High Court of Punjab and HaryanaCRM-M/10830/2019dismissed

Chaman Lal v. Capital First Limited

2023-08-29Mr. Justice Jasjit Singh Bedi26 pages

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. + Sampelly Satyanarayana Rao Versus Indian Renewable Energy Development Agency Ltd., 2016(4) R.C.R. (Criminal) 385 Sripati Singh (since deceased) through his son Gaurav Singh Versus The State of Jharkhand & another, 2021(4) R.C.R. (Criminal) 620 Sunil Todi & others Versus State of Gujarat & another, 2022(1) R.C.R. (Criminal) 395.

B = 58 & ", + . +"# = Matheson Bonsaquet Enterprises Ltd. Versus K.V. Manjunatha, 2010(5) R.C.R. (Criminal) 656,

$ " 6. As against the above contention, the learned Counsel for the respondent accused strongly contended as under :

(i) The complainantcompany has not whispered anything in its complaint as to the transactions between itself and the accused in respect of the said quarry. The evidence of P.W. 1 in his examinationin chief is totally contrary to the averments in the complaint. Besides this, P.W. 1 has clearly admitted in his crossexamination that the said two cheques were issued by the accused to the complainantcompany as security towards discharge of his obligation of quarrying or extracting granite blocks belonging to the complainant and therefore, the trial Court was quite justified in dismissing the complaint and acquitting the accused based on the said evidence. (ii) The complainant miserably failed to establish that there was any existing debt as on the dates of the said two cheques and therefore, the trial Court has rightly acquitted the accused of the said offence."

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18. If a cheque is issued by the borrower to the lender admittedly towards discharge of any existing debt or liability, the same can be presented to the Bank by the lender without any intimation to the borrower. But, where a cheque is taken by the lender from the

borrower 'as security' towards repayment of the loan advanced by the former to the latter such cheque cannot be said to have been issued by the borrower to the lender towards discharge of the existing debt unless there is any agreement between the lender and the borrower that in the event of failure on the part of the borrower to repay the loan amount on or before a specified date, the lender would be entitled to present the said cheque to the Bank for its encashment.

In the absence of such an agreement, in order to enforce the liability of the borrower to repay the loan amount, the lender has to demand the repayment of the loan from the borrower by issuing him a notice in writing or by making oral demand, duly intimating the borrower that if the loan amount, towards repayment of which the cheque was given by him (borrower) to the lender as security, is not repaid as agreed, the said cheque will be encashed by him (lender) by presenting it to the Bank. If the borrower does not repay the loan amount to the lender despite such demand being made against him by the lender, then only the lender would become entitled to present the said cheque to the Bank for its encashment.

Further, if the said cheque is not honoured for want of funds in the account of the borrower or for any such other valid reason, and if the borrower further fails to comply with the statutory notice issued to him by the lender pursuant to dishonour of the said cheque, cause of action would accrue to the lender to prosecute the borrower for the offence under Section 138 of the Neotiable Instruments Act. The lender has to establish beyond reasonable doubt, all these facts, in order to bring home the guilt of the borrower for the said offence.

19. Similarly where a cheque is issued by one of the parties to an agreement to the other party, as security towards performance of his part of the agreement with an understanding that in the event of failure on the part of the party issuing cheque to perform his part of the agreement on or before a specified date, the other party would get the right to get the said cheque encashed by presenting it to the Bank, on the default being committed by the party issuing cheque in performing his part of the agreement within the specified date, the other party may present the said cheque the Bank for its encashment.

If such cheque is returned dishonoured by the Bank to the drawee by reason of 'insufficiency of funds' in the account of the drawer or for any such other valid reason and, the drawer fails to comply with the statutory notice issued to him by the drawee pursuant to such dishonour, then only the cause of action would accrue to the drawee (i.e., the party who received the cheque) to prosecute the party who issued the cheque, for the offence under Section 138 of the Neotiable Instruments Act. In such a case also, the complainant (the party receiving such cheque) has to establish beyond reasonable doubt all these facts, in order to bring home guilt of the party issuing the cheque (accused) for the said offence.

It is pertinent to note that as could be seen from the averments in the complaint, it is not the case of the complainant that the accused issued the said cheques 'as security' towards performance of his part of the agreement and he failed to perform it and therefore he presented the said cheques to the Bank in exercise of his right under the agreement to get the said cheques encashed.

the cheques in question towards repayment of loan. It is the settled principle that in a criminal case, the complainant has to prove, beyond reasonable doubt, his case against the accused 'as alleged in his complaint' but not a case which is contrary to the one alleged in the complaint.

