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Rajesh Kumar (Manager)     04 May 2011

Security Cheque - NI Act

Dear Experts,

I have a friend who is an NRI shown interest to invest in my small firm through his relative. He want to remit the amount into my account, so before doing that he wanted me to give a "security cheque" and once the amount is remitted in to my account then I agreed to do partnership deed and also he agreed to do return my security cheques. Now I am okay to give him the security cheque on the following terms / condition.
 

_________________________________________________________________________________

I am herewith enclosing the cheque bearing no: ____________ for Rs/- _____________________ you have to present this cheque for encashment only after  you Mr.___________ remit the amount _________ in my account __________, if you doesnot remit the amount into my account __________ then you have to return the cheque to me.

_________________________________________________________________________________

Please suggest whether it is okay or need more conditions, so that If he fails to remit the amount into my account and he should not deposit my cheques thus casuing me a trouble of NI 138 ACT etc.  

 

Thank you all



Learning

 4 Replies

adv. rajeev ( rajoo ) (practicing advocate)     04 May 2011

You add another sentence" This cheque is issued as a security but not for encashment"  Without informing me you cannot send the cheque for encashment"

Send the copy of the same to your banker and inform them that if the Cheque No:__ received for payment by anybody inform me the same and stop the payment of the cheque.

DEFENSE ADVOCATE.-firmaction@g (POWER OF DEFENSE IS IMMENSE )     04 May 2011

cheque bounce is an offense, the conditions will be gone into only at trial and not earlier.

BHARGAV BHATT (Lawyer)     27 June 2015

Hi ! How is about following judgment :

2009 (3) G.L.H. 742
D.H.WAGHELA, J.

Hitenbhai Parekh Proprietor-Parekh Enterprises ... Appellant

Versus

State of Gujarat and Anr.....Respondents

Criminal Appeal No. 1189 of 2009
An Appeal challenging the judgment and order dated 12.01.2009 in Criminal Appeal No.48 of 2008 whereby learned Additional Sessions Judge set aside the judgment and order dated 09.01.2008 of learned Chief Judicial Magistrate, Ahmedabad in Criminal Case No.3243 of 2004 and acquitted the respondent of the offence under Section 138 of the Negotiable Instruments Act, 1881.
D/-06.10.2009

[A] CRIMINAL LAWS DISHONOUR OF CHEQUE - Negotiable Instruments Act, 1881 - S. 118, S.138, and S.139 - Complainant and the accused had business transactions - Cheque issued by the accused dishonoured - Magistrate recorded conviction and awarded sentence - On the appeal, Sessions Court set aside the conviction on the ground that complainant did not produce books of account, income-tax returns, etc. so as to prove legally enforceable debt - On a challenge to the acquittal by the complainant - Held, documents like original invoice, debit notes and ledger produced and exhibited clearly showed debit balance - Though there is no presumption as regards any debt or liability being "legally enforceable", once a debt or other liability is presumed and not properly rebutted, it would be legally enforceable, unless and until it is shown to be legally unenforceable - On facts, held, complainant produced total proof of debit balance and liability of the cheque amount - Accused only disputed the liability by showing that the goods were returned after 75 days - Legal presumptions in favour of complainant which the accused could not rebut and disprove the same by any credible preponderance of probabilities -Conviction recorded - However, as the accused was a lady, instead of sentence of imprisonment, fine of double the amount of cheque imposed - Acquittal appeal allowed.

It was clear from perusal of the original record and proceedings which were called for, and fairly conceded by learned Counsel appearing on both sides, that the documents produced by the complainant at the instance of the accused and exhibited in evidence included the original invoice (Exh.38), with the condition that the material sold by the bill will not be taken back after seven days and that interest will be charged @24% per annum after due date; the debit notes for the amounts of Rs.750/- and Rs.58,656/-(Exhs.16/4 and 16/3) as also the other debit notes exchanged between the parties. The important documents so exhibited at Exh.23/i, being copies of ledger for the period from 01.4.2002 to 31.3.2003, 01.4.2003 to 31.3.2004 and 01.4.2004 and 31.4.2004, clearly showed in the account of the respondent the debit balance of Rs.2,08,074/- with the details of all the financial transactions taking place between the parties during that period. Therefore, it appears to be absolutely incorrect and perverse for the appellate Court to conclude that the complainant had miserably failed to produce cogent proof, such as books of account, income-tax return/report etc., to prove that there was legally enforceable debt. (Para 4.1)

