If financial institution takes repossession of vehicle hire-purchase agreement stands determined ipso facto-case u/s 138 is not maintainable

•  I am of the opinion that
  the hire-purchase agreement entered into between the
  Petitioner and the Respondent gets determined ipso facto.
  (10)
  Section 138 of the N.I. Act treats dishonoured
  cheque as an offence, if the cheque has been issued in
  discharge of any debt or other liability. The Explanation
  leaves no manner of doubt that to attract an offence
  under Section 138, there should be legally enforceable
  debt or other liability subsisting on the date of drawal of
  the cheque. The very fact that the Respondent has taken
  repossession of the vehicle and has also sold the said
  vehicle and the sale value of the said vehicle has also
  been adjusted for meeting the loan repayment, the
  agreement on the basis of which the postdated cheques
  were issued cannot be put for clearance for the reason
  that the Respondent by virtue of the two acts on their
  part; firstly, of taking possession of the vehicle and,
  secondly, of sale/auctioning the said vehicle, stood
  determined. Therefore, the cheques which have been
  subsequently put for clearance and got dishonoured
  would not fall within the ambit of legally enforceable debt
  or other liability.

HIGH COURT OF CHHATTISGARH AT BILASPUR
Cr.M.P. NO. 128 OF 2014

Rajkumar Sharma
VERSUS

Shriram Finance Co. Ltd.
PETITION UNDER SECTION 482 OF THE
CODE OF CRIMINAL PROCEDURE, 1973

(Single Bench : Hon'ble Mr. P. Sam Koshy, J.)

(07-08-2014)

With the consent of the learned counsel for both the
sides, heard the matter finally at motion stage itself.
(2)
of
By way of the instant Petition under Section 482
CrPC,
the
Petitioner
intends
to
challenge
the
proceedings initiated under Section 138 of the Negotiable
Instruments Act (hereinafter referred to as “the N.I. Act”)
by the Respondent-Complainant against the Petitioner
through Complaint Case No.246/2008 filed before the
Court of Chief Judicial Magistrate, Korba.
(3)
Facts leading to the instant case are that the
Petitioner had entered into a hire-purchase agreement
with the Respondent and had obtained loan for the
purchase of a Truck and, subsequently, the Petitioner
had purchased a Truck, bearing Registration No.CG04-
JA/2383.

As per the said agreement, the Petitioner had to
make installments, and by way of security the Petitioner
had also given postdated cheques in the form of security
to the Respondent so that the same could be utilized by
the Respondent in the event if the Petitioner defaults in
paying the monthly installments.
That,
in
the
month
of
January'
2008,
the
Respondent on account of an alleged default on the part
of the Petitioner in paying the installments, suddenly
without
any
intimation/notice,
forcefully
seized
the
vehicle which was in the possession of the Petitioner and
neither did the Respondent give any intimation of the
seizure of the vehicle to the Petitioner. Further it is also
suggested and learnt from the letter issued by the
Respondent that the Respondent has also further sold the
said vehicle and have realized the sale value of the said
vehicle towards meeting the loan repayment. Thereafter, it
is learnt that the Respondent have filled up the cheque
bearing No.016252 drawn on UTI Bank, Korba, in favour
of the Respondent and have presented the said cheque for
clearance to its account in Oriental Bank of Commerce,
Korba, on 12.2.2008. The said cheque was returned back
with reasons assigned as “insufficiency of funds”.
Thereafter, the Respondent in a typical arm-twisting
method of a financial institution initiated proceedings
under Section 138 of the N.I. Act against the Petitioner.
The said complaint case was filed before the Court of
Chief Judicial Magistrate, Korba, which was registered as
Complaint Case No.246/2008. It is this registration of the
said complaint case under Section 138 of the N.I. Act,
which has been challenged by the Petitioner by way of the
instant Petition under Section 482 of CrPC seeking for
quashment of the said complaint case.
(4)
Learned Counsel for the Petitioner submits that
the complaint of the Respondent itself is not maintainable
for the reason that the parties to the dispute i.e. the
Respondent and the Petitioner, have entered into a hire-
purchase
agreement
and
the
said
hire-purchase
agreement stands automatically terminated the moment
the vehicle, for which the hire-purchase agreement was
entered into, was forcefully seized by the Respondent and
the
moment
the
hire-purchase
agreement
stands
terminated, the Respondent would not be entitled to sue
the Petitioner under the provisions of the N.I. Act.
A cheque issued as a security put to clearance after
termination of the agreement is perhaps not permissible
under the eye of law nor can the said presentation of the
cheque for clearance be said to be in connection with a
live transaction as the contract between the two parties
had come to an end.
Learned
Counsel
for
the
Petitioner
further
submits that the initiation of the complaint case under
Section 138 of the N.I. Act itself is malicious and is
nothing but an abuse of process of law on account of the
fact that the Respondent has not filed the said complaint
case with clean hands inasmuch as in the said complaint
case itself the Respondent has not disclosed the fact to
the Court below in respect of the Respondent having
forcefully seized the vehicle and also suppressed the
material fact about the said vehicle having been sold and
sale proceeds also having been realized against the
consideration received on account of the loan amount.

