Case under ni-138

Please read Para 25 ..........  first, whether a cheque, crossed 'A/C Payee only', that is 'Account Payee only', is a negotiable instrument; second, whether, even apart from that, a suit on such a cheque may be brought as a summary suit under Order XXXVII of the Code; and, third whether such a suit is triable or entertainable by the local City Civil Court. As, in our view, whatever be the answer to the first part, the second and the third must be answered in the affirmative, the instant Rule is bound to fail ........ 

Hence, answer for the first part is uncertain or unconcluded. Further, the judicial view is that 'account payee' is irrelevent and on account of which negotiation cannot be stopped. As such, why to use the cheque (NI) as an embarrassing document (Judicial view)? When account payee marking does not hinder negotiation (Judicial view), why bankers refuse to accept it for further negotiation?  Which NI provision enables to curtail the negotiation right of the payee/holder? Is it not an obligation by the drawer on the payee to open an account? Is there any cheque (NI) without bearer or order? ........? The questions may become an allongue. Anyway to conclude this, somebody should present my views before the court of law.

So, you agree that the court settled the issue that even if the cheque is marked Account payee or payee's account...the suit can be filed.

S.138 also talks of dishonor of the cheque issued to clear the liability, just because it is marked payee's account, it does not become a 'no cheque', it is still a cheque. Conditional cheque is defined in S.46 of the NI Act. But as I said earlier marking a cheque 'Payees account' does not make it conditional in general understanding, moreover the payee can always say that he deposited the cheque for credit to his account only and it has bounced so he met the condition.

Your point may have some weightage, if the payee transfers the cheque, to a third party (holder in due course for consideration), in that case drawer can take this defense, but this woudl rarely happen. In fact as per prevalent practice the third party will not accept such cheque. 

Since you have thought so deeply, I give you another point which may appear forceful..

1. S.46 Defines delivery and Date of Drawn.

2. S.118 provides rebuttability of date of drawn.

3. S.138 says that this is applicable only if cheque is bounced within 6 months of date of drawn.

4. S.68 of the Indian Stamp act also talks of date of drawn and a joint reading with S.46 of NI Act will confirm that date of delivery is the date of drawn.

Now the point is what about cheques wherein complainant admits that the cheque was given undated (6 months before the date of dishonor), what about PDCs if it can be proved that such cheques were given 6 months before the date of drawn..(Order on PDC by Supreme Court is illegal and without considering S.68 of the Indian Stamp Act).

The law is vert clear S.138 is applicable only of date of drawn is within 6 months of date of dishonor........courts are goofing up.

Mr. Trivedi. Let me confine only to the topic on hand. Now, it is a well settled proposition of law that any strange crossing being not mentioned in the law has no significance and has validated for third party negotiation. Considering the fact, why bankers refuse to accept account payee (strange crossing) cheques to accounts other than named payee? Why the named payee is deprived of his right to negotiate and compelled to open a bank account? When such cheques are not at all accepted for third party (holder/endorsee) negotiation by the banker, the reason for refusal / dishonour must be not "insufficient funds"; how such reasons take shelter under Sec. 138. Please explain any supporting provisions of law OR If it is only in practice, whether such practice prevails over law?

An apt analysis may solve the issue. I am still with the view that standing instructions to transfer funds from one specific account to another specific account are being practiced through a cheque format by wording account payee. Thus, the practice is none other than an abuse of NI and NI Act.

First lets understand, what you are trying to say.... 1. You are saying that such cheques (with account payee crossed) are depriving payee to transfer it further and what if payee does not have an account ?

2. You are also saying in the same tone that such cheques are conditional and hence no NI Act..

So lets take the first point, let the payee transfer with endorsement to a third party (if that party is a willing acceptor), this third party will deposit this cheque in his account and the cheque will get dishonored/stopped by the third party Bank itself (it wont even come to the drawer bank). Please understand the centralized clearing does not have names of part A or party B, its a blind (sort of) money transefer through RBI, the clearing guy at central hub will not know the nitty grity, it is done at the branch level. So if payee is XYZ with crossed account payee, then another guy with ABC cannot deposit and the cheque will never reach the drawer Bank. So drawer is safe. Now under such circumstances ABC can approach the court and say that there is no provision in NI Act for such cheques so he can file a suit against Bank or a cheating case against XYZ if he refuses to pay. So to save on all these nonsense ABC will not accept the cheque itself. That makes your question more of academic. 

Now coming to the point #2, this does not make the cheque conditional, the purpose of the cheque is money transfer to clear the liability arising out of something.....By making it crossed payee no kind of contract condition is being put, as I said it is for the convenience and safety only..and payee is fully aware of this while accepting it. So if he deposits in his account and if it bounces, drawer cannot take this defense....but if payee transfers it to a thord party as detailed in pt#1 above, then it becomes academic..

Hope its clear...

I would like to bring to the notice of hon. members the following howler:

In a 138 case, the complainant averred that I am the managing director of the company and I have been authorized to file this complaint.  But no resolution was attached.

2. After his death, the son A.B.C. submitted the following resolution on 7/1/2012 for substitution:

Extracts of the Resolutions 'passed in the Board Meeting of the ---------------

held on Monday, the 22/8/2011 AT 10,30 A.M. AT THE REGD OFFICE -----------

ORDINARY RESOLUTIONS

"RESOLVED THAT due to the sudden demise of ___________, Director of the company, she ceased to be a Director of the Company with immediate effect. The Board expressed their deep concern and put on records their appreciation for the invaluable services rendered by ------------during her tenure of Directorship."