Consequently, in all given fact-situations, the Court is required to examine whether the presumptions regarding consideration and there being any debt or other liability are rebutted by the accused person by preponderance of probabilities and whether the complainant has proved that the debt or other liability, presumed or proved by overwhelming evidence, was legally enforceable. Although there is no presumption as regards any debt or other liability being legally enforceable, it would be found that once a debt or other liability is presumed and not properly rebutted, it would be legally enforceable, unless and until it is shown to be legally unenforceable. Such scheme of the provisions of law clearly indicates the object of serving the purpose of realization of the promise apparently contained in a negotiable instrument, which is that the amount for payment of which the bill of exchange was intended to be made will be paid to the payee or the holder in due course. (Para 9)

Thus, as against the proof of total debit balance and liability of the cheque amount, the respondent-accused person had only disputed liability by stating and proving that the goods sold by the aforesaid invoice was sought to be returned after nearly 75 days. Therefore, on the one hand, the complainant had adduced sufficient evidence proving legally enforceable debt in terms of the amount due on sale of goods, with express stipulations, the debit notes issued and the accounts maintained in the regular course of business and, on the other hand, the accused person had only proved an attempt to return the goods. Thus, the legal presumptions in favour of the complainant and the proof of legal liability of the accused were not rebutted or disproved by any credible preponderance of probabilities. Under such circumstances, not only all the ingredients and circumstances for constituting the offence of dishonour of. cheque were fulfilled, but the accused person appeared to have relied upon irrelevant facts for setting up a dishonest defence by denying any liability. Therefore, it is a fit case for convicting the respondent for the offence punishable under Section 138 of the Act and sentencing her to proper punishment.(Para 11)

[B] CRIMINAL LAWS DISHONOUR OF CHEQUE - Negotiable Instruments Act, 1881 - S.5, S.6, S.20, S.87, S.118 and S.139 -Accused taking a defence that the cheque was "blank" when it was delivered and the complainant filled in the amount, etc. subsequently - Further defence that a "blank cheque" is not a "cheque" and no penal proceedings can be initiated due to its dishonor - Held, bills of exchange in general and cheques in particular represent money with the characteristics of contract in the form of either an order or promise to pay money - If its is made, drawn, accepted, indorsed or transferred without consideration or for a consideration which fails, it creates no obligation - Payee is not entitled to recover to the extent of which the consideration has failed or is absent, but in case of partial absence or failure of consideration, if such part is not ascertainable in money, it will be no bar for recovery of the whole amount -Harmonious reading of the provisions indicate that a cheque could be drawn, delivered and received by the payee or the holder in due course could be legally completed and until contrary is proved, such an instrument would be presumed to be drawn for consideration - Legally permissible completion of an inchohate instrument cannot be construed as material alteration - Thus, when a cheque bearing signature of the drawer is delivered, there is an implied authority for the person receiving such cheque to complete it by filling the blanks -Whether the amount in cheque was not mentioned at the time of drawing or the blanks being filled in later on becomes immaterial - Contentions of the accused negative - Case law discussed.

Against the above backdrop of facts, the respondent, accused person, appears to have taken shifting stands in defence to contend firstly that the cheque was misused, then that enforceable debt was not proved and, then before this Court, that a "blank cheque" was not a "cheque" at all. Issues regarding the burden of proving enforceable debt or other liability, the application of presumptions and the definition of "cheque" having been raised in this appeal, (Para 5)

The plain and simple statutory language of the age-old law, as applied in myriad different factual situations, would clearly indicate that bills of exchange in general and cheques in particular represent money with the characteristics of contract in the form of either an order or a promise to pay money. The paper on which it is written possesses the quality of being negotiable. The Negotiable Instruments Act in most respects is a modification of the Common Law on the subject and its provisions are in many respects declaratory of the Common Law.(Para 8)

