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S. Fernandes (Entreprenure)     19 August 2009

sec 138 NI

While surfing on the above subject, I found at the site given below a SC ruling posted on 23.june.2008, please have a look and respond.



The court stated so in the case, Lalit Kumar vs State of Uttar Pradesh. Earlier, two cheques were issued by the directors of a company and they were prosecuted. Meanwhile, there was a settlement under which Rs 5 lakh was to be paid to the creditor. However, this cheque also bounced, leading to another prosecution.

The Allahabad High Court rejected their plea to quash the proceedings. But on appeal, the Supreme Court stated that the latter cheque was issued in terms of a compromise agreement and not to satisfy any debt or payment due. Therefore, the second instance would not invite prosecution under Section 138. The high court judgment was set aside.


This poses some some questions to my mind. 

1) Is not every sale a compromise, between seller and buyer based on their respective perception of supply and demand at the time of sale??  

If yes, than it appears to me that I cannot seek recourse u/s 138 NI act, as this authority will give my customer relief. I have sold a flat for Rs. 10 lakhs, the flat is transfered to his name, He has paid me by cheque, which he has asked me to place 30 days from now.  

Iam also a creditor to a company in my home town, by virtue of some supplies, this debtor is unable to pay me so I was in negotiations with him, looking to writeoff some of that which he owes me, and recover the rest, but in light of this rulling, if I writeoff any part of that amount, than, would it be right for me to say that if hepays the ballance amount by cheque, which let us assume bounces, I will have no recourse under this section, as it  will no longer be legally classified as a debt. So how am I to work something like this out, I am confused, Please help???


Eric Cordeiro


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