Proceedings under Section 138 of the NI Act would lie only on any Enforceable Debt: Gujarat High Court [Read Order]

The Gujarat High Court has held that proceedings under Section 138 of the NI Act would lie only in respect of any Enforceable Debt.

The applicant, S.M.Smith and Son is a Company registered under the Companies Act, 1956 and is engaged in the business of production of Grey Cast Iron and Nodular Iron (Ductile Iron) castings weighing from 5 Kgs to 150 Kgs and is also a supplier of fully finished parts to Original Equipment Manufacturers since the year 1956.

The factory premises of applicant Company is located at Nadiad and it employs around 1500 workers. The respondent No.2 herein is a Partnership Firm registered under the provisions of the Indian Partnership Act and is engaged in the business of manufacture of Casting Parts. It also accepts orders and manufacturers casting parts as per requirements of different customers.

In the present case also, evidently, the cheque in question was given as ‘security’ and not in respect of any ‘enforceable debt’, which the applicant No.1-Company was required to pay to the respondent-complainant. In paragraph-1 of the complaint filed under Section 138 of the NI Act, the respondent-complainant itself has stated that the cheque in question has been given in view of the compromise arrived at between the parties. Thus, as per the admission of the complainant also, the cheque in question was not issued in respect of any ‘enforceable debt’, which the applicant No.1- Company was required to pay to the respondent-complainant. Considering the aforesaid factual aspects and in view of the principle laid down in Lalit Kumar Sharma’s case, the impugned proceedings initiated under the provisions of the NI Act deserves to be quashed and set aside.

The single bench of Justice Gita Gopi has held that the impugned order dated 18.11.2019 passed by the Court of learned 13th Additional Chief Judicial Magistrate, Rajkot below Exhibit-1 in Criminal Case No.16873 of 2019 as also the complaint filed by respondent No.2 under section 138 of the NI Act being Criminal Case No.16873 of 2019 are quashed and set aside. Rule is made absolute. In view of the above order, both the civil applications stand disposed of.

“After the judgement was pronounced, learned advocate Mr. Nilesh Pandya for the respondent-complainant requested to stay the operation of this judgement for a period of six weeks in order to approach the higher forum. The said request is accepted and hence, the operation of this judgement shall remain stayed for a period of six weeks from today. It is clarified that after the expiry of the above period, this judgement shall come into operation or shall remain subject to the orders that may be passed by the higher forum,” the court observed.

C.M. SMITH AND SONS. LTD THROUGH DEINESH MOHANLAL PANCHAL vs STATE OF GUJARAT

CITATION: 2022 TAXSCAN (HC) 161

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.