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No offence u/s 138 of n.i. act- security cheque

No offence u/s 138 of N.I. Act is committed for dishonour of cheque given as security deposit

 Judgment IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION Joseph Vilangadan. v. Phenomenal Health Care Services Ltd. & Anr. CRIMINAL WRIT PETITION NO.2243 OF 2009 CORAM : J.H.Bhatia, J. DATE : 20th July, 2010 1 Rule. Rule made returnable forthwith. Heard the learned counsel for the parties. 2 There is no dispute that the respondent no.1/complainant and M/s. Encon Engineering and Contractors (Hereinafter referred to as ‘Contractors’) had entered into an agreement on 28th January, 2005 whereby Contractors had undertaken to carry out certain works for the respondent. As per the said contract, Contractors deposited the sum of Rs. 10 lacs by undated cheque no.027840 drawn against South Indian Bank Ltd., Palarivattom Branch, Cochin branch with the respondent no.1 as refundable security deposit for the due performance of the agreement. The said undated cheque was in custody of the respondent no.1 and it appears that the respondent no.1 filled in the date on undated cheque as “4.6.2008″. The cheque was presented to the drawee bank through the banker of the respondent no.1. Cheque was returned unpaid on the ground that the drawer had stopped the payment. Therefore, notice was issued by the respondent to the contractor as well as it’s managing partner for the payment of the cheque amount . In spite of notice, payment was not made. Therefore, the respondent no.1 filed complaint under Section 138 of the Negotiable Instruments Act, in the Court of Metropolitan Magistrate 44th Court, Andheri. Process was issued against the accused, who is the petitioner before this Court. Petitioner/accused challenged the issuance of process by filing revision application no.789/2009 before the Sessions Court, Gr. Bombay. By the impugned order dated 8th June, 2009, the learned Additional Sessions Judge rejected the revision application. Hence this petition. 3. At the outset it may be stated that before the revisional Court, petitioner had taken several grounds challenging the issuance of process. However, during the arguments before this Court, the learned counsel for the petitioner restricted the challenge only to one point. According to him, cheque was not issued in discharge of any debt or liability and as the cheque was issued as security deposit, provisions of Section 138 are not applicable. The learned counsel placed reliance upon several authorities in support of his contention. The learned counsel for the respondent/complainant contended that the said cheque was deposited in lieu of the amount of Rs. 10 lacs which would be otherwise required to be deposited as security by the contractor with the respondent for due performance of the contact and, therefore, it must be held that the cheque was issued in discharge of “other liability.” 4. Section 138 of the Negotiable Instruments Act provides that where any cheque was drawn by a person on account maintained by him with the banker for the payment of any amount of money to another person for discharge in whole or in part of any debt or other liability and it was returned by the drawee bank unpaid either because the amount of money in the account is insufficient or it exceeds the amount arranged to be paid, such person shall be deemed to have been committed offence and shall be liable to punishment with imprisonment or with fine or with both. Of course, before the offence is committed, several other conditions are required to be fulfilled. We are not concerned with the same for the decision of the present matter. mportant ingredient for the offence punishable under Section 138 is that cheque must have been issued for the discharge in whole or in part of any debt or other liability. If the cheque is not issued for the discharge of any debt or other liability, Section 138 can not be invoked. It is now well settled legal position that if the cheque is issued only as security for performance of certain contract or an agreement and not towards the discharge of any debt or other liability, offence punishable under section 138 is not made out. In Travel Force v. Mohan N. Bhave and Another 2007 Mh.L.J.3339 , the cheque in question was issued by the accused for investment in fixed deposit and it was accepted by the complainant as fixed deposit in the scheme. As the cheque was dishonoured, the complaint under Section 138 of the Negotiable Instruments Act was filed. Process was issued by the Magistrate. However, the Sessions Court set aside the order issuing the process holding that the cheque was not issued for discharge in whole or in part of any debt or other liability and, therefore, presumption under Section 139 could not arise in favour of the complainant. Revision application filed by the complainant was rejected by this High Court holding that when the cheque was issued only as a deposit and not in discharge of any debt or liability, offence under Section 138 is not made out. 5. In M.S.Narayana Menon @ Mani v. State of Kerala and Another (2006) 6 SCC 39, accused and the complainant were brokers working in the stock exchange and the complainant was to enter into certain transactions on behalf of the accused. The cheque was issued for an amount of Rs. 2,95,033/by the accused in favour of the complainant. On presentation, the cheque was dishonoured. After notice also the payment was not made. In the case under Section 138 plea of the accused was that the complainant was in dire need of financial assistance and the said cheque was issued so as to enable him to tide over his financial difficulties and not in discharge of any debt or liability payable to the complainant. During the trial, it was revealed that there was discrepancy of more than Rs. 14 lacs in the account maintained by the complainant. Accused was convicted by the trial Court but was acquitted by the appellate Court . High Court set aside the acquittal and convicted the accused. Accused went to the Supreme Court. After going to the facts and circumstances, the Supreme Court observed thus in paragraph 52: “52. We, in the facts and circumstances of this case, need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be a part of the debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The appellants clearly said that nothing is due and the cheque was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act.” From these observations, it appears that if the cheque was not issued for discharge of any debt or liability but as a security only, offence is not made out under Section 138. 6. Coming to the facts of the present case from the complaint as well as particulars of the agreement executed on 28.1.2005, it is clear that cheque was issued as a security deposit at the time of entering into contract for due performance of the terms of the contract. Agreement shows that the contractor had deposited the undated cheque no.027840 with the respondent as refundable security deposit for due performance of the agreement. Even the allegations in the complaint are not different. Admittedly, when this agreement was entered into, no debt or liability was in existence and under that agreement, parties had entered into a contract whereby contractor was to perform certain works for the respondent. Naturally, as per the terms of the contract and the allegations made in the complaint if the contractor would fail to perform the agreement, respondent could encash the cheque and recover an amount of security deposit. 