A proprietor firm "ABC Traders" continuously do's the business with a Private Limited Company. The "ABC Traders" gets credit upto 70 Lakh from the said Private Limited Company. Later point of stage the "ABC Traders" incurred loss and the bank account gets NPA, during the crisiss the proprietor firm gradually reduced the credit limit from 70 Lakh to 21 Lakh.

The proprietor firm receives the email from the said Private Limited Company, states that

We had countless discussions about the long pending credit issue of ABC Traders and you are asking some more time, each and every time. In all the discussions, you asked for a week’s time and not kept your words. We forced to believe that you are not showing any interest to clear the long pending credit. Now company decide to put the cheques for collection. We request you to clear the cheques by arrange the required funds and honor it.

The total outstanding amount for "ABC Traders" is 21,11,365/- we already gave the account statement for your information. We would like to clear the issue and continue our business with you smoothly. Hope you understand and settle the balance and help us to serve you better

The ABC Traders replied to the said email conversation, states that we are not in position to settle in one shot immediately, we will reduce the dues in each purchase transaction by paying extra amount approx 25K to 50K along with the invoice amount.

But the said Private Limited company deposited the cheque (Un-dated blank cheque) without getting confirmation. Also filed a case under section 200 Cr.P.C. for an offense under section 138 and 141 of the negotiable instrument act.

Note: The said private limited company did not get any confirmation regarding the payment and deposited the cheque which was given for security purpose at the time of inception of business.

What is the legal remedy for the ABC Traders to prove innocence ? Also the said case is maintainable ?

Location: Tamilnadu, INDIA.

2 Answers 2


If ABC Traders cannot settle it’s debts as an when they fall due then they are insolvent. Their correct course of action is to appoint an administrator to determine if they can trade out of the situation or should be liquidated. If they don’t, and they keep trading, the directors/managers of ABC Traders can be held personally liable for future debts incurred and may be committed an offence punishable by fines and/or imprisonment.

Private Limited Company is entitled to get its money on the terms it agreed with ABC Traders. It is free to agree to an extension of those terms but doesn’t have to. It can take any legal collection action it deems appropriate including using collection agencies or suing in court. Once it has a court judgement and if ABC Traders doesn’t pay, it can apply to have ABC wound up.

If ABC Traders sent a cheque, Private Limited Company is entitled to bank it.


ABC's Creditors are entitled to all legal remedies to recover money - If that's what you want to hear. The next Cheque (dated/undated cheque) is a minor issue.

It can always be contested that a cheque was given with the intention to repay creditors (or to make creditors believe that their s dues will be settled - winning their trust fraudulently). If ABC liquidates - Government appointed arbitrator could decide what creditor will get if at all (depending on what class/category they fall in)

No Legal remedy is available for ABC - you may also consider reading The Sales of Goods Act 1930 + Contract Law 1872 + Banking Laws Act 1965.

Even if ABC contested - They will lose - They will have to repay all debts or liquidate (depending on the Liability clause in Memorandum of association)

Creditors have rightfully submitted cheques in the bank (if they would not have done that it would have amounted to settling old contracts at whatever settlement was offered hence nulling any recovery prospects)

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