Court quashes process under Section 138 NI Act, allows civil suits to proceed based on evidence

The court quashed the process issuance under Section 138 of the N.I. Act against all accused. It directed the pending civil suits to proceed based on evidence, without influence from the judgment's observations.

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Issues Involved:
1. Applicability of Sections 20 and 87 of the Negotiable Instruments Act (N.I. Act) to cheques.
2. Existence of debt or legal liability at the time of issuing the cheque.
3. Liability of a person who resigned as Managing Director before the cheque was presented.
4. Vicarious liability of Directors and Officers under Section 141 of the N.I. Act.

Issue-Wise Detailed Analysis:

1. Applicability of Sections 20 and 87 of the Negotiable Instruments Act to Cheques:
Section 20 of the N.I. Act deals with inchoate stamped instruments, allowing the holder to complete the document if it is properly stamped and signed. However, the court observed that Section 20 does not apply to cheques as they do not require stamping under the Stamp Act. The court referenced several judgments, including Tarachand Kevalram v. Sikri Brothers and C.T. Joseph v. I.V. Philip, to support this view. The court concluded that a signed blank cheque leaf cannot be termed as a negotiable instrument under Sections 5, 6, and 13 of the N.I. Act, and therefore, filling up such a cheque does not amount to material alteration under Section 87.

2. Existence of Debt or Legal Liability at the Time of Issuing the Cheque:
The court examined whether there was any existing debt or legal liability when the blank signed cheque was handed over. It noted that the cheque was not postdated and was filled up almost seventeen years after being issued as security. The court found that the liability had not been determined at the time the cheque was issued, and the complainant misused the blank signed cheque to shortcut the suit proceedings. The court referenced Indus Airways Pvt Ltd v. Magnum Aviation Private Limited and other judgments to conclude that a cheque issued for a future contingent liability does not attract Section 138 of the N.I. Act.

3. Liability of a Person Who Resigned as Managing Director Before the Cheque Was Presented:
The court considered whether the drawer of the cheque, who had resigned as Managing Director eight years before the cheque was presented, could be held liable under Section 138. The court referenced D.C.M. Financial Services Limited v. J.N. Sareen and another, which held that a person who had resigned with the knowledge of the complainant could not be held liable. The court also cited Alka N. Shah v. State of Gujarat and another and Suhas Bhand v. State of Maharastra to support its conclusion that the drawer, who had no control over the company's affairs at the time of dishonour, could not be held liable.

4. Vicarious Liability of Directors and Officers under Section 141 of the N.I. Act:
The court examined the vicarious liability of other accused who were Non-Executive Directors and Office Bearers. It referenced K.K. Ahuja v. V.K. Vora and National Small Industries Corporation Limited v. Harmeet Singh Paintal, which clarified that only those who were in charge of and responsible for the conduct of the company's business could be held liable. The court found that the complaint did not contain specific allegations against these Directors and Officers, and therefore, they could not be held vicariously liable. The court emphasized the need for specific averments in the complaint to hold individuals liable under Section 141.

Conclusion:
The court quashed the order of the issuance of the process under Section 138 of the N.I. Act against all the accused. It directed that the pending civil suits should proceed further in accordance with law and be decided based on the evidence presented, without being influenced by the observations made in this judgment.

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