7. The learned counsel for the respondents vehemently contended that the contractor was to perform so many works and in respect of some works, his rates were higher and in respect of some other, rates were lower than the other bidders. He was also advanced certain amount for carrying out certain works from time to time. Contractor had completed works in which higher rates were given to him but he ignored to carry out those works where the rates were less and thereafter he ignored to complete those particular works resulting into the disputes between the parties. Admittedly, the disputes had occurred in the year 2006 and the contractor filed a suit against the respondent in the year 2006. Not only was this, admittedly, matter also referred to arbitrator in respect of said disputes. The learned counsel for the respondents pointed out that undated cheque was lying with the respondent since 28.1.2005. However, for the first time a date “4.6.2008” was put on him and then cheque was presented for encashment, which was returned unpaid with endorsement “payment was stopped”. It shows that date was put on the cheque by the respondents long after disputes had arisen between the parties. Proviso (a) to Section 138 requires that the cheque should be 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. In the present case though the cheque was drawn and handed over on 28.1.2005, date was not put on it. If the date would have been put, cheque would have been valid for six months from 28.1.2005. However, the respondent put the date 4.6.2008, i.e., almost three years after the period of cheque was over. Thus, the cheque was not presented to the drawee bank within six months from the date when it was actually drawn. Anyhow, it is not necessary to enter into that controversy for the purpose of deciding the present petition. Fact remains that the cheque was issued towards the security deposit and not towards the discharge of any debt or liability. 8 . The learned counsel for the respondent contends that it is not necessary that the cheque should be issued for discharge of a debt.According to him, it may be issued towards the discharge of other liability also and in support of this, he placed reliance on ICDS Limited v. Beena Shabeer and Another (2002) 6 SCC 426. In that case, husband of the accused/respondent no.1 had obtained a car under hire purchase agreement from the complainant. The accused was a guarantor for payment of the amount by her husband and towards the part payment of the said transaction, she had issued a cheque in favour of the complainant. Cheque was dishonoured and the payment was not made in spite of the notice. High Court quashed the complaint on the ground that cheque from the guarantor could not be said to have been issued for the purpose of discharge of any debt or liability. However, the Supreme Court set aside the order of the High Court. The Supreme Court observed thus in paragraphs 10 and 11. “10. The language, however, has been rather specific as regards the intent of the legislature. The commencement of the section stands with the words “Where any cheque”. The above noted three words are of extreme significance, in particular, by reason of the user of the word “any”the first three words suggest that in fact for whatever reason if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highlighted words if read with the first three words at the commencement of Section 138, leave no manner of doubt that for whatever reason it may be, the liability under this provision cannot be avoided in the event the same stands returned by the banker unpaid. The legislature has been careful enough to record not only discharge in whole or in part of any debt but the same includes other liability as well. This aspect of the matter has not been appreciated by the High Court, neither been dealt with or even referred to in the impugned judgment. 11. The issue as regards the coextensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the statute depicts the intent of the lawmakers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act. “Any cheque” and “other liability” are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of guarantee and guarantor’s liability and thus has overlooked the true intent and purport of Section 138 of the Act. The judgments recorded in the order of the High Court do not have any relevance in the contextual facts and the same thus do not lend any assistance to the contentions raised by the respondents.” Supreme Court in ICDS Ltd. v. Beena Shabeer and Another (2002) Supreme Court Cases 426 considered provisions of the law and held that when the cheque is issued by the guarantor in discharge of such other liability, provisions of section 138 are applicable. Infact, section 138 itself specifically provides that the cheque should have been issued by a person for the discharge of any debt or other liability. The guarantor may not be himself a debtor but he guarantees the repayment of the loan taken by the principal debtor. By giving such a guarantee, the guarantor incurs a liability towards the creditor and for the discharge of that liability, if he issues cheque, he will be covered by the provisions of Section 138. As the cheque was issued for the discharge of “other liability” case would be covered by Section 138. 9 In the present case, there was no liability or debt towards the complainant/respondent when the cheque was issued by the contractor. From the language of the agreement as well as allegations made in the complaint, it is clear that said cheque was issued as security deposit and not towards the discharge of any debt or lone. The learned counsel for the respondent contended that in M.S.Narayana Menon @ Mani (Supra), evidence was led by the parties and on the basis of evidence, the Supreme Court came to conclusion that the cheque was issued as a security and, therefore, Section 138 would not be applicable. According to the learned counsel, in this case only process has been issued and the parties are yet to go to the trial and, therefore, said authority in M.S. Narayana Menon @ Mani (Supra) would not be applicable. It would be difficult to accept this contention. Ratio in M.S.Narayana Menon @ Mani (Supra), is applicable to the facts of the present case. When on the face of the complaint itself, it is clear that the cheque was issued as a security deposit and not towards the discharge of any debt or other liability, case under Section 138 is not made out. When the complaint itself does not make out criminal case to issue the process, to force the accused to undergo trial would be clear misuse of the process of the Court and this should not be allowed. The Additional Sessions Judge while rejecting the revision application dealt with the liability of the contractor on the basis of terms of the contract and the cheque. The learned counsel for the respondent also contended that the matter was referred to arbitrator and arbitrator also held that the contractor is liable to pay on the basis of that cheque. As far as civil liability of the contractor/petitioner is concerned, it is not necessary to look into the same in present matter. Suit was filed in the year 2006 and the arbitrator was also appointed in 2008, therefore, civil liability of the parties against each other can be looked into the said litigation or arbitration proceedings. In the present matter, we have only to see whether the offence under Section 138 of the Negotiable Instruments Act is made out or not. The learned Revisional Court did not address to this question properly before rejecting revision application. 10 In view of the facts and circumstances, I find that no case to issue process under Section 138 was made out and, therefore, process issued by the trial Court is liable to be quashed. 11 For the aforesaid reasons, petition is allowed. The order passed by the learned Metropolitan Magistrate to issue process under Section 138 is hereby quashed. Rule made absolute accordingly.