"RESOLVED FURTHER that _______________ the Director of the Company be and is hereby authorized to file the necessary Form 32 with the Registrar of Companies, for cessation of --------------

"RESOLVED FURTHER that --------------- and ------------- Directors of ------------------ be and hereby are authorized to operate the bank account of ---------------- held with ----------  Bank,

Further they will have the rights to receive Cheque(s), Demand draft(s) etc. and also make payment by issuing Cheque(s), Demand draft(s) or to withdraw cash etc. on behalf of the company, ______________ to conduct the business affairs of the company in a smooth and efficient manner."

"RESOLVED THAT _______________ and ___________________Directors of the company on behalf of the company be and are hereby authorized for and on behalf of the company to do all such acts, deeds and things as may be required to give effect to the aforesaid resolutions"

This resolution nowhere specified that the son A.B.C. was authorized to represent the company in relevant court case.

The accused moved an application before the court objecting to the substitution as it was against parameters laid down by Bombay High Court in Entertainment Society of Goa vs Ritza Wine Pvt. Ltd. and was not maintainable in the absence of specific resolution in favour of A.B.C. To the horror of accused, the complainant moved another application on 15/03/2013 and submittred another resolution for SUBSTITUION OF A.B.C. which too was alleged to have been passed exactly at the same time, same date and same place i.e. 10.30 a.m. on 22/08/2011 at its regd office (15 months after moving the first substitution application and said Quote

That the complainnt after the death of managing director ______ passed resolution authorizing Mr. A.B.C. who is a directore of ________ to supervise the proceedings in the Hon. Court. [SUPERVISE THE PROCEEDINGA IN THE COURT IS HORRIFIC PRAYER. Since when the complainants have been authorized to supervise proceedings in the courts? So now this complainant will direct or oversee the performance of courts.] It is prayed that Hon. Court accept the relevant resolution passed by the company and A.B.C. be substituted as the representative of the company. Unquote

The second resolution reads as follows:

Extracts of the Resolutions passed in the Board Meeting of the Directors of __________________ on Monday, the 22nd of August 2011 at the Registered Office of the Company at _____________ at 10:30 AM :

CESSATION AS DIRECTOR

"RESOLVED THAT due to the sudden demise of _____________ Director of the company, she ceased to be a Director of the Company with immediate effect. The Board expressed their deep concern and put on records their appreciation for the invaluable services rendered by ________________ during her tenure of Directorship."

"RESOLVED FURTHER that _______________ the Director of the Company be and is hereby authorized to file the necessary Form 32 with the Registrar of Companies, for cessation of ______________".

CONDUCTING BUSINESS AFFAIRS OF THE COMPANY AND OPERATING BANK ACCOUNT

"RESOLVED THAT Mr. A.B.C. and X.Y.Z.  Directors of the Company be and are hereby entrusted with substantial powers of management and affairs of the Company and are authorized to do following acts, deeds and things as may be required:

1.   To Manage and conduct day to day business operation of the Company.

2.   To sign, submit all types of statutory forms, applications, declarations, notices, returns, statements, certificates and all other statutory compliances etc in relation to Business of the Company to the appropriate authorities across India and abroad.

3.   To appear for and to represent the Company before appropriate authorities in relation to Business of the Company across India and abroad.

4.   To receive summons, notices etc and to sign, submit and verify various statements, applications, affidavit, declarations, undertakings, and other requisite documents whatsoever and file them in any Court, Tribunal, in connection with operational convenience and effective management of Business of the Company in India and abroad.

5.   To engage Advocates, Chartered Accountants, Company Secretaries for this purpose.

6.   To delegate to any subordinate or outside party, the power to collect all types of statutory forms, any papers, cheques, demand drafts, etc. from any person, bank or any regulatory/statutory authorities, ministerial offices in India and abroad.

7    And generally to do and execute all such acts, deeds and things as they may think fit or necessary and/or incidental in case of legal proceedings by or against the Company.

and to delegate, sub-delegate the powers to such other person/s and to vary the powers conferred on such other person/s from time to time and to do all such acts, deeds, sign documents, issue instructions as are necessary to conduct the business affairs of the Company in an efficient manner.

"RESOLVED FURTHER that Mr. A.B.C. and X.Y.Z. Directors of the Company be and are hereby authorized to operate the bank account number __________

RESOLVED FURTHER that Mr. A.B.C. and X.Y.Z.  Directors of the Company be given individual and unlimited signing authority to conduct and operate the account in order to facilitate business transactions and that the account be operated by "either or-survivor" signing rule.

RESOLVED FURTHER that Mr. A.B.C. and X.Y.Z. Directors of the Company be and are hereby authorized to receive Cheque(s), Demand draft(s) etc. and also make payment by issuing Cheque(s), Demand draft(s) orto withdraw cash etc. on behalf OF THE COMPANY _____________ and to conduct the business affairs of the company in a smooth and efficient manner."

"RESOLVED FURTHER that Mr. A.B.C. and X.Y.Z., Directors of the company be and are hereby authorize to represent the Company individually or jointly in all the matters relating to the Company and to do all such acts, deeds and things as may be required to give effect to the aforesaid resolutions and to give a signed certified copy of this resolutions to any Authority/Parties as may be concerned.

This socalled resolution too does not authorize Mr. A.B.C. to represent the company in a court of law. Mr. A.B.C. and X.Y.Z. have been authorized only to give effect to the aforesaid resolutions.

It IS NOT ENOUGH. ONE OR TWO RESOLUTIONS ARE IMMATERIAL. A.B.C. has been allowed to be substituted without a valid resolution despite objection of the accused.

GLORY TO JUDICIARY.

Is another resolution of company required for REFILING following transfer of 138 case as per Ordinance

Is another resolution of company required for REFILING following transfer of 138 case as per Ordinance