No contract gives rise to any liability, unless the transaction is supported by consideration. However, an important distinction in the case of negotiable instruments is to be noticed. These instruments being mercantile instruments intended for free circulation like cash, the Law Merchant lays down restrictions as to the defence of want of consideration. If a negotiable instrument is made, drawn, accepted, indorsed ortransferred without consideration or for a consideration which fails, it creates no obligation between the parties to the transaction. Partial absence or partial failure of consideration consisting of money stands on the same footing as its total absence or failure. Hence, the payee is not entitled to recover to the extent to which the consideration has failed or is absent, but in case of partial absence or failure of consideration not consisting of money, such part of the consideration must be ascertainable in money without collateral Inquiry; otherwise rt will not bar the recovery of the whole amount. (Para 8.1)

The presumption under Section 139 is mandatory but rebuttable by proof of facts contrary to the receipt of cheque for discharge of any debt or other liability. The initial burden, however, of proving that the cheque was drawn by the drawee for payment of any amount of money and it being returned by the bank unpaid remains with the complainant. The presumptions under Section 118 are also mandatory but rebuttable and could be availed only until the contrary is proved. Even as a bill of exchange, by definition, requires signature of the maker as also direction to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument, the provisions of Section 20 permits signature and delivery of an incomplete negotiable instrument and provides that the maker thereby gives prima facie authority to the holder thereof to make or complete it into a negotiable instrument and makes the signatory of such instrument liable to any holder in due course to the extent of the amount intended to be paid thereunder. Therefore, harmonious reading of the provisions of Sections 5, 6, 20, 118 and 139 would clearly indicate that a cheque could be drawn, delivered and received by the payee or holder in due course and could legally be completed under a legal authority and when such inchoate instrument is completed to make it a negotiable instrument, it would fall within the definition of "bill of exchange" and would render the signatory liable upon such instrument to the extent the amount mentioned therein is intended by him to be paid thereunder. Unless and until contrary is proved, such negotiable instrument would be presumed to be made or drawn for Consideration and receipt thereof would be presumed to be for discharge, in whole or in part, of any debt or other liability. However, such debt or other liability is not by any legal presumption presumed to be a legally enforceable debt or other liability. (Para 9)

Any material alteration of a negotiable instrument, however, lenders it void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless the alteration was made in order to carry out the common intention' of the original parties. The provision to that effect contained in Section 87 has to be read in harmony with Section 20 which permits and authorizes the holder of a negotiable instrument to complete the instrument for any amount and renders the drawer liable to the holder in due course to the extent of the amount intended by the drawer to be paid under such instrument. It is clear from plain reading of provisions of Section 20 and 87 that the injunction, under the pain of invalidating a negotiable instrument, against alteration operates only after an inchoate instrument is completed or a complete instrument falls within the definition of "negotiable instrument". Therefore, the legally permissible completion of an inchoate instrument cannot be construed as material alteration of a negotiable instrument.(Para 9.1)

The above analysis of the statutory provisions leads to the conclusion that, when a cheque bearing only signature of the drawer is delivered and received by a payee for the discharge, in whole or in pan, of any debt or liability, there is an implied authority for the person receiving such cheque to complete it by filling the blanks and the amount having been filled up under such implied authority would be the amount intended by him to be paid thereunder. The focus in such cases would shift to the aspect of such amount being for the discharge, in whole or in part, of any legally enforceable debt or other liability. Therefore, even with the props of legal presumptions, the onus of proving legally enforceable debt or other liability for the discharge of which a cheque must have been drawn has to be discharged by the prosecution for bringing home the charge of dishonour of cheque. It may, however, be facetious to hold that a blank cheque, drawn by a person on an account maintained by him with a banker, for payment of any amount of money to another person, by merely putting his signature on it, would not be a "cheque" in the first place, because of not being a "bill of exchange" as it did not contain direction to a certain person to pay a certain sum of money to or to the order of a certain person or to the bearer of the instrument. When the Negotiable Instruments Act expressly permits and authorizes by a substantive provision the completion of an inchoate instrument by Section 20 with the safeguard provided in Section 87, provisions of Sections 5 and 6 defining "bill of exchange" and "cheque" have to be harmoniously read to mean that an instrument which was initially not a "cheque" falling within the definition of Section 6 would become a "cheque" when it was completed by filling the blanks and its dishonour shall have all the legal consequences of dishonour of a cheque proper. (Para 10)