Learning

 33 Replies

MohammedRaffiq Bijapur (Advocate)     08 October 2012

Brother i beleive there are contrary citations of supreme court.

annonymous (na)     08 October 2012

Originally posted by : MohammedRaffiq Bijapur

Brother i beleive there are contrary citations of supreme court.

According to recent Judgement by supreme court "A cheque  filled  by someone else  with different  ink  (where just sign of accused  is there , rest filled with different ink) ......... Such cheque is no cheque at all (Google judgement).

Now most of the security cheques(if not all)  are  blank cheques with accused sign only ....

I think it is  a great defence supporting above judgement.

1 Like

R Trivedi (advocate.dma@gmail.com)     09 October 2012

The utter incompetence of trial courts, the lack of proper guidelines by honorabel Apex court has made the mockery of NI Act.  More than 70% of around 50 Lacs cases can go in one shot if our trial courts are made to understand 

 

1. What is GPA and its role in filing the complaint and giving evidence.

2. What is the definition of  Cheque.

3. Difference between holder & Possessor.

4. The date of delivery of cheque is same as that of execution date.

5. Non applicability of S.20 on cheques.

6. Blank cheque is no cheque, and cheque cannot be a security, a security cheque has no meaning.  

1 Like

ACCUSED138 (NONE)     17 October 2012

SIR,

Please provide the judgement about below:

According to recent Judgement by supreme court "A cheque filled by someone else with different ink (where just sign of accused is there , rest filled with different ink) ......... Such cheque is no cheque at all (Google judgement).

Now most of the security cheques(if not all) are blank cheques with accused sign only ....

I think it is a great defence supporting above judgement.


Regards

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     17 October 2012

Many accused are carried away by such words as SECURITY CHEQUE , it is not applicable to all and sudry.

