the dishonour of a post-dated cheque given for repayment of loan
installment which is also described as “security” in the loan
agreement is covered by Section 138 of the Negotiable Instruments
Act, 1881 (“the Act”).
Crucial question to determine applicability of Section 138 of the
Act is whether the cheque represents discharge of existing
enforceable debt or liability or whether it represents advance payment
without there being subsisting debt or liability. While approving the
views of different High Courts noted earlier, this is the underlying
principle as can be discerned from discussion of the said cases in the
judgment of this Court.
As is clear from the above observations of this Court, it is well
settled that while dealing with a quashing petition, the Court has
ordinarily to proceed on the basis of averments in the complaint. The
defence of the accused cannot be considered at this stage. The court
considering the prayer for quashing does not adjudicate upon a
disputed question of fact.
18.In Rangappa versus Sri Mohan 9 (2010) 11 SCC 441Page 11, this Court held that once issuance
of a cheque and signature thereon are admitted, presumption of a
legally enforceable debt in favour of the holder of the cheque arises.
It is for the accused to rebut the said presumption, though accused
need not adduce his own evidence and can rely upon the material
submitted by the complainant. However, mere statement of the
accused may not be sufficient to rebut the said presumption. A post
dated cheque is a well recognized mode of payment
19. Thus, the question has to be answered in favour of the
respondent and against the appellant. Dishonour of cheque in the
present case being for discharge of existing liability is covered by
Section 138 of the Act, as rightly held by the High Court.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 867 OF 2016
SAMPELLY SATYANARAYANA RAO Vs INDIAN RENEWABLE ENERGY DEVELOPMENT
AGENCY LIMITED
Dated:SEPTEMBER 19, 2016.
ADARSH KUMAR GOEL, J.
1. This appeal has been preferred against the judgment and order dated
8
th May, 2014 passed by the High Court of Delhi at New Delhi in Writ
Petition (Criminal) No.1170 of 2011.
2. Question for consideration is whether in the facts of the present case,
the dishonour of a post-dated cheque given for repayment of loan
installment which is also described as “security” in the loan
agreement is covered by Section 138 of the Negotiable Instruments
Act, 1881 (“the Act”).
3. The appellant is Director of the company whose cheques have been
dishonoured and who is also the co-accused. The company is
engaged in the field of power generation. The respondent is engaged
in development of renewable energy and is a Government of India
enterprise. Vide the loan agreement dated 15th March, 2001, the
respondent agreed to advance loan of Rs.11.50 crores for setting up of
4.00 MW Biomass based Power Project in the State of Andhra Pradesh.
The agreement recorded that post-dated cheques towards payment of
installment of loan (principal and interest) were given by way of
security. The text of this part of the agreement is quoted in the later
part of this order. The cheques carried different dates depending on
the dates when the installments were due and upon dishonour
thereof, complaints including the one dated 27th September, 2002
were filed by the respondent in the court of the concerned Magistrate
at New Delhi.
4. The appellant approached the High Court to seek quashing of the
complaints arising out of 18 cheques of the value of about Rs.10.3
crores. Contention of the appellant in support of his case was that the
cheques were given by way of security as mentioned in the
agreement and that on the date the cheques were issued, no debt or
liability was due. Thus, dishonour of post-dated cheques given by way
of security did not fall under Section 138 of the Act. Reliance was
placed on clause 3.1 (iii) of the agreement to the effect that deposit of
post-dated cheques toward repayment of installments was by way of
“security”. Even the first installment as per the agreement became
due subsequent to the handing over of the post-dated cheque. Thus,
contended the appellant, it was not towards discharge of debt or
liability in presenti but for the amount payable in future.
5. The High Court did not accept the above contention and held :-
“10. In the present case when the post-dated cheques
were issued, the loan had been sanctioned and hence the
same fall in the first category that is they were cheque
issued for a debt in present but payable in future. Hence, I
find no reason to quash the complaints. However, these
observations are only prima facie in nature and it will be
open for the party to prove to the contrary during trial.”
