No criminal case arose on dishonour of blank cheque deposited a er 20 yrs in violation of agreement

Where a Managing Director, acting on behalf of the company issued a blank signed cheque as a security, he wasn’t liable for the dishonor of the cheque if he held no position whatsoever of the company when the cause of action in fact accrued.

Whenever a blank cheque or postdated cheque is issued, a trust is reposed that the cheque will be filled in or used according to the understanding or agreement between the parties. If there was a prima facie reason to believe that the said trust was not honoured, then the continuation of prosecution under Section 138 of the N.I. Act would be the abuse of the process of law. It was in the interest of justice that the parties in such cases are le to the civil remedy.

Facts:

a) A blank cheque was drawn by the Managing Director and Vice President of the company in favour of the complainant firm as a security in decade of 90s. Therea er, he ceased to be MD of the company with e ect from 13th April 2005.

b) The cheque was deposited a er filling up other details by the complainant on 25th March 2013. Meanwhile the entire management of the accused company got changed with e ect from 30th May 2005 and was taken over by the A.P. Moller Group upon purchase of the shares and execution of the Transfer Agreement.

c) The complainant, therea er, proceeded to file a complaint in the Court of the learned Chief Judicial Magistrate at Mahuva and, accordingly, a criminal case was registered against accused.

d) The Company and the Directors filed an application for quashing of the criminal proceedings initiated for the o ence punishable under Section 138 of the Negotiable Instruments Act.

The High Court of Gujarat held as under:

1)  Under the scheme of the N.I. Act, it is possible for the drawer of a cheque to give a blank cheque signed by him to the payee and consent either impliedly or expressly to the said cheque being filled up at a subsequent point in time and present the same for payment by the drawee.

2)  Where the accused had not drawn the cheque in question in his personal capacity, but in his capacity as a Managing Director of the company, It was not possible to contend that any cause of action had accrued against the drawer of the cheque, as the applicant held no position whatsoever of the company when the cause of action in fact accrued against the company.

3)  Whenever a blank cheque or postdated cheque is issued, a trust is reposed that the cheque will be filled in or used according to the understanding or agreement between the parties. If there was a prima facie reason to believe that the said trust was not honoured, then the continuation of prosecution under Section 138 of the N.I. Act would be the abuse of the  process of law. It was in the interest of justice that the parties in such cases are le to the civil remedy.- [2016] 70 taxmann.com 237 (Gujarat)