LEGAL DIGEST

A sick company that makes huge orders and issues cheques to the seller with no real intention to pay must stand criminal trial under Section 138 of the Negotiable Instruments Act, the Supreme Court stated in the case, Southern Steel Ltd vs Jindal Vijayanagar Steel Ltd.
In this case, the directors were well aware that it was declared sick under the Sick Industrial Companies Act when they issued cheques. But when the cheques were dishonoured, and Jindal initiated criminal proceedings, Southern pleaded that it was a sick company and therefore, the proceedings should be dropped. The Karnataka High Court dismissed its petition.
The Supreme Court also dismissed its appeal observing that "Southern Steel is not entitled to any indulgence of this court. It had lost their total credibility because of their conduct. When it was declared sick, without disclosing this fact, it ought not to have made huge purchases from Jindal. Ultimately, Southern did not pay for the purchases. This clearly indicates that it had no intention of making payment of the purchases made by it." The trial court was asked to speed up the criminal trial and conclude it within six months.
BS Reporter / New Delhi June 16, 2008, 5:47 IST
www.business-standard.com