6. We have heard learned counsel for the parties.
7. It will be appropriate to reproduce the statutory provision in question
which is as follows :
“138. Dishonour of cheque for insufficiency, etc., of
funds in the account. - Where any cheque drawn by a
person on an account maintained by him with a banker
for payment of any amount of money to another person
from out of that account for the discharge, in whole or in
part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing
to the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to be paid
from that account by an agreement made with that bank,
such person shall be deemed to have committed an
offence and shall, without prejudice to any other
provisions of this Act, be punished with imprisonment for
a term which may be extended to two years, or with fine
which may extend to twice the amount of the cheque, or
with both:
Provided that nothing contained in this section shall
apply unless –
(a) the cheque has been presented to the bank
within a period of six months from the date on
which it is drawn or within the period of its
validity, whichever is earlier;
(b) the payee or the holder in due course of the
cheque, as the case may be, makes a demand
for the payment of the said amount of money
by giving a notice in writing, to the drawer of
the cheque, within thirty days of the receipt of
information by him from the bank regarding the
return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the
payment of the said amount of money to the
payee or, as the case may be, to the holder in
due course of the cheque, within fifteen days of
the receipt of the said notice.
Explanation. - For the purposes of this section, "debt or
other liability" means a legally enforceable debt or other
liability.”
8. Clause 3.1(iii) of the agreement may also be noted :-
“ 3.1 SECURITY FOR THE LOAN
The loan together with the interest, interest tax,
liquidated damages, commitment fee, up front fee
prima on repayment or on redemption, costs,
expenses and other monies shall be secured by ;
(i) xxxxx
(ii) xxxxx
(iii) Deposit of Post dated cheques towards repayment of
installments of principal of loan amount in accordance
with agreed repayment schedule and installments of
interest payable thereon.”
9. Reference may now be made to the decision of this Court in
Indus Airways Private Limited versus Magnum Aviation Private
Limited 1
, on which strong reliance has been placed by learned
counsel for the appellant. The question therein was whether
post-dated cheque issued by way of advance payment for a purchase
order could be considered for discharge of legally enforceable debt.
1 (2014) 12 SCC 539
The cheque was issued by way of advance payment for the purchase
order but the purchase order was cancelled and payment of the
cheque was stopped. This Court held that while the purchaser may be
liable for breach of the contract, when a contract provides that the
purchaser has to pay in advance and cheque towards advance
payment is dishonoured, it will not give rise to criminal liability under
Section 138 of the Act. Issuance of cheque towards advance payment
could not be considered as discharge of any subsisting liability. View
to this effect of the Andhra Pradesh High Court in Swastik Coaters
(P) Ltd. versus Deepak Bros.2
, Madras High Court in Balaji
Seafoods Exports (India) Ltd. versus Mac Industries Ltd.3
,
Gujarat High Court in Shanku Concretes (P) Ltd. versus State of
Gujarat4
and Kerala High Court in Supply House versus Ullas5 was
held to be correct view as against the view of Delhi High Court in
Magnum Aviation (P) Ltd. versus State6
and Mojj
Engg. Systems Ltd. versus A.B. Sugars Ltd.7
which was
disapproved.
10.We have given due consideration to the submission advanced on
behalf of the appellant as well as the observations of this Court
in Indus Airways (supra) with reference to the explanation to
2 (1997) Crl. LJ 1942 (AP)
3 (1999) 1 CTC 6 (Mad)
4 (2000) Crl LJ 1988 (Guj)
5 (2006) Crl. LJ 4330 (Ker)
6 (2010) 172 DLT 91: (2010) 118 DRJ 505
7 (2008) 154 DLT 579Page 6
Section 138 of the Act and the expression “for discharge of any debt
or other liability” occurring in Section 138 of the Act. We are of the
view that the question whether a post-dated cheque is for “discharge
of debt or liability” depends on the nature of the transaction. If on the
date of the cheque liability or debt exists or the amount has become
legally recoverable, the Section is attracted and not otherwise.
