Judgement Writing in Negotiable Case – DJS Style

Posted on February 10, 2026February 18, 2026 by Admin

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:

The company
X (Managing Director)
Y (Non-executive Director)

During trial:

The accused contended that the cheque was a security cheque
The company argued that the notice was not served
Y contended that he was not involved in day-to-day affairs
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

Whether dishonour of a security cheque attracts Section 138 NI Act
Whether notice returned as “unclaimed” amounts to valid service
Whether prosecution against directors is maintainable under Section 141
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

Sampelly Satyanarayana Rao v. IREDA (2016)
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

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:

In charge of, and
Responsible for conduct of business

Case-law

Aneeta Hada v. Godfather Travels (2012)
SMS Pharmaceuticals v. Neeta Bhalla (2005)

Application

Company is properly arraigned → complaint maintainable
Managing Director X is presumed liable
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

P. Mohanraj v. Shah Brothers (2021)

Application

Proceedings under Section 138:

Stayed against company
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