2008 (5) TMI 429 - SC - Companies Law

Appeal allowed in Section 138 case due to misconceived complaint. Second cheque not new liability.

The appeal was allowed in favor of the appellants as the court found the second complaint against them under Section 138 of the Negotiable Instruments Act ... Cheque returned unpaid with the remarks 'insufficient fund' - Held that:- Appeal allowed. It is clear from the perusal of the complaint that total 6 accused persons have been made parties in this matter by the complainant and in her statement U/s 200 of Cr.P.C, complainant has clearly stated that Manish Arora, Ashish Narula and L.K. Sharma and Bela Narula and wife of L.K. Sharma were directors of the company. All the five accused persons demanded loan of Rs. Five Lakh Two Hundred Fifty from the complainant for some time and promised her to return the said money soon. All the five persons have been equally involved in the dealing of giving and receiving the cheque. Evidently, therefore, the second cheque was issued in terms of the compromise. It did not create a new liability. As the compromise did not fructify, the same cannot be said to have been issued towards payment of debt. the second cheque was issued by Manish Arora for the purpose of arriving at a settlement. The said cheque was not issued in discharge of the debt or liability of the Company of which the appellants were said to be the directors. There was only one transaction between Shri Ashish Narula, Shri Manish Arora, Directors of the Company and the complainant. They have already been punished. Thus, the question of entertaining the second complaint did not arise Issues:Application of Section 138 of the Negotiable Instruments Act in the case.Analysis:The case involved the application of Section 138 of the Negotiable Instruments Act, 1881, in an appeal arising from a judgment passed by the High Court. The appellant company had taken a loan and issued two cheques, which were returned unpaid due to insufficient funds. A complaint was filed against the directors of the company under Section 138 of the Act and Section 420 of the Indian Penal Code.The appellants, who were directors of the company at different times, were not signatories to the cheques in question. Despite attempts to resolve the matter through an agreement, a second cheque issued as part of a settlement bounced, leading to another complaint including the appellants. The appellants challenged the summoning order, arguing that the second complaint was not maintainable.The key legal provision, Section 138 of the Act, outlines the offense of dishonor of a cheque due to insufficient funds. The section specifies conditions under which such an offense is deemed to have been committed, including the presentation of the cheque within a specified period, a demand for payment, and failure to make the payment within a stipulated timeframe.The court noted that the second cheque was issued as part of a settlement and not in discharge of the debt or liability of the company. The directors had already been found guilty in a previous judgment related to the initial cheques. As the second cheque did not create a new liability and was issued as part of a failed compromise, the court deemed the second complaint against the appellants misconceived. Consequently, the appeal was allowed, and the respondents were directed to bear the costs of the appellants.In conclusion, the judgment delved into the intricacies of Section 138 of the Negotiable Instruments Act, emphasizing the legal requirements for establishing the offense of dishonor of a cheque. It clarified the circumstances under which a second complaint against the appellants was not maintainable, ultimately leading to the appeal being allowed in favor of the appellants.