11.Reference to the facts of the present case clearly shows that though
the word “security” is used in clause 3.1(iii) of the agreement, the
said expression refers to the cheques being towards repayment of
installments. The repayment becomes due under the agreement, the
moment the loan is advanced and the installment falls due. It is
undisputed that the loan was duly disbursed on 28th February, 2002
which was prior to the date of the cheques. Once the loan was
disbursed and installments have fallen due on the date of the cheque
as per the agreement, dishonour of such cheques would fall under
Section 138 of the Act. The cheques undoubtedly represent the
outstanding liability.
12.Judgment in Indus Airways (supra) is clearly distinguishable. As
already noted, it was held therein that liability arising out of claim for
breach of contract under Section 138, which arises on account of
dishonour of cheque issued was not by itself at par with criminal
liability towards discharge of acknowledged and admitted debt under
a loan transaction. Dishonour of cheque issued for discharge of later
liability is clearly covered by the statute in question. Admittedly, on
the date of the cheque there was a debt/liability in presenti in terms of
the loan agreement, as against the case of Indus Airways (supra)
where the purchase order had been cancelled and cheque issued
towards advance payment for the purchase order was dishonoured. In
that case, it was found that the cheque had not been issued for
discharge of liability but as advance for the purchase order which was
cancelled. Keeping in mind this fine but real distinction, the said
judgment cannot be applied to a case of present nature where the
cheque was for repayment of loan installment which had fallen due
though such deposit of cheques towards repayment of installments
was also described as “security” in the loan agreement. In applying
the judgment in Indus Airways (supra), one cannot lose sight of the
difference between a transaction of purchase order which is cancelled
and that of a loan transaction where loan has actually been advanced
and its repayment is due on the date of the cheque. .
13. Crucial question to determine applicability of Section 138 of the
Act is whether the cheque represents discharge of existing
enforceable debt or liability or whether it represents advance payment
without there being subsisting debt or liability. While approving the
views of different High Courts noted earlier, this is the underlying
principle as can be discerned from discussion of the said cases in the
judgment of this Court.
14.In Balaji Seafoods (supra), the High Court noted that the cheque
was not handed over with the intention of discharging the subsisting
liability or debt. There is, thus, no similarity in the facts of that case
simply because in that case also loan was advanced. It was noticed
specifically therein – as was the admitted case of the parties – that the
cheque was issued as “security” for the advance and was not
intended to be in discharge of the liability, as in the present case.
15.In HMT Watches Ltd. versus M.A. Abida8
, relied upon on behalf of
the respondent, this Court dealt with the contention that the
proceedings under Section 138 were liable to be quashed as the
cheques were given as “security” as per defence of the accused.
Negativing the contention, this Court held :-
“10. Having heard the learned counsel for the parties, we
are of the view that the accused (Respondent 1) challenged
the proceedings of criminal complaint cases before the
High Court, taking factual defences. Whether the cheques
were given as security or not, or whether there was
outstanding liability or not is a question of fact which could
have been determined only by the trial court after
recording evidence of the parties. In our opinion, the High
Court should not have expressed its view on the disputed
questions of fact in a petition under Section 482 of the
Code of Criminal Procedure, to come to a conclusion that
the offence is not made out. The High Court has erred in
law in going into the factual aspects of the matter which
were not admitted between the parties. The High Court
further erred in observing that Section 138(b) of the NI Act
8 (2015) 11 SCC 776
stood uncomplied with, even though Respondent 1
(accused) had admitted that he replied to the notice issued
by the complainant. Also, the fact, as to whether the
signatory of demand notice was authorised by the
complainant company or not, could not have been
examined by the High Court in its jurisdiction under Section
482 of the Code of Criminal Procedure when such plea was
controverted by the complainant before it.