Applying the above construction of the relevant provisions in light of the overall scheme of the Act, it would appear that, in the facts of the present case, whether the amount in the cheque in question was not mentioned at the time of drawing it and whether it was filled up afterwards by the payee becomes immaterial and pales into insignificance. (Para 11)

    Cases Referred :

1. Nagisetty Nagaiah v. State of A.P. [2004 Cr.LJ. 4107] Relied (Para 3)
2. Capital Syndicate v. Jameela [2003 (2) Crimes 122] Relied (Para 6)
3. Joseph Sartho v. Gopinathan Nair [2009 (2) Crimes 463) Relied (Para 6)
4. Kumar Exports v. Sharma Carpets [(2009) 2 SCC 533] (Para 6)
5. Krishna Janardhan Bhat v. Datta raya G. Hegde [ 1 (2008) CCR 199] (Para 6)
6. M.S.Naranaya Menon v. State of Kerala [(2006) 6 SCC 39], (Para 6)
7. Shreyas Agro Services Pvt. Ltd. v. Chandrakumar S.B. [2006 Cr.LJ. 3140], (Para 6.1)
8. Uppinangady Grama Panchayath, Puttur v. P. Narayana Prabhu [[2006 CrX.J. 3141] (Para 6.1)
9. Keygien Global Ltd. v. Madhav Impex [2006 Cr.LJ. 3413] (Para 6.1)
10. Taher N. Khambati v. Vinayak Enterprises [Crimes (HC) 1995 (4) 204] (Para 6.1)
11. Kamalammal v. C.K.Mohanan [2007 Cr.LJ. 3124] (Para 6.1)
12. Kamala S. v. Vidhvadharan M.J. [2008 (1) GLR 423], (Para 6.2)
13. John K. John v. Tom Varghcse [(2007) 12 SCC 714] (Para 6.2)
14. Hiten P.Dalal v. Bratindranath Banerjee [(2001) 6 SCC 16], Relied (Para 7)
15. Lillykutty v. Lawrence [2003 (2) DCR 610] (Para 7)
16. Assoo Hajee v. K.I.Abdul Latheef [2005 Cr.L.J. 640] (Para 7)
17. Bhaskaran Chandrasekharan v. Radhakrishnan [1998 Cr.LJ. 3228(1)] (Para 7)
18. Bank of Baroda v. Punjab National Bank Ltd. [1944 PC 58], (Para 8)

    Appearance

:

Mr. Hriday Buch For-Appellant : 1,
Ms. Trusha Patel Addl. Public Prosecutor For Opponent : 1,
Mr. S.P.Majmudar For Opponent : 2,
Mr. P.P.Majmudar For Opponent : 2,

    PER : MR. D.H.WAGHELA, J.

:-

1.

The appellant has challenged the judgment and order dated 12.01.2009 in Criminal Appeal No.48 of 2008 whereby learned Additional Sessions Judge set aside the judgment and order dated 09.01.2008 of learned Chief Judicial Magistrate, Ahmedabad in Criminal Case No.3243 of 2004 and acquitted the respondent of the offence under Section 138 of the Negotiable Instruments Act, 1881 (for short, 'the Act') for which she was convicted by the trial Court.

2.

The indisputable facts emerging from the record are that the complainant, present appellant, and the accused person had business relations in which pharmaceutical raw materials was supplied by the appellant between 11.6.2003 and 23.01.2004 and a cheque dated 03.02.2004 was given by the respondent which was dishonoured by the bank for insufficient fund, on 06.02.2004. Therefore, notice under Section 138 of the Act was issued and served; and upon noncompliance with the demand, the complaint was lodged. The defence of the accused in reply to the statutory notice consisted of denial of issuance of the cheque and misuse of the cheque, besides the contention that the goods sold and supplied to her firm was returned and that there were other disputes. During the course of trial, even as no witness was examined in defence, the accused relied upon the delivery challan under which the goods was sent back through a transporter to the complainant. The accused also relied upon the statements made in cross-examination of the complainant and put up the defence that the complainant had failed to prove enforceable debt against her. The trial Court, relying upon the oral and documentary evidence produced by the complainant, came to the conclusion that the cheque was issued against the invoice for the supply of goods worth Rs.1,48,668/- to which other amounts debited to her account were added and the total amount of the cheque of Rs.2,08,074/ - was proved to be due by the invoice, debit notes and other charges. Thus, the trial Court recorded conviction and sentenced the respondent to two years of simple imprisonment and fine of Rs.25,000/-, in default, to two months of simple imprisonment.