Please read the entire citation carefully.

However still the accused can win easily if the case is contested properly from day one.

 

Please apply in cross the provisions of section 20 of negotiable instruments act and you need not confuse in about security cheque and what not. What this section says -

 

 20. Inchoate stamped instruments. Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in 2[ India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: provided that no person other than a holder in due course shall recover from the person delivering the instrument any thing in excess of the amount intended by him to be paid thereunder.

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     17 October 2012

Please find below the portion of a MADRAS HIGH COURT JUDGMENT. ADVOCATES OF ACCUSED SHOULD USE IT AT FULL EXTENT.

THE ARGUEMT OF THEIR LORDSHIPS IS SUFFICIENT TO PROVE ANY BLANK BUT SIGNED CHEQUE AS ILLGEAL.

 

 

17. As per the Negotiable Instruments Act, limitation has been prescribed and as such, though a signed cheque would lead to the presumption of authorising the drawee to fill it up, and present it for payment, the limitation of six months prescribed under the Act, cannot be altered by way of an undated cheque being filled up after one year and six months. In this case, it has been proved that the undated cheque was handed over on 09.09.1998 to one year and six months prior to the date available in the cheque, and therefore, it cannot be legally presumed that the revision petitioner had authorised the respondent to fill it up and present it at any time even after the statutory period of limitation, according to his convenience. This Court is of the considered view that filling up an undated cheque against the limitation prescribed under the Negotiable Instruments Act would be against the legislative mandate of the said Act and would create an anomalous situation likely to be misused by unscrupulous litigants. Therefore, I am of the view that the undated cheque issued and handed over on 09.09.1998 would not create the presumption that the revision petitioner had authorised the respondent to fill up the date as 28.03.2000, one and half years after the same was handed over to be presented for payment, and therefore, the alleged cause of action based on Ex.P.3 is not sustainable to maintain the criminal complaint against the revision petitioner.

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     17 October 2012

Another expert from a citation of MUMBAI HIGH COURT  about blank cheque.

 

 

9. The Trial Court on the basis of the evidence on record has given a finding that a blank cheque was issued to the complainant after the evidence on record and has held that if a blank cheque is issued by any person and amount payable is not mentioned it does not constitute a cheque and, therefore, the penal provisions of Section 138 of the said Act are not attracted. The Trial Court has relied on the judgments of the Supreme Court in support of the said finding. In my view, the finding recorded by the Trial Court cannot be said to be perverse. The accused has changed his defence from time-to-time during the course of the trial.

R Trivedi (advocate.dma@gmail.com)     18 October 2012

S.20 of NI Act is not applicable to cheques.

 

-- If it can be proved that the cheque on delivery, was blank, and complqainant filled up the amount without explicit consent, then matter ends.

 

-- In general it is difficult to prove that the cheque was blank, mainly because different hand writing on the cheque is otherwise acceptable. 

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     18 October 2012

R TRIVEDI do you  KNOW more than the the LORDSHIP OF HIGH COURT  that is the High court of Madras whose citation is produced above.

 

Read the full judgment before commenting on the  HICH COURT JUDGEMENTS.

R Trivedi (advocate.dma@gmail.com)     18 October 2012

My statement is for accused defense only, I have not commented on the High Court order, I supported the view, although High Court attached the limitation aspect, which gives an impression that if the cheque was in limitation then possibly complainant could have filled it up ?? But High Court has not concluded that S.20 is applicable on cheques.

 

The Act itself says that S.20  is not applicable on Blank cheques.

 

Please refer to the Act S.20

 

1. Cheque is not a Stamped  Instrument ... so S.20 ruled out on cheques.

2. Cannot figure out the amount (upper limit of amount, which is the part of S.20)

3. In any other stamped Negotiable Instrument by virtue of value of Stamps, the upper limit can be ascertained, not in the case of cheque, S.139 fails if the complainant admits that he filled up the amount without consent.

4. A Blank leaf is not a cheque at all.

 

 

So Dear "Solved Problems", I like your ballastic approach, there used to be a gentleman called JSDN earlier, he was also very ballastic, and I am sure very supportive to accused cause,  but by now you know how our trial courts operate, there is a total procedural chaos and irregularities in case of cheque bounce cases across the trial courts. refer to Mandvi Coop Case by Apex Court and see if the same is being followed or not.  Read few of Kerala High Court orders (Justice Hema), execution of cheque, holder, possessor all will be cleared, but will it be to trial court magistrate ???

Curious Sam (Self)     19 October 2012

SIR,

Please provide a link to the judgment below.

