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Issues: (i) Whether a prosecution under Section 138 of the Negotiable Instruments Act, 1881 could be maintained against the directors when the company was not arraigned as an accused and no notice was issued to the company; (ii) Whether the cheque dishonour complaint was sustainable when the cheque did not represent a legally enforceable debt at the time of presentation.
Issue (i): Whether a prosecution under Section 138 of the Negotiable Instruments Act, 1881 could be maintained against the directors when the company was not arraigned as an accused and no notice was issued to the company.
Analysis: The complaint disclosed that the cheque had been issued in the name of the company, but the company itself was not made an accused and no statutory notice was served on it. The complaint also lacked specific averments showing how the petitioners were in charge of and responsible for the conduct of the business of the company. In such circumstances, the requirement of invoking vicarious liability under Section 141 was not satisfied.
Conclusion: The prosecution against the petitioners was not maintainable on this ground and the objection was accepted in favour of the petitioners.
Issue (ii): Whether the cheque dishonour complaint was sustainable when the cheque did not represent a legally enforceable debt at the time of presentation.
Analysis: The materials showed part-payments made by the petitioners before presentation of the cheque and before issuance of notice. On those facts, the cheque amount did not reflect the legally enforceable liability subsisting on the date of presentation. The offence under Section 138 is attracted only when the dishonoured cheque represents a legally enforceable debt on the relevant date.
Conclusion: The complaint was unsustainable on this ground as well and the finding was in favour of the petitioners.
Final Conclusion: The order taking cognizance and the subsequent proceedings were quashed as an abuse of process, with the criminal complaint under Section 138 failing on both maintainability and debt liability grounds.
Ratio Decidendi: For maintaining prosecution under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, the company must be arraigned as an accused and the complaint must contain specific averments showing responsibility for the conduct of its business; additionally, the dishonoured cheque must represent a legally enforceable debt on the date of presentation.
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