guarantee agreement includes a clause stating the guarantor will cover liabilities, they may be held responsible even if they did not issue the cheque. When is a Guarantor Not Liable? If They Did Not Issue the Cheque If the borrower issues the cheque and it bounces, the guarantor is generally not prosecuted under Section 138. Supreme Court’s Ruling in Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd. (2014) The liability under Section 138 arises only if the cheque was issued in discharge of an enforceable debt or liability. If the guarantor did not issue the cheque, they cannot be prosecuted under this section. Civil Liability Still Exists Even if a guarantor is not prosecuted under criminal law, the lender can recover the amount through a civil suit or under contract law. Key Takeaways Guarantors are not automatically liable in cheque bounce cases. They can be sued in civil court for debt recovery but not prosecuted under Section 138 unless they issued the cheque. Their liability depends on the guarantee agreement and involvement in issuing the cheque.
