Novation and vicarious liability in cheque dishonour cases require clear substitution of contract and specific director averments.

Novation under Section 62 of the Indian Contract Act requires a clear, concluded substitution of the original contract by a new agreement; a mere proposal to restructure debt, subject to approval and payment of dues, does not by itself extinguish the existing legally enforceable liability. In that situation, the debt continues and dishonour complaints under Section 138 of the Negotiable Instruments Act remain maintainable. For vicarious liability under Section 141, the complaint must contain specific averments that the accused directors were in charge of and responsible for the company's business at the relevant time. Directors with pleaded involvement, including cheque-signing role, may be proceeded against, while a non-executive director lacking such averments is not similarly liable.

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Issues: (i) whether there was novation of contract under Section 62 of the Indian Contract Act, 1872 and consequent extinguishment of the legally enforceable debt or other liability so as to negate the complaints under Section 138 of the Negotiable Instruments Act; (ii) whether the complaints contained sufficient averments to fasten vicarious liability upon the individual directors under Section 141 of the Negotiable Instruments Act.

Issue (i): whether there was novation of contract under Section 62 of the Indian Contract Act, 1872 and consequent extinguishment of the legally enforceable debt or other liability so as to negate the complaints under Section 138 of the Negotiable Instruments Act

Analysis: The correspondence showed only a proposal by the borrower for conversion of bridge debt into term debt and a response by the lender that the proposal would merely be considered, subject to payment of outstanding dues and approval of the competent authority. There was no concluded agreement substituting the earlier arrangement, nor any clear offer and acceptance creating a new contract. Payment of overdue dues did not by itself extinguish the existing amended bridge loan arrangement or the liability secured by the post-dated cheques. The later reference to earlier notices becoming redundant was confined to past defaults and did not amount to novation.

Conclusion: No novation was made out, the legally enforceable debt continued, and the complaints under Section 138 of the Negotiable Instruments Act were maintainable.

Issue (ii): whether the complaints contained sufficient averments to fasten vicarious liability upon the individual directors under Section 141 of the Negotiable Instruments Act

Analysis: Section 141 requires averments showing that the accused directors were in charge of and responsible for the conduct of the business of the company at the relevant time, while a mere assertion of directorship is insufficient. The complaints contained the requisite assertions against the directors who were signatories to the cheques and described their role in the affairs of the company. In contrast, the non-executive director against whom no specific role or cheque-signing involvement was pleaded was not shown to be liable on the same footing.

Conclusion: The complaints were sufficient to proceed against the directors with pleaded involvement, but not against the non-executive director lacking specific averments; the petitions were therefore dismissed in part and allowed in part.

Final Conclusion: The challenge to the dishonour complaints failed on the issue of novation, while the challenge based on vicarious liability succeeded only in respect of the director against whom no adequate averments were made.

Ratio Decidendi: Novation under Section 62 requires a clear and concluded substitution of the original contract by a new one, and vicarious liability under Section 141 of the Negotiable Instruments Act arises only where the complaint contains specific averments showing the accused person's responsibility for the company's conduct of business.

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