2010 (7) TMI 280 - SC - Companies Law

Whether a complaint under section 138 of the 1881 Act would be maintainable against a person who was not the drawer of the cheque from an account maintained by him, which ultimately came to be dishonoured on presentation? Held that - Appeal allowed. In the instant case, the cheque which had been dishonoured may have been issued by the respondent No. 11 for discharging the dues of the appellant No. 1-company and its directors to the respondent No. 1 company and the respondent. Company may have a good case against the appellant No. 1-company for recovery of its dues before other fora, but it would not be sufficient to attract the provisions of section 138 of the 1881 Act. The appellant-company and its directors cannot be made liable under section 138 of the 1881 Act for a default committed by the respondent No. 11.

Summary

Issues:
- Maintainability of a complaint under section 138 of the Negotiable Instruments Act against a person not the drawer of the cheque from an account maintained by him.

Analysis:
The case involved an agro-based company and its directors who were approached by another company for distributing prawn feed. After discontinuing dealings, the appellant settled all dues and authorized the other company to collect outstanding amounts directly from customers. Subsequently, a cheque issued by a former general manager of the appellant was dishonored, leading to a complaint under section 138 of the Negotiable Instruments Act. The High Court dismissed the petition challenging the complaint, holding that the appellants could be prosecuted under section 138. The central issue was whether a complaint under section 138 would be maintainable against a person not the drawer of the cheque from an account maintained by him.

The provisions of section 138 of the Negotiable Instruments Act were examined, emphasizing that for the section to apply, a dishonored cheque must be drawn on an account maintained by the person with the banker for payment to another person to discharge a debt or liability. It was clarified that the appellant company and its directors could not be held liable under section 138 for a default committed by the former general manager. The court highlighted that criminal or quasi-criminal provisions must be strictly construed, and proceedings are in personam, not to impose an offense on an unrelated party. Consequently, the appeal was allowed, the High Court's order was set aside, and the complaint against the appellants and pro forma-respondents was quashed.

In conclusion, the Supreme Court analyzed the legal aspects of maintaining a complaint under section 138 of the Negotiable Instruments Act against individuals not directly involved in issuing a dishonored cheque from their account. The judgment clarified that strict interpretation of criminal provisions is necessary, and liability cannot be imposed on parties not directly responsible for the offense. As a result, the court allowed the appeal, setting aside the High Court's decision and quashing the complaint against the appellants and other related parties.