{"id":268409,"date":"2022-06-15T10:00:15","date_gmt":"2022-06-15T04:30:15","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=268409"},"modified":"2022-06-15T10:10:32","modified_gmt":"2022-06-15T04:40:32","slug":"can-charges-under-s-138-of-ni-sustain-in-case-of-non-compliance-with-the-clauses-of-a-non-competing-agreement-tis-hazari-court-elucidates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/15\/can-charges-under-s-138-of-ni-sustain-in-case-of-non-compliance-with-the-clauses-of-a-non-competing-agreement-tis-hazari-court-elucidates\/","title":{"rendered":"Can charges under S. 138 of NI Act sustain in case of non-compliance with the clauses of a Non-competing Agreement? Tis Hazari Court elucidates"},"content":{"rendered":"

Tis Hazari Court, Delhi:<\/strong> While deciding the instant complaint filed under S. 138 of Negotiable Instruments Act, 1881, wherein the dispute revolved around the non-compliance of the clauses of Non-Competing Agreement (NCA) executed between the parties to the dispute; the accused company was acquitted from the charges levied under S. 138. Presiding over the matter, Devanshu Sajlan, D.J.S., while making detailed observations concerning S. 138 of NI Act and S. 27 of Contact Act and, held that the accused company has successfully raised a probable defence in its favour and the complainant has failed to prove his case beyond reasonable doubt.<\/p>\n

Facts of the Case: <\/strong>The accused company \u00a0and complainant \u00a0had signed into a Non-Competing Agreement (NCA) stating that a compensation of Rs. 3,80,00,000 was required to be paid in 120 equal installments of Rs. 3, 16, 666 each to the complainant \u00a0for agreeing to resign from the accused company under clause 4.1 of the NCA. In partial discharge of the aforesaid liability, the accused company issued the cheque(s) in question thus giving the complainant the right to proceed under section 138 of the NI Act in the event of dishonour of the said cheques.<\/p>\n

The parties \u00a0also signed a share purchase agreement (SPA) in violation of which both parties invoked arbitral proceedings, which they settled with a consent award which stated the requirement of furnishing fresh bank guarantee which would be considered valid till the payment of the last instalment. As a security for payment of monthly installments, cheques were given.<\/p>\n

The case revolved around the non-compliance of the clauses of NCA due to which the accused \u00a0is not obligated to make any payment and possess no legal liability towards the complainant. The case also concerns with the arbitral award give liberty to the complainant in order to explore its legal remedies under the NCA. It is filed to pursue the remedies given under NCA.<\/p>\n

The complainant further alleged that the present cheque(s) which were given to the complainant towards payment of the installment of the compensation contemplated under NCA, were returned dishonoured with remarks \u2018Funds insufficient\u2019. Thereafter, the complainant sent a legal demand notice to the accused persons, but the accused persons allegedly failed to pay the cheque amount and therefore, thus complainant was compelled to file the present complaint.<\/p>\n

Issues:<\/strong><\/p>\n

    \n
  1. Whether the accused had committed breach of consent award by not paying the cheque amount as agreed upon in the NCA?<\/li>\n
  2. Whether the liability has arisen if the requirements under S. 138 of NI Act are not met with?<\/li>\n
  3. Whether a post-dated cheque is for \u201cdischarge of debt or liability\u201d U\/S 138 of NI Act depends on the nature of the transaction?<\/li>\n
  4. Whether a mutually settled arbitral award demarcates the liability of payment signed under NCA?<\/li>\n<\/ol>\n

    Submissions: <\/strong>The submissions of the accused were centred around the second ingredient of S. 138 of NI Act<\/strong> i.e. \u201cThe cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability<\/em>\u201d.<\/p>\n

    \u00a0<\/strong><\/p>\n

    It was submitted that the cheque(s) were given as advance payment towards the monthly instalment amount pertaining to the total compensation under the non-compete agreement. The said cheque(s) were not issued in discharge of any existing\/ subsisting debt.<\/p>\n

    Accused contended that payments were made regularly to the complainant until the breach of terms of contract came to their notice. It was submitted that the accused had no liability to pay non-competing fees to the complainant \u00a0as he\u00a0 failed to \u00a0comply with statutory obligations.<\/p>\n

    It was further argued by the accused that since the complainant is being aptly compensated for not practicing the competing business, hence it cannot be said that NCA is in restraint of trade and is in violation of S.27 of Contract Act, 1872. It was also submitted that cheque(s) were suspended as advance payment constituting to total compensation procured under NCA.<\/p>\n

    \u00a0<\/strong><\/p>\n

    Meanwhile, the complainant submitted that there can be no challenge for the validity of the NCA since the arbitral consent award under NCA is legally enforceable. \u00a0It was also submitted to the court that since the legal liability of giving payment liquidates due to non-performance of NCA, it does not matter if the issued cheque was dated for advance payment of a liability debt.<\/p>\n

    Observations – <\/strong>Upon perusal of the contentions, the Court made the following salient observations:<\/p>\n