11. In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries
Ltd. [(2008) 13 SCC 678], this Court has made the following
observations explaining the parameters of jurisdiction of
the High Court in exercising its jurisdiction under Section
482 of the Code of Criminal Procedure: (SCC pp. 685-87,
paras 17 & 22)
“17. The parameters of jurisdiction of the High Court
in exercising its jurisdiction under Section 482 of the
Code of Criminal Procedure is now well settled.
Although it is of wide amplitude, a great deal of
caution is also required in its exercise. What is
required is application of the well-known legal
principles involved in the matter.
***
22. Ordinarily, a defence of an accused although
appears to be plausible should not be taken into
consideration for exercise of the said jurisdiction. Yet
again, the High Court at that stage would not
ordinarily enter into a disputed question of fact. It,
however, does not mean that documents of
unimpeachable character should not be taken into
consideration at any cost for the purpose of finding
out as to whether continuance of the criminal
proceedings would amount to an abuse of process of
court or that the complaint petition is filed for
causing mere harassment to the accused. While we
are not oblivious of the fact that although a large
number of disputes should ordinarily be determined
only by the civil courts, but criminal cases are filed
only for achieving the ultimate goal, namely, to force
the accused to pay the amount due to the
complainant immediately. The courts on the one
hand should not encourage such a practice; but, on
the other, cannot also travel beyond its jurisdiction
to interfere with the proceeding which is otherwise
genuine. The courts cannot also lose sight of the fact
that in certain matters, both civil proceedings and
criminal proceedings would be maintainable.”Page 10
12. In Rallis India Ltd. v. Poduru Vidya Bhushan [(2011) 13
SCC 88], this Court expressed its views on this point as
under: (SCC p. 93, para 12)
“12. At the threshold, the High Court should not have
interfered with the cognizance of the complaints
having been taken by the trial court. The High Court
could not have discharged the respondents of the
said liability at the threshold. Unless the parties are
given opportunity to lead evidence, it is not possible
to come to a definite conclusion as to what was the
date when the earlier partnership was dissolved and
since what date the respondents ceased to be the
partners of the firm.”
16. We are in respectful agreement with the above observations. In the
present case, reference to the complaint (a copy of which is
Annexures P-7) shows that as per the case of the complainant, the
cheques which were subject matter of the said complaint were
towards the partial repayment of the dues under the loan agreement
(para 5 of the complaint).
17. As is clear from the above observations of this Court, it is well
settled that while dealing with a quashing petition, the Court has
ordinarily to proceed on the basis of averments in the complaint. The
defence of the accused cannot be considered at this stage. The court
considering the prayer for quashing does not adjudicate upon a
disputed question of fact.
18.In Rangappa versus Sri Mohan 9 (2010) 11 SCC 441Page 11, this Court held that once issuance
of a cheque and signature thereon are admitted, presumption of a
legally enforceable debt in favour of the holder of the cheque arises.
It is for the accused to rebut the said presumption, though accused
need not adduce his own evidence and can rely upon the material
submitted by the complainant. However, mere statement of the
accused may not be sufficient to rebut the said presumption. A post
dated cheque is a well recognized mode of payment
19. Thus, the question has to be answered in favour of the
respondent and against the appellant. Dishonour of cheque in the
present case being for discharge of existing liability is covered by
Section 138 of the Act, as rightly held by the High Court.
20. Accordingly, we do not find any merit in this appeal and the
same is dismissed. Since we have only gone into the question
whether on admitted facts, case for quashing has not been made out,
the appellant will be at liberty to contest the matter in trial court in
accordance with law.
………………………………………………J.
( DIPAK MISRA )
………………………………………………J.
( ADARSH KUMAR GOEL )
NEW DELHI;
SEPTEMBER 19, 2016.
10 Goaplast (P) Ltd. versus Chico Ursula D’ Souza (2003) 3 SCC
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