Section 138
Querist :
Anonymous
(Querist) 20 February 2010
This query is : Resolved
A and B were working on a business deal that did not finally materialise. As part of the deal both A and B had shared blank cheques with each other as security. After the deal fell through, A filled one of the blank cheques with an amount of 30 lakhs and presented it to the bank. The cheque got bounced and now A has filed a case under section 138. B is still in possession of the blank cheques provided by A. What should B do now to prove innocence?
Parveen Kr. Aggarwal
(Expert) 20 February 2010
The query is ambiguous and lacks some material particulars.
Whether there was any writing regarding the business dead?
Whether exchange of blank cheques was recorded in any document?
What was the nature of business deal which constrained both of them to exchange blank cheques?
Why the cheques were not returned to the respective drawer after the deal fell through?
Whether notice was served by A upon B before filing complaint under section 138 of the N. I. Act?
In the absence of all the particulars, proper reply is very difficult.
Querist :
Anonymous
(Querist) 20 February 2010
Parveen - thank you for your reply. Here are the answers:
A and B were friends and a company was formed in partership for a resort project. B provided the cheque to A towards the payment of B's share in the project. The project could not be executed since a portion of the land required was not available. B in the meantime was working on a separate project independently. As the resort project was not progressing, B told A that he was investing his money elsewhere and asked A to destroy the cheque. A agreed but did not do so. B did not take the cheque back or issue stop payment instructions to the bank. There is no written record of B withdrawing from the project either. B presented the cheque over 4 months after this incident.
Yes B did serve a notice to A. But A does not live in India any more and was unable to respond.
I would appreciate your guidance.
Querist :
Anonymous
(Querist) 20 February 2010
Sorry I think I got A and B mixed up in my response above. Here is the corrected version:
A and B were friends and a company was formed in partership for a resort project. B provided the cheque to A towards the payment of B's share in the project. The project could not be executed since a portion of the land required was not available. B in the meantime was working on a separate project independently. As the resort project was not progressing, B told A that he was investing his money elsewhere and asked A to destroy the cheque. A agreed but did not do so. B did not take the cheque back or issue stop payment instructions to the bank. There is no written record of B withdrawing from the project either. A presented the cheque over 4 months after this incident.
Yes A did serve a notice to B. But B does not live in India and has been unable to respond/ appear in court.
I would appreciate your guidance.
Srinivas.B.S.S.T
(Expert) 20 February 2010
If a Cheque issued in discharge of "LEGALLY ENFORCEABLE DEBT" is dishonoured then the proviso of NI Act comes into action. In this present case i don'f find any legally enforceable debt on the part of B. Is it mentioned in the partnership deed that B is issuing the subject cheque towards payment of his share?. However go through the following judgment, wherein it was held that a cheque issued in the course of business and its dishonour would not attract offence under Section 138 of NI Act.
Kumar VS bapsns footwear (1995) 83 Comp. Cas 172 (mad)
Guest
(Expert) 20 February 2010
i think there no debt or other liabilty arose. mandatory requirements of section 138 ni act not fulfill. i do agree with Mr Srinivas.
B K Raghavendra Rao
(Expert) 20 February 2010
Even though the firm did not do business it might have incurred some expenses. That expenses should be shared between A and B. To the extent of this, B becomes liable to pay to A. This is legal liability.
If the cheque is drawn by A for even one rupee more than this share, A cannot file cheque bounce case under Section 138. Otherwise, B is liable legally and A can file complaint under 138.
Arvind Singh Chauhan
(Expert) 20 February 2010
COMMERCIALLY-
B also should deposit the cheque issued by A to bank, If it is cashed he can compensate to A, if it is bounced B can isue notice under NI Act. By this way both party may come in to compromising situation. . TIT FOR TAT.
NOTE- It is not a legal advice but is advice of a general man.
Querist :
Anonymous
(Querist) 20 February 2010
A big thank you to everyone for all responses so far.
B till today continues to be a partner in the company they formed initially. Since B does not live in India, could A continue to show expenses and make B liable for them? What is your advice for B for the following:
1. Approach to respond to the case
2. Partnership - should this be resolved effective immediate?
Adinath@Avinash Patil
(Expert) 22 February 2010
THERE IS NO EXISTING LEGALLY ENFORCIABLE DEBT OR LIABILITY, N.I. ACT SECT 138 IS NOT ATTRACTED.
