Summary
The Court refused to quash cheque-dishonour proceedings against company directors and its managing director. A cheque initially given as security could mature for presentation when electricity was supplied, payment became due and the company failed to discharge it. Section 138 is not confined to debt already outstanding when the cheque was handed over. The Magistrate’s consideration of the complaint, affidavit and supporting material met the inquiry requirement. Sufficient averments supported proceeding against the appellants, with their defences left for trial.
Issues
- Whether a cheque initially issued as security could attract Section 138 after liability arose from supplies made under the commercial arrangement.
- Whether the Magistrate complied with the inquiry requirement for accused residing outside territorial jurisdiction.
- Whether the complaint sufficiently alleged the appellants’ responsibility under Section 141.
Provisions considered
- Section 138 and Explanation, Negotiable Instruments Act, 1881An enforceable liability arising after a security cheque is issued but before its presentation can bring dishonour within the provision. (¶¶ 18, 25, 26, 27, 30)
- Section 202, Code of Criminal Procedure, 1973Inquiry or investigation before process is mandatory where the accused resides outside the Magistrate’s jurisdiction; its permissible form was assessed in the context of cheque complaints. (¶¶ 31, 32, 33, 37, 38, 39, 40)
- Section 141, Negotiable Instruments Act, 1881The complaint sufficiently alleged that the appellants were responsible for the company’s business; statutory defences remained available at trial. (¶¶ 41, 42, 43, 44)
Held
- A security label does not prevent a cheque from meeting a legally enforceable liability once the underlying transaction has fructified. Here electricity was supplied and consumed. If satisfactory letters of credit did not discharge the resulting dues, the security cheque could mature for presentation. This differed from a cancelled purchase transaction in which no debt arose. (¶¶ 23, 24, 25, 26, 27, 30)
- A security cheque cannot be presented before the secured payment falls due, or after the liability has been discharged. There is no universal rule that such a cheque can never be presented. Disputed questions concerning liability and the contractual defences require evidence at trial. (¶¶ 27, 28, 29, 30)
- The mandatory Section 202 inquiry cannot be dispensed with for accused residing outside jurisdiction. In Section 138 proceedings it may proceed on affidavits and, in suitable cases, documents without compulsory oral examination of witnesses. The Magistrate considered the complaint, affidavit, evidence list and submissions; the order did not show non-application of mind. (¶¶ 32, 33, 37, 38, 39, 40)
- Issuing process requires sufficient ground to proceed, rather than evidence sufficient to convict. Section 141 does not impose liability merely for holding any directorship; it addresses responsibility for business at the relevant time, with the recognised position of managing directors. The complaint’s averments made out a prima facie case against these appellants, whose statutory defences were for trial. (¶¶ 40, 41, 42, 43, 44, 45)
Result
Appeals dismissed. Refusal to quash the complaint and summons was upheld; the appellants’ defences remained for trial and pending applications were disposed of.