 

Originally posted by : ACCUSED138


SIR,

Please provide the judgement about below:

According to recent Judgement by supreme court "A cheque filled by someone else with different ink (where just sign of accused is there , rest filled with different ink) ......... Such cheque is no cheque at all (Google judgement).

Now most of the security cheques(if not all) are blank cheques with accused sign only ....

I think it is a great defence supporting above judgement.


Regards

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     20 October 2012

iiiIt needs skill to fight for the accused and win.

GHowever  R TRIVEDI  you are just finding some excuse or other to find fault..You had also commented on the recent SURPRME COURT  judment for validity of second notive.

NOW YOUR CONCEPTION IS NOT CLERA THAT SECTION 20 IS NOT APPLICABLE FOR CHEQUES.

For your knewledge please read the ENTIRE  judgment of SC  in the matter-

 

PETITIONER:T. Nagappa RESPONDENT:.R. Muralidhar.
 
I am just giving a portion of it below-
 
6. The learned Trial Judge, as also the High Court, in support of their
respective orders, have relied upon Section 20 of the Negotiable Instruments
Act, which reads as under :
"Section 20 - Inchoate stamped instruments.\027
Where one person signs and delivers to another a
paper stamped in accordance with the law relating
to negotiable instruments then in force in 1 [India],
and either wholly blank or having written thereon
an incomplete negotiable instrument, he thereby
gives prima facie authority to the holder thereof to
make or complete, as the case may be, upon it a
negotiable instrument, for any amount specified
therein and not exceeding the amount covered by
the stamp. The person so signing shall be liable
upon such instrument, in the capacity in which he
signed the same, to any holder in due course for
such amount; provided that no person other than a
holder in due course shall recover from the person
delivering the instrument anything in excess of the
amount intended by him to be paid thereunder."
By reason of the aforementioned provision only a right has been
created in the holder of the cheque subject to the conditions mentioned
therein. Thereby only a prima facie authority is granted,

R Trivedi (advocate.dma@gmail.com)     20 October 2012

Validity of second NOTICE: Earlier it was ruled that once the notice is given the case must be filed in time table, and once the notice is given the cheque cannot be rebounced for saving on limitation. Now this has been over ruled by SC, that means cheque if in validity period can be re presented and a fresh notice can be given. No dispute and neither I have questioned this. This is good.

 

Regarding S.20, no court till today has explicitly considered the point that the cheque is a stamped instrument. All the orders are in flow and under the assumption that once a document (repeat document) is signed, then drawer to certain extent is reponsible for execution.

 

There is no standard rule for alteration if it is not visible.

 

Ideally a cheque has been taken off from the list of stamped instrument way back in early 1930s by government notification (some finance bill), and S.20 is for Stamped Negotiable Instruments, and hence not for cheque. Show me a single order where complainant has stated that he recived the blank cheque and filled up the amount without the consent of drawer. Case ends then and there and S.20 argument fails.  This aspect is brough to the notice of the court by accused only, there are few cases wherein the accused had a proof that blank security cheque was issued and accepted by complainant, accused won, S.20 did not help complainant.

 

In absence of solid proof (different hand writing is not solid proof per say) Courts gives more importance to the fact that cheque can be filled up by any one..true, courts tend to belive that once the cheque signature is admitted, its execution is proved...false.

 

The law has a proper procedure for proving of execution of any document, signature goes a long way, but it is not the final word if accused can raise suitable defense that he did not fill up the cheque and it was blank when given and complainant filled up without his consent.

 

SC is so troubled by S.138 cases that within a year SC will be forced to issue suitable guidelines to throw away blank cheques, secuirty cheuqe cases at the thershold. Think of it a  piece of pape called blank cheque (just signed)  what kind of mortgagable value it has ? Zero ? The matter regarding S.138 is of dishonesty, more than 50% complainants are dishonest in true sense. You know it. 

 

 

More importantly  I have not found any fault with your post..why are you aggrieved.. please read my response again, I added to your argument tha S.20 cannot blanketly help complainant. I find fault only when utterly incorrect advise is given

LAXMINARAYAN - Sr Advocate. ( solve problems in criminal cases. lawproblems@gmail.com)     21 October 2012

My point is only one that give solution for actual working of the courts, mere theory or reasioning cofuses the victim.

YES WE ARE FOR THE ACCUSED AND BELIEVE THAT HE MUST WIN . SO WE GIVE PRACTICAL SOLUTIONS.

Now telling that NI SECTION 20 is not applicable is not correct. Read the above SUPREME COURT JUDGMENT. Our advice is how to circumvent this provision by the accused and win the case.


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