1998 (3) TMI 713 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of proceedings under Section 138 of the Negotiable Instruments Act.
2. Whether the cheques were issued as security.
3. Applicability of Supreme Court judgments on Section 138 of the Negotiable Instruments Act.
4. Role and liability of dormant partners.
5. Allegations of fabrication and forgery of documents.

Issue-wise Detailed Analysis:

1. Validity of proceedings under Section 138 of the Negotiable Instruments Act:
The petitioners sought to quash proceedings under Section 138 of the Negotiable Instruments Act, 1881, arguing that the cheques were issued as security and not for repayment of a loan. The court noted that the cheques were dishonored with the remark "payment stopped by the drawer," and a notice was duly served to the petitioners, demanding payment within 15 days. The court held that the statutory presumption of dishonest intention under Section 138 was satisfied, and the proceedings were valid.

2. Whether the cheques were issued as security:
The petitioners contended that the cheques were issued as security and not for the discharge of a debt. They presented a letter dated 16th August 1996, allegedly sent to respondent No. 2, stating that the cheques were given as security. However, the court found no merit in this argument, noting that the letter was not sent through registered post and was not mentioned in the reply to the notice sent by respondent No. 2. The court concluded that the cheques were issued for repayment and not merely as security.

3. Applicability of Supreme Court judgments on Section 138 of the Negotiable Instruments Act:
The petitioners relied on Supreme Court judgments in Electronics Trade and Technology Development Corporation Ltd. v. Indian Technologists and Engineers (Electronics) (P) Ltd. and K.K. Siddharthan v. T.P. Praveena Chandran, arguing that if a creditor is notified not to present a cheque for encashment, no offence under Section 138 is made out. However, the court referred to a larger bench judgment in Modi Cements Ltd. v. Kuchil Kumar Nandi, which clarified that merely issuing a notice to stop payment does not preclude an action under Section 138. The court held that the earlier judgments did not correctly interpret Section 138 and dismissed the petitioners' argument.

4. Role and liability of dormant partners:
The petitioners argued that certain partners (petitioners Nos. 2 to 5 in some writ petitions and Nos. 2 to 6 in others) were dormant and had resigned before the issuance of the cheques. The court found these assertions vague and insufficient to quash the complaints at the threshold. It emphasized that these petitioners would have the opportunity to rebut the presumption of dishonest intention under Section 139 of the Act during the trial.

5. Allegations of fabrication and forgery of documents:
Respondent No. 2 alleged that the letter dated 16th August 1996 was a forgery and was created to mislead the court. The court noted that the letter was not sent through registered post and was not mentioned in the reply to the notice. It found the petitioners' conduct questionable and dismissed the petitions, emphasizing that the learned Magistrate should not consider these allegations at any subsequent stage.

Conclusion:
The court dismissed all the petitions, vacated the interim orders of stay, and ruled that the proceedings under Section 138 of the Negotiable Instruments Act should continue. It held that the statutory presumption of dishonesty was satisfied and that the petitioners, including the alleged dormant partners, would have the opportunity to rebut this presumption during the trial. The court also dismissed the allegations of forgery and fabrication as insufficient to quash the proceedings.