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22. In view of my foregoing discussion, I am of the considered view that both the said cheques were not issued by the accused either towards repayment, or as a security for the repayment, of any debt but they were issued as security for the performance of his part of contract entered into between himself and the complainant under the memorandum of understanding (Ex. D. 1) i.e., excavation of the granite blocks for and on behalf of the complainant company at the cost of Rs. 1,40,000/. Further, it is not the case of the complainant as averred in the complaint that the accused committed breach of contract and as such the complainant acquired, as per the terms of the said memorandum of understanding, right against the accused to get the said cheques encashed and therefore the complainant presented the same to the Bank for their encashment.

Therefore, following the observations of Hon'ble Supreme Court in the case of M.S. Narayana Menon @ Mani, I hold that no offence under Section 138 of the Neotiable Instruments Act was committed by the respondentaccused and as such, the trial Court did not commit any illegality in acquitting him of the said offence.

= Sami Labs Limited Versus M.V. Joseph, 2019 ACD 290 $ "23. In the instant case, when the housing loan disbursed to the accused in full, was a sum of Rs. 5,00,000/ and since it is established that a portion of it has already been repaid by the accused or has already been recovered by the complainant company from out of the salary of the accused, then the total outstanding liability would be any sum lesser than the cheque amount. Thus, when any sum issued in the cheque is for an higher amount than the outstanding liability and if that excess amount is also not towards any interest, cost, penalty etc., but remains unexplained, then Section 138 of the N. I. Act cannot be said to be applicable.

+ ED"

+* Sampelly Satyanarayana Rao Versus Indian Renewable Energy Development Agency Ltd., 2016(4) R.C.R. (Criminal) 385 $ "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 instalments. The repayment becomes due under the agreement, the moment the loan is advanced and the instalment 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 instalments 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.

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16. We are in respectful agreement with the above observations. In the present case, reference to the complaint (a copy of which is Annexures P7) 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 v. Sri Mohan, 2010(3) RCR (Criminal) 164 : 2010(3) RCR (Civil) 197 : 2010(3) Recent Apex Judgments (R.A.J.) 415 : (2010) 11 SCC 441 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 recognised mode of payment Goaplast (P) Ltd. v. Chico Ursula D' Souza 2003(2) RCR (Criminal) 131 : (2003) 3 SCC 232.

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. (emphasis supplied) =Sripati Singh (since deceased) through his son Gaurav Singh Versus The State of Jharkhand & another, 2021(4) R.C.R. (Criminal) 620 , $ "9. In the light of the rival contentions, a perusal of the appeal papers would disclose that it is the very case of the appellant that he has advanced substantial amount of Rs. 2 crores to the respondent No.2 by way of financial assistance for business purpose.

While taking note of the nature of the transaction and also the proceedings initiated, it is necessary for us to remain conscious of the fact that the proceedings between the parties is at the preliminary stage and any conclusive findings rendered in relation to the dispute between the parties would affect their case if ultimately the appellants were to succeed herein and the criminal proceedings are to be restored for further progress. Therefore, what is necessary to be examined herein is, as to whether the appellant has prima facie established a transaction under which there is a legally recoverable debt payable to the appellant by the respondent No.2 and as to whether the cheques in question relating to which the complaint has been filed by the appellant is issued towards discharge of such legally recoverable debt.

amount and whether it was not liable to be presented for recovery of the legally recoverable debt. The question which would also arise for consideration is as to whether the complaint filed by the appellant should be limited to a proceeding under section 138 of N.I. Act or on the facts involved, whether the invoking of Section 420 IPC was also justified.

*** ***

12. Having arrived at the above conclusion and also having taken note of the conclusion reached by the High Court as extracted above, it is noted that the High Court has itself arrived at the conclusion that the instant case becomes a simpliciter case of nonrefunding of loan which cannot be a basis for initiating criminal proceedings. The conclusion to the extent of holding that it would not constitute an offence of cheating, as already indicated above would be justified. However, when the High Court itself has accepted the fact that it is a case of nonrefunding of the loan amount, the first aspect that there is a legally recoverable debt from the respondent No.2 to the appellant is primafacie established. The only question that therefore needs consideration at our hands is as to whether the contention putforth on behalf of respondent No.2 that an offence under section 138 of the N.I. Act is not made out as the dishonourment alleged is of the cheques which were issued by way of `security' and not towards discharge of any debt.

13. In order to consider this aspect of the matter we have at the outset taken note of the four loan agreements dated 13.08.2014 which is the subject matter herein. Under each of the agreements, the promise made by respondent No.2 is to pay the appellant a sum of Rs.50 lakhs. Thus, the total of which would amount to Rs.2 crores as contended by the appellant. Towards the promise to pay,

the repayment agreed by the respondent No.2 is to clear the total amount within June/July 2015. Para 5 of the loan agreement indicates that six cheques have been issued as security. The claim of the appellant has been negated by the High Court only due to the fact that the agreement indicates that the cheques have been given by way of security and the complainant has also stated this fact in the complaint. Though the High Court has taken note of the decision in the case of Sudhir Kumar Bhalla (supra) to hold that the cheque issued as security cannot constitute an offence, the same in our opinion does not come to the aid of the respondent No.2.

