2023 (1) TMI 292 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - legally enforceable debt - petitioners submits that the petitioner No.1 has issued signed blank cheque as security, but, the respondent has presented the same without the knowledge of the petitioners - it is submitted that admittedly the Company has not been arrayed as party in the N.I. Act case. But, the Directors of the company have been made parties in the said case. HELD THAT - Since Durga Krishna Store Pvt. Ltd, the company has not been made an accused here in this case, and since no legal notice has also been issued to it, the complaint under Section 138 of the N.I. Act, to the considered opinion of this court, cannot be maintained against the present petitioners, without invoking the provision of Section 141 of the N.I. Act and as such the complaint lodged before the Court of learned CJM, Cachar, Silchar is nothing but an abuse of the process of Court and the impugned order of taking cognizance, dated 16.03.2020, suffers from manifest illegality and thus, failed to withstand the test of legality, propriety and correctness - Further, it appears that in the complainant petition, the respondent has not specifically stated as to how the petitioners are responsible for the conduct of the business of the company i.e. Durga Krishna Store Pvt. Ltd. Merely because the petitioner No.1 is the signatory of the cheque in question, is not at all sufficient to arraign him as an accused. Moreover, the respondent has never made any averment in the complaint against the petitioner No.2 as to how he is responsible for the conduct of the business of the company, though he appears to be the director of the company. There are sufficient merit in this petition, and accordingly, the same stands allowed.

Issues Involved:
1. Error in law and facts by the lower court.
2. Non-compliance with Section 138 read with 141 of the NI Act.
3. Non-inclusion of the company as an accused.
4. Lack of demand notice to the company.
5. Vicarious liability and the necessity of prosecuting the company.
6. The cheque as a security instrument, not for legally enforceable debt.
7. Lack of specific averments against the petitioner.
8. The petitioner's authority and role in the company.
9. Absence of supporting documents for the complaint.

Issue-wise Detailed Analysis:

1. Error in Law and Facts by the Lower Court:
The petitioners argued that the lower court's order resulted in an abuse of law and miscarriage of justice. The court's cognizance of the complaint under Section 138 of the NI Act without proper compliance was deemed erroneous.

2. Non-compliance with Section 138 read with 141 of the NI Act:
The petitioners contended that the lower court took cognizance without adhering to the mandates of Section 138 read with 141 of the NI Act. The court agreed, emphasizing that the company must be arraigned as an accused for the prosecution to be valid.

3. Non-inclusion of the Company as an Accused:
The court noted that the company, Durga Krishna Store Pvt. Ltd., was not made a party in the complaint, which is imperative for maintaining prosecution under Section 141 of the NI Act. The absence of the company as an accused invalidated the proceedings against the petitioners.

4. Lack of Demand Notice to the Company:
The petitioners highlighted that no demand notice was issued to the company. The court concurred, stating that without a legal notice to the company, the complaint could not be maintained.

5. Vicarious Liability and the Necessity of Prosecuting the Company:
The court reiterated the Supreme Court's stance that vicarious liability under Section 141 of the NI Act requires the company to be prosecuted first. The directors can only be held liable if the company is arraigned as an accused.

6. The Cheque as a Security Instrument, Not for Legally Enforceable Debt:
The petitioners argued that the cheque was issued as a security and not for a legally enforceable debt. The court found merit in this argument, noting that the petitioners had already paid the amounts due via NEFT, and thus, the cheque did not represent a legally enforceable debt at the time of its presentation.

7. Lack of Specific Averments Against the Petitioner:
The court observed that the complaint did not specify how the petitioners were responsible for the conduct of the company's business. Merely being a signatory of the cheque was insufficient to hold them liable under Section 138 of the NI Act.

8. The Petitioner's Authority and Role in the Company:
The court noted that the petitioner No.1 was not a director of the company, as per the Memorandum and Articles of Association. There was no evidence to show that he was responsible for the company's business conduct.

9. Absence of Supporting Documents for the Complaint:
The court found that the complaint lacked supporting documents such as goods forwarding notes, ledger accounts, or audited balance sheets, which are essential to substantiate the claims made.

Conclusion:
The court concluded that the proceedings against the petitioners were an abuse of the process of law. The impugned order dated 16.03.2020 and all subsequent orders were set aside and quashed. The court emphasized the necessity of prosecuting the company and issuing a legal notice to it for the complaint under Section 138 of the NI Act to be maintainable. The petition was allowed, and the stay, if any, was vacated. Each party was ordered to bear its own costs.

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