CASE STUDY QUESTION (DJS STYLE)
A, a private limited company, through its Managing Director X, obtained a loan of ₹50 lakhs from B on 10 January 2023 for business expansion. At the time of execution of the loan agreement, X issued three post-dated cheques of ₹10 lakhs each, stating that the cheques were issued as “security”.
On the date of maturity, B presented one cheque, which was dishonoured with the remark “payment stopped by drawer”.
B issued a legal demand notice within the statutory period, which was returned with the endorsement “unclaimed”. No payment was made thereafter.
B filed a complaint under Section 138 NI Act against:
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The company
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X (Managing Director)
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Y (Non-executive Director)
During trial:
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The accused contended that the cheque was a security cheque
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The company argued that the notice was not served
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Y contended that he was not involved in day-to-day affairs
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During pendency of proceedings, the company entered IBC moratorium
Decide the maintainability of the complaint and liability of the accused.
✍️ MODEL ANSWER (DELHI JUDICIARY STANDARD)
ISSUES FOR DETERMINATION
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Whether dishonour of a security cheque attracts Section 138 NI Act
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Whether notice returned as “unclaimed” amounts to valid service
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Whether prosecution against directors is maintainable under Section 141
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Effect of IBC moratorium on Section 138 proceedings
ISSUE 1: SECURITY CHEQUE
Law
Section 138 applies if the cheque is issued towards a legally enforceable debt or liability.
Case-law
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Sampelly Satyanarayana Rao v. IREDA (2016)
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Sripati Singh v. State of Jharkhand (2021)
Application
Merely describing a cheque as “security” does not exclude Section 138.
If on the date of presentation, liability had crystallized, Section 138 is attracted.
Finding
The cheque attracts Section 138 NI Act.
ISSUE 2: SERVICE OF NOTICE
Law
Notice under Section 138(b) is mandatory; however, actual receipt is not essential.
Case-law
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C.C. Alavi Haji v. Palapetty Muhammed (2007)
Application
Notice was sent to the correct address and returned “unclaimed”. This amounts to deemed service.
Finding
Statutory requirement of notice is satisfied.
ISSUE 3: LIABILITY OF DIRECTORS
Law
Under Section 141, vicarious liability arises only if the person was:
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In charge of, and
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Responsible for conduct of business
Case-law
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Aneeta Hada v. Godfather Travels (2012)
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SMS Pharmaceuticals v. Neeta Bhalla (2005)
Application
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Company is properly arraigned → complaint maintainable
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Managing Director X is presumed liable
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No specific averment against Y regarding role in business
Finding
Proceedings maintainable against company and X; liable to be quashed against Y.
ISSUE 4: EFFECT OF IBC MORATORIUM
Law
Section 14 IBC imposes moratorium on proceedings against corporate debtor.
Case-law
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P. Mohanraj v. Shah Brothers (2021)
Application
Proceedings under Section 138:
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Stayed against company
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Can continue against directors personally
Finding
Proceedings against company stayed; against X can continue.
🧑⚖️ FINAL CONCLUSION
✔️ Complaint under Section 138 is maintainable
✔️ Cheque dishonour attracts Section 138
✔️ Deemed service of notice is valid
✔️ Proceedings against Managing Director X can continue
✔️ Proceedings against non-executive director Y are not maintainable
✔️ Proceedings against company stayed during IBC moratorium
🔑 WHY THIS SCORES HIGH IN DELHI MAINS
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Clear Issue–Rule–Application–Conclusion
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Correct use of latest Supreme Court judgments
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Balanced reasoning (not complainant-biased