#legal liability

The Karnataka High Court has ruled that funds initially given as business investment become a legally enforceable debt under Section 138 of the Negotiable Instruments Act when documented in writing and later evidenced by a dishonoured cheque. This clarifies that the original intent of the transaction - whether as equity or loan - is irrelevant if the parties later treat it as a repayable liability, significantly expanding liability exposure for investors-turned-creditors in commercial disputes.

Karnataka High Court rules that an investment agreement with profit-sharing terms constitutes a legally enforceable debt under Section 138 of the Negotiable Instruments Act, making issued cheques liable for dishonour. The judgment clarifies that financial arrangements beyond traditional loans can trigger criminal liability for bounced cheques, impacting investors and entrepreneurs alike.

Madras High Court holds that mere signature on a blank cheque issued to a third party does not establish liability under Section 138 NI Act unless a legally enforceable debt is proven between the accused and complainant.