Section 138 of the Negotiable instruments Act

I had incorporated a company on March 4th with my co founder. Both of us are directors of the company. He decided to leave the company in pursuit of MS. He gave me his resignation from the board (I haven't processed it as I have been in Hyderabad since then. I told him I'd pay him his share of (incorporation costs+broker charges=12,000) and he'd resign. I gave him a post dated cheque. But I decided to not pursue business. So I stopped the cheque. He is still a director. Now he has sent a notice under Section 138 of the Negotiable instruments Act that I am liable for 12,000. Kindly advise.

Answers (1)

116 votes

From your explanation, I understand that it is a partnership firm and not a company. If you have given him a cheque, it would in ordinary circumstances mean that you owned him that amount and therefore to discharge your legal liability you have issued the cheque. Unless the circumstance is otherwise proved, you become liable for payment.

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