2013 (5) TMI 1058 - HC - Indian Laws

Summary

Issues Involved:

1. Whether the cheques in question were issued in discharge of any debt or other liability or as collateral security for a future liability.
2. Whether proceedings could be initiated against the third petitioner, merely on the basis of her designation as a director of the petitioner company.

Summary:

Issue 1: Cheques Issued in Discharge of Debt or as Security

The petitioners argued that the cheques in question were furnished as security for the performance of the respective contracts and not in discharge of any debt or other legal liability. They relied on the apex court's decision in Narayana Menon vs. State of Kerala (2006) 6 SCC 39, stating that if a cheque is issued for security, it would not come within the purview of Section 138 of the NI Act. The respondent contended that the cheques were issued during a contractual relationship and were dishonoured due to insufficient funds, thus justifying the initiation of action under Section 138 of the NI Act. The court reviewed various case laws, including Narayana Menon, M.M.T.C. Limited vs. Medchl Chemicals and Pharma Private Limited, and others, to determine the nature of the cheques. It concluded that the question of whether the cheques were issued as security or in discharge of a debt would require examination at trial. The court emphasized that presumptions under Section 118(a) and 139 of the NI Act favor the complainant, and the accused must rebut these presumptions at trial.

Issue 2: Proceedings Against the Third Petitioner

The court examined whether the third petitioner, designated as a director, was involved in the company's affairs and the transactions in question. It concluded that there was no evidence to show her involvement. Therefore, the proceedings against the third petitioner were quashed. However, the court found no grounds to interfere with the proceedings against petitioner no. 1 and 2.

Conclusion:

The petitions were partly allowed. The proceedings against the third petitioner were quashed, while the petitions concerning petitioner no. 1 and 2 were dismissed. The order of stay granted earlier was vacated.