2017 (10) TMI 217 - HC - Indian Laws

Proceedings under Section 138 of the Negotiable Instruments Act - proceedings initiated by the complainant against the Director of the Company Held that - The notice issued to the Directors of the Company would be sufficient for the purpose of attracting Section 138 of the Negotiable Instruments Act. In the words of the Supreme Court in M/s.Bilakchand Gyanchand Co. vs. A.Chinnaswami 1999 (3) TMI 620 - SUPREME COURT too technical an approach on the sufficiency notice and the contents of the complaint is not warranted in the context of the purpose sought to be achieved by the introduction of Sections 138 and 141 of the Negotiable Instruments Act. Cheques were issued by the petitioner as a security - It is of the view that as the cheques were issued as a security, there is no legal bar in presenting the cheques for launching the prosecution after complying with the requisite procedures in the event of dishonour. What would be required is as to whether the cheques were presented for the outstanding liability or not. The very purpose for which the cheques issued, whether dated or undated, is only for the purpose of presenting them whenever there is a default on the part of the borrower. While that being so, it cannot be said that the cheques given by way of security are only an empty exercise and that the lender has no authority to present the cheques when there is default.

Summary

Issues:
1. Notice of dishonour sent only to Directors and not to the Company.
2. Cheques issued as security and not as payment.

Analysis:

Issue 1: Notice of dishonour sent only to Directors and not to the Company
The petitioners argued that the notice of dishonour was sent only to the Directors of the Company and not to the Company itself, citing a judgment where it was held that such a notice would violate statutory requirements. However, the respondent contended that notices sent to Directors of the Company are sufficient for proceedings under Section 138 of the Negotiable Instruments Act. The respondent relied on various judgments, including one from the Supreme Court, emphasizing that a notice issued to the Managing Director, who signed the cheques, is legally valid. The court agreed with the respondent's argument, stating that a notice issued to the Directors of the Company is adequate to attract Section 138 of the Act, emphasizing that a technical approach to notice sufficiency is not warranted.

Issue 2: Cheques issued as security and not as payment
The petitioners claimed that the impugned cheques were given as security, not as payment, based on a memorandum of understanding between the parties. They argued that cheques issued as security should not attract Section 138 of the Negotiable Instruments Act. However, the respondent countered this argument by citing a judgment that clarified the legal implications of issuing post-dated cheques as security. The court agreed with the respondent, stating that if the cheques were issued towards repayment of installments, they represent an outstanding liability and should fall under Section 138 of the Act. The court emphasized that the purpose for which the cheques were issued, whether dated or undated, is crucial in determining their legal implications. Therefore, the court dismissed the petition, concluding that there was no legal impediment to presenting the cheques for prosecution in case of dishonour, as long as the necessary procedures were followed.

In conclusion, the court upheld the legality of issuing notices to Directors of the Company and clarified that cheques issued as security towards repayment of liabilities can attract Section 138 of the Negotiable Instruments Act. The judgment emphasized the importance of the cheques' purpose and compliance with legal procedures in determining their legal consequences.