Tuesday, December 4, 2012

Even dishonour of cheque due to ‘signature mismatch’ would be violation of sec. 138: SC

In the instant case, the following issues came up for consideration before Supreme Court:

1) Whether section 138 of the Negotiable Instrument Act covers dishonour of cheques other than due to insufficiency of funds?

2) Whether section 138 covers dishonour of cheques on the ground that “signatures do not match with specimen signatures on records of bank”?

The Supreme Court held as under:

a) The expression “amount of money …………. is insufficient” appearing in Section138 of the Act is a genus. Dishonour for reasons such “as account closed”, “payment stopped”, “referred to the drawer” are only species of that genus;

b) Just as dishonour on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act;

c) If after issue of the cheque the drawer closes the account it must be presumed that the amount in the account was nil, hence, insufficient to meet the demand of the cheque;

d) A similar result can be brought about by the drawer changing his specimen signature given to the bank or in the case of a company changing the mandate of those authorized to sign the cheques on its behalf;

e) So long as the change is brought about with a view to prevent the cheque from being honoured the dishonour would become an offence under Section 138 subject to other conditions prescribed being satisfied.

Thus, it held that the dishonour due to signature mismatch would be covered by Sec. 138 of the Negotiable Instrument Act, and, thus, the trial Court could now proceed with the trial of the complaints filed by the appellants expeditiously - Laxmi Dyechem v. State of Gujarat [2012] 28 taxmann.com 1 (SC)

Subject matter to initiate winding-up proceedings isn't subordinate to pending arbitration on such matter

In the instant case, the petitioner-creditor was a NBFC. It granted credit facilities to a company. The agreement was backed up by the personal guarantees executed by two directors of the company.  The loan was partly secured by the company by pledging of a fixed deposit held in the name of the company in a bank. Cheques issued for repayment in three trenches were dishonored. In view of the huge unpaid dues, the petitioner filed winding up petition contending that the company was unable to pay its debts. Simultaneously, the petitioner invoked the arbitration clause contained in the agreement and applied to the Bombay High Court under section 9 of the Arbitration Act, 1996. The company contended that Court should exercise its discretion in not admitting the petition and should direct the petition to be stayed over till the arbitral reference between the parties would be concluded.

Deliberating on the issue, the High Court held as under:

1) The scope of an arbitral reference is altogether different from the scope of a creditor's winding up petition even though the claim in both actions may be founded on the same cause;

2) The initiation of an arbitral reference in respect of a claim, which is made the subject-matter of a creditor's winding up petition as well, will not operate as a bar on the winding-up proceedings;

3) Creditor's arbitration petition on a claim, and his simultaneous winding-up petition on the same claim could never been regarded as parallel proceedings;

4) The institution of a suit or an arbitral reference, in such a situation, makes no difference since the arbitral reference has to be initiated in place of a suit if the matrix contract on which the money is claimed is governed by an arbitration agreement.

In view of the above findings, it held that initiation of an arbitral reference in respect of a claim which is made subject-matter of a creditor's winding up petition would not operate as a bar on winding up proceedings - Maheshwary Ispat Ltd., In re [2012] 28 taxmann.com 4 (Calcutta)