There is no categorical declaration by this Court in the said case that the cheque issued as security cannot be presented for realisation under all circumstances. The facts in the said case relate to the cheques being issued and there being alterations made in the cheques towards which there was also a counter complaint filed by the drawer of the cheque. Hence, the said decision cannot be a precedent to answer the position in this case and the High Court was not justified in placing reliance on the same.

16. A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. `Security' in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other

understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow.

17. When a cheque is issued and is treated as `security' towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as `security' cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security.

These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an `on demand promissory note' and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute.

above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.

18. If the above principle is kept in view, as already noted, under the loan agreement in question the respondent No.2 though had issued the cheques as security, he had also agreed to repay the amount during June/July 2015, the cheque which was held as security was presented for realization on 20.10.2015 which is after the period agreed for repayment of the loan amount and the loan advanced had already fallen due for payment. Therefore, prima facie the cheque which was taken as security had matured for payment and the appellant was entitled to present the same. On dishonour of such cheque the consequences contemplated under the Negotiable Instruments Act had befallen on respondent No.2. As indicated above, the respondent No.2 may have the defence in the proceedings which will be a matter for trial. In any event, the respondent No.2 in the fact situation cannot make a grievance with regard to the cognizance being taken by the learned Magistrate or the rejection of the petition seeking discharge at this stage.

19. In the background of the factual and legal position taken note supra, in the instant facts, the appellant cannot be nonsuited for proceeding with the complaint filed under section 138 of N.I. Act merely due to the fact that the cheques presented and dishonoured are shown to have been issued as security, as indicated in the loan agreement. In our opinion, such contention would arise only in a circumstance where the debt has not become recoverable and the cheque issued as security has not

matured to be presented for recovery of the amount, if the due date agreed for payment of debt has not arrived. In the instant facts, as noted, the repayment as agreed by the respondent No.2 is during June/July 2015. The cheque has been presented by the appellant for realisation on 20.10.2015. As on the date of presentation of the cheque for realisation the repayment of the amount as agreed under the loan agreement had matured and the amount had become due and payable. Therefore, to contend that the cheque should be held as security even after the amount had become due and payable is not sustainable. Further, on the cheques being dishonoured the appellant had got issued a legal notice dated 21.11.2015 wherein interalia it has been stated as follows:

"You request to my client for loan and after accepting your word my client give you loan and advanced loan and against that you issue different cheque all together valued Rs. One crore and my client was also assured by you will clear the loan within June/July 2015 and after that on 26.10.2015 my client produce the cheque for encashment in H.D.F.C. Bank all cheque bearing No.402771 valued Rs. 25 Lakh, 402770 valued Rs.25 lakh, 402769 valued Rs. 50 lakh, (total rupees one crore) and above numbered cheques was returned with endorsement "In sufficient fund". Then my client feel that you have not fulfil the assurance."

20. The notice as issued indicates that the appellant has at the very outset after the cheque was dishonoured, intimated the respondent no.2 that he had agreed to clear the loan by June/July 2015 after which the appellant had presented the cheque for encashment on 26.10.2015 and the assurance to repay has not been kept up.

21. In the above circumstance, the cheque though issued as security at the point when the loan was advanced, it

was issued as an assurance to repay the amount after the debt becomes due for repayment. The loan was in subsistence when the cheque was issued and had become repayable during June/July 2015 and the cheque issued towards repayment was agreed to be presented thereafter. If the amount was not paid in any other mode before June/July 2015, it was incumbent on the respondent No.2 to arrange sufficient balance in the account to honour the cheque which was to be presented subsequent to June/July 2015.

22. These aspects would primafacie indicate that there was a transaction between the parties towards which a legally recoverable debt was claimed by the appellant and the cheque issued by the respondent No.2 was presented. On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting the criminal complaint under section 138 of N.I. Act on the payment not being made. The further defence as to whether the loan had been discharged as agreed by respondent No.2 and in that circumstance the cheque which had been issued as security had not remained live for payment subsequent thereto etc. at best can be a defence for the respondent No.2 to be put forth and to be established in the trial. In any event, it was not a case for the Court to either refuse to take cognizance or to discharge the respondent No.

2 in the manner it has been done by the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts and circumstances of the instant case, the complaint under section 138 of the N.I Act was maintainable and all contentions and the defence were to be considered during the course of the trial.