It is also submitted by the learned Counsel for
the Petitioner that once when the vehicle has been
forcefully repossessed by the Respondent and that
subsequently the vehicle also having been sold and this
fact having been suppressed from the Court below at the
time of registration of the said complaint case itself
vitiates the entire trial proceedings and for the said
reason the learned Counsel for the Petitioner prays for the
quashing of the said complaint case itself as the same is
not maintainable.
(5)
Per contra, learned counsel for the Respondent
submits that the proceedings under Section 138 of the
N.I. Act has nothing to do with the seizure of the vehicle
by the Respondent or recovering the sale proceeds of the
vehicle after seizure of the same. According to the learned
Counsel for the Respondent, all that is required under the
proceedings of Section 138 of the N.I. Act is the fact that
the accused has given a cheque towards discharge of his
liabilities and when the said cheque towards discharge of
the liability is presented for clearance, the cheque is
dishonoured assigning the reason of “insufficiency of
funds”.
As per the learned Counsel for the Respondent, in
the instant case also admittedly the Petitioner had given a
cheque to the Respondent for using the same towards
encashment of their unpaid liabilities and that for the
said encashment of the unpaid liability, the Respondent
had put the cheque for clearance which got dishonoured
for insufficiency of funds and as such the complaint case
cannot be said to be malicious or is vitiated on any of the
technicalities.

In response to the submissions of the learned
Counsel for the Petitioner in respect of the said complaint
case not being maintainable on account of the fact that
the vehicle has already been seized prior to the filing of
the complaint case and that the vehicle also has been
sold and the sale proceeds have been recovered, learned
Counsel for the Respondent submits that the Respondent
has only put the cheque in respect of the amount which
now stands outstanding against the Petitioner as unpaid
loan, that is to say the difference of the entire loan
amount after adjusting the amount recovered by way of
sale proceeds of the vehicle and, therefore, it cannot be
said to be either illegal or not maintainable.
For all these reasons, learned Counsel for the
Respondent submits that the instant Petition under
Section 482 of CrPC being devoid of merits is liable to be
rejected.
(6)
Having considered the rival contentions advanced
by either side, it is necessary to refer to a couple of
decisions rendered by a few High Courts in this regard
where on similar set of facts the proceedings under
Section 138 of the N.I. Act was challenged. One of the
decisions in this regard was a judgement passed by the
High Court of Kerala on 2.4.2004 in the case of Sudha
Beevi v. State of Kerala [IV (2004) BC 71, 2004 CriLJ
3418], wherein under similar factual background, the
High Court of Kerala had held that if the hire-purchase
agreement involved in the case between the financial
institution and the hirer stood determined by the act of
parties, the cheques which were accepted by the financial
institution towards advance for repayment of the hire
would become instruments without consideration and

