Source: Delhi High Court

Why in News?

Recently, the High Court of Delhi in the case of Newton Engineering and Chemicals Limited and Ors v. Uem India Pvt Ltd., held that the arbitration proceedings and proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) arise from separate causes of action and pendency of one does not affect the other.

What was the Background of Newton Engineering and Chemicals Limited and Ors v. Uem India Pvt Ltd. Case?

• The Memorandum of Understanding (MoU) dated 19^th June 2014 was signed between the petitioners and the respondent company.
• The respondent company was to participate as a technical collaborator and provide its expertise to the petitioner.
• A post-dated cheque date was given by the petitioners to the respondent company.
• The petitioners vide e-mail asked the respondent company not to deposit the aforesaid cheque. However, the respondent company deposited the said cheque.
• Since the aforesaid cheque was dishonored, a complaint under Section 138 of the NI Act was filed by the respondent company in which summons were issued to the petitioners by the learned Magistrate.
• Thereafter the petition was filed seeking quashing of complaint under Section 138 of the NI Act before the Delhi High Court which was later dismissed.

What were the Court’s Observations?

• Justice Amit Bansal observed that the arbitration proceedings and proceedings under Section 138 of the NI Act arise from separate causes of action and pendency of one does not affect the other.
• The Court further held that there is no merit in the contention of the petitioners that the complaint under Section 138 of the NI Act is not maintainable in view of the ongoing arbitration proceedings between the parties.

What is Section 138 of the NI Act?

• This Section deals with the dishonor of cheque for insufficiency, etc., of funds in the account. It states that —

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation. - For the purposes of this section, debt or other liability means a legally enforceable debt or other liability.