2001 (11) TMI 837 - SC - Companies Law

Cognizance of offence under section 138 of the Negotiable Instruments Act - Held that - If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. Thus, a Court cannot quash a complaint on this ground.

Summary

Issues:
- Validity of complaints filed under section 138 of the Negotiable Instruments Act
- Authority to file complaints on behalf of a corporation
- Nature of cheques issued and their relation to debt/liability
- Maintainability of complaints when payment stopped by drawer

Issue 1: Validity of complaints filed under section 138 of the Negotiable Instruments Act:
The Supreme Court heard appeals against the quashing of complaints under section 138 of the Negotiable Instruments Act. The complaints were filed by the appellant against the respondent company for dishonored cheques. The High Court had quashed the complaints based on grounds related to the authority of the complainant and the nature of the cheques issued. The Supreme Court analyzed the legal provisions and previous judgments to determine the validity of the complaints.

Issue 2: Authority to file complaints on behalf of a corporation:
The High Court had held that complaints filed by a particular individual were not maintainable as only an executive director of the company had the authority to institute legal proceedings. The Supreme Court disagreed, citing Section 142 of the Act, which allows complaints to be made by the payee or holder of the cheque. The Court emphasized that the eligibility criterion was satisfied as the complaints were on behalf of the appellant-company, the payee of the cheques.

Issue 3: Nature of cheques issued and their relation to debt/liability:
The High Court had concluded that the cheques were issued as security and not for any existing debt or liability, leading to the quashing of complaints. The Supreme Court highlighted the stringent approach required in quashing criminal proceedings and the presumption under Section 139 of the Act that a cheque is for discharge of a debt or liability unless proven otherwise. The Court emphasized that the absence of specific allegations regarding debt or liability in the complaints did not impair their maintainability.

Issue 4: Maintainability of complaints when payment stopped by drawer:
The respondents argued that since the cheques were dishonored due to the drawer stopping payment, the complaints were not maintainable under Section 138. The Supreme Court referred to previous judgments, emphasizing that even if a cheque is dishonored due to a stop payment instruction, an offense under Section 138 can still be established. The burden of proving the absence of debt or liability lies on the accused, and the Court cannot quash complaints solely on this ground.

In conclusion, the Supreme Court set aside the impugned judgment and directed the Magistrate to proceed with the complaints against the respondents in accordance with the law, allowing the respondents to raise their defenses during the trial.