that they will be instruments for which consideration had
failed and under the said circumstances the remedy
available to the financial institution is only to realize the
balance hire due by filing appropriate suit for damages on
account of breach of terms of agreement. It was also held
that since the financial institution had admittedly got
repossession of the vehicle and that the said repossession
was even before the filing of the complaint case, the hire-
purchase
agreement
between
the
parties
stood
“determined ipso facto”. Thus, as a consequence of the
seizure of vehicle the financial institution had exercised
one of the options available to him under the agreement
and as such the cheques in its hands given as a security
thereafter becomes instruments for which a consideration
had failed and if presented for payment and gets
dishonoured, no offence punishable under Section 138 of
the N.I. Act would be attracted.
It is also pertinent to mention that in order to
attract the penal provisions under the N.I. Act “debt or
other liability” must be a “legally enforceable debt or
liability”. If the said instrument is not supported by
consideration, there is no question of attracting Section
138 of the N.I. Act.
In the instant case it is all the more necessary to
take note of the fact that apart from taking repossession
of the said vehicle, the Respondent has also sold the
vehicle and have adjusted the sale proceeds of the vehicle
against the liabilities of the Petitioner and which also
leaves
the
Respondent
with
the
only
remedy
for
realization of the balance amount from the hirer is by way
of filing a suit for damages or a suit for recovery, as the
case may be.

(7)
The said view taken by the Kerala High Court has
been further relied upon by the Madurai Bench of Madras
High Court in the case of N. Rajangan v. Centurion Bank
Ltd., decided on 13.10.2009, wherein also the Madurai
Bench of Madras High Court reached to the conclusion
that once the financier had exercised the option of seizure
of vehicle, the postdated cheques cannot be permitted for
encashment, particularly, after the seizure of the vehicle
and the only recourse available to the said financier is to
initiate appropriate legal remedy for recovery of the
balance amount.
Likewise, the Punjab and Haryana High Court at
Chandigarh also in a recent decision made on 31.7.2013
in the case of M/s Guru Nanak Tractors v. Swarn Singh,
took the same view that as per the Section 138 of the N.I.
Act in order to attract the penal provision the debt or
other liability must be legally enforceable debt or liability
and if the instrument is not supported by consideration,
there is no question of attracting the provisions of Section
138 of the N.I. Act.
(8)
The decisions of the High Courts referred to
above is further fortified by the recent decision of the
Hon'ble Supreme Court in the case of M/s Indus Airways
Pvt. Ltd. and others v. M/s Magnum Aviation Pvt. Ltd. and
another [2014 (3) M.P.H.T. 28 (SC)].
(9)
In light of the aforesaid decisions rendered by the
different High Courts and in respectful agreement to the
ratio laid down in these judgements, in the instant case
also, as is evident from the document (Annexure A-3) filed
by
the
Petitioner
issued
by
the
Respondent,
the
Respondent has taken repossession of the vehicle and has

also further sold it and realized the sale proceeds and,
under the said circumstances, I am of the opinion that
the hire-purchase agreement entered into between the
Petitioner and the Respondent gets determined ipso facto.
(10)
Section 138 of the N.I. Act treats dishonoured
cheque as an offence, if the cheque has been issued in
discharge of any debt or other liability. The Explanation
leaves no manner of doubt that to attract an offence
under Section 138, there should be legally enforceable
debt or other liability subsisting on the date of drawal of
the cheque. The very fact that the Respondent has taken
repossession of the vehicle and has also sold the said
vehicle and the sale value of the said vehicle has also
been adjusted for meeting the loan repayment, the
agreement on the basis of which the postdated cheques
were issued cannot be put for clearance for the reason
that the Respondent by virtue of the two acts on their
part; firstly, of taking possession of the vehicle and,
secondly, of sale/auctioning the said vehicle, stood
determined. Therefore, the cheques which have been
subsequently put for clearance and got dishonoured
would not fall within the ambit of legally enforceable debt
or other liability.
(11)
For the foregoing reasons, the Petition under
Section 482 of CrPC is allowed and the complaint case
initiated
by
the
Respondent
against
the
Petitioner
deserves to be and is hereby quashed.
There shall be no order as to costs.

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