=Sunil Todi & others Versus State of Gujarat & another, 2022(1) R.C.R. (Criminal) 395 $ "23. In the present case, the PSA between the parties envisaged that the second respondent would supply power to the company of which the appellants are directors or as the case may be, managing director. The agreement postulated that payment for the power supplied would be made by means of LCs. Though, the LCs' were provided, they were allegedly not in a form acceptable to the bankers of the second respondent. The appellants do not dispute that prior to the termination of the agreement, power was supplied for a period of three months to the company. In other words, the agreement for the supply of power was acted upon and power was supplied to by the second respondent and consumed by the company.

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25. The explanation to section 138 of the NI Act provides that `debt or any other liability' means a legally enforceable debt or other liability. The proviso to Section 138 stipulates that the cheque must be presented to the bank within a period of six months from the date on which it is drawn or within its period of validity. Therefore, a cheque given as a gift and not for the satisfaction of a debt or other liability, would not attract the penal consequences of the provision in the event of its being returned for insufficiency of funds. Aiyar's Judicial Dictionary defines debt as follows: "Debt is a pecuniary liability. A sum payable or recoverable by action in respect of money demand." Lindey L.J in Webb v. Strention, 1888 QBD 518 defined debt as "... a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro." The definition was adopted by this Court in Keshoram Industries v. CWT, AIR 1966 SC 1370. Justice Mookerjee writing for a

Full Bench of the Calcutta High Court in Banchharam Majumdar v. Adyanath Bhattacharjee, (1909) ILR 36 Cal 936 adopted the definition provided by the Supreme Court of California in People v. Arguello, 1869 37 Calif 524 : "Standing alone, the word `debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds: solvendum in praesenti and solvendum in future ... A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt until the contingency has happened."

Thus, the term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A postdated cheque issued after the debt has been incurred would be covered by the definition of `debt'. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred. Therefore, in the present case, a debt was incurred after the second respondent began supply of power for which payment was not made because of the nonacceptance of the LCs'. The issue to be determined is whether Section 138 only covers a situation where there is an outstanding debt at the time of the drawing of the cheque or includes drawing of a cheque for a debt that is incurred before the cheque is encashed.

26. The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of

the cheque but before its encashment. In Indus Airways, advance payments were made but since the purchase agreement was cancelled, there was no occasion of incurring any debt. The true purpose of Section 138 would not be fulfilled, if `debt or other liability' is interpreted to include only a debt that exists as on the date of drawing of the cheque. Moreover, Parliament has used the expression `debt or other liability'. The expression "or other liability' must have a meaning of its own, the legislature having used two distinct phrases. The expression `or other liability' has a content which is broader than `a debt' and cannot be equated with the latter. In the present case, the cheque was issued in close proximity with the commencement of power supply.

The issuance of the cheque in the context of a commercial transaction must be understood in the context of the business dealings. The issuance of the cheque was followed close on its heels by the supply of power. To hold that the cheque was not issued in the context of a liability which was being assumed by the company to pay for the dues towards power supplied would be to produce an outcome at odds with the business dealings. If the company were to fail to provide a satisfactory LC and yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues.

27. According to the complainant, the LCs' were not in a format agreed to by their bankers. The cheques which were initially towards security could not have been presented before the payments under the PSA fell due. Moreover, if the company were to discharge its liability to pay the outstanding dues under the power supply agreement through the agreed modality of an LC to the satisfaction of the second respondent's bankers, there would be no occasion to present the cheque thereafter. In other words, once payments for electricity supply became due in terms of the PSA, and the company failed to discharge its dues, the second respondent

was entitled in law to present the cheque for payment. Merely labelling the cheque as a security would not obviate its character as an instrument designed to meet a legally enforceable debt or liability, once the supply of power had been provided for which there were monies due and payable. There is no inflexible rule which precludes the drawee of a cheque issued as security from presenting it for payment in terms of the contract. . It all depends on whether a legally enforceable debt or liability has arisen.

30. The submission which has been urged on behalf of the appellants, however, is that the fact that the cheques in the present case have been issued as a security is not in dispute since it stands admitted from the pleading of the second respondent in the suit instituted before the High Court of Madras. The legal requirement which Section 138 embodies is that a cheque must be drawn by a person for the payment of money to another "for the discharge, in whole or in part, of any debt or other liability'. A cheque may be issued to facilitate a commercial transaction between the parties.

Where, acting upon the underlying purpose, a commercial arrangement between the parties has fructified, as in the present case by the supply of electricity under a PSA, the presentation of the cheque upon the failure of the buyer to pay is a consequence which would be within the contemplation of the drawer. The cheque, in other words, would in such an instance mature for presentation and, in substance and in effect, is towards a legally enforceable debt or liability. This precisely is the situation in the present case which would negate the submissions of the appellants.

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