3. Carrying the above judgment of the trial Court in appeal, the respondent, inter alia, contended that no amount was outstanding against her since the goods sold to her by the invoice, as aforesaid, was returned and the cheque which was given as advance towards settlement of account was misused. The appellate Court adopted the view that the complainant had totally failed in discharging the initial burden of proving that there was legally enforceable debt, by producing cogent proof, such as books of account, account note book, income-tax report, income-tax return, audit report, audit books etc. and, therefore, in absence of proof of legally enforceable debt on the part of the complainant, the accused could not be asked to discharge her burden of rebutting the presumptions arising under Section 139 of the Act. The appellate Court noted that the complainant had not examined any independent witness in support of his case and it relied upon judgment of Andhra Pradesh High Court in case of Nagisetty Nagaiah v. State of A.P. [2004 Cr.L.J. 4107]. The approach of the appellate Court is practically summarised in para 21 of the impugned judgment which reads as under:

"21. Here in this case, though the accused has not complied with the demands of the statutory notice of the complainant, the complainant has also miserably failed to produce cogent proof such as books of account, income-tax return/report, audit report etc. to prove that there was legally enforceable debt by the accused. It is also clear that the complainant has himself failed to discharged the initial burden that there was legally enforceable debt. Therefore, the complainant, respondent No. 1 herein, cannot seek the plea and take advantage merely on return of the cheque unpaid on the ground of insufficient funds. Even otherwise, he has not examined any independent witness in support of his case."

The accused having thus succeeded in the first appeal, the complainant has approached this Court with the plea that legally enforceable debt was duly proved by sufficient evidence and the impugned judgment was perverse and illegal.

4. Before embarking upon re-appreciation of the evidence and application of relevant legal provisions and precedents, it may be pertinent to note the relevant dates and statements of the complainant in his cross-examination. The invoice for sale of goods worth Rs. 1,48,668/- was dated 05.07.2003. While the business transactions between the parties was continuing between 11.06.2003 to 23.01.2004, the cheque was dated 03.02.2004 for Rs.2,08,074/-. Before that, the goods was sought to be returned through a transporter on 24.09.2003 and it was lying with the transporter till 03.03.2004. The cheque was dishonoured by the bank on 06.02.2004. The complainant had, by producing documentary evidence at Exh.24, sought to prove and justify the other debit entires for Rs.750/- and Rs.58,656/- for which debit notes were issued. As against that, there was no evidence of receipt or acceptance by him of the goods sought to be returned by the accused. These facts lead to the conclusion that the amount in the cheque in question was filled up afterwards by the complainant and the dispute had arisen because the accused tried to return the goods after more than four months of the invoice therefor. It was categorically stated by the complainant in his deposition that there was no separate contract for recovering late payment charges, but the invoice contained a clause in that regard.

4.1 It was clear from perusal of the original record and proceedings which were called for, and fairly conceded by learned Counsel appearing on both sides, that the documents produced by the complainant at the instance of the accused and exhibited in evidence included the original invoice (Exh.38), with the condition that the material sold by the bill will not be taken back after seven days and that interest will be charged @24% per annum after due date; the debit notes for the amounts of Rs.750/- and Rs.58,656/- (Exhs.16/4 and 16/3) as also the other debit notes exchanged between the parties. The important documents so exhibited at Exh.23/1, being copies of ledger for the period from 01.4.2002 to 31.3.2003, 01.4.2003 to 31.3.2004 and 01.4.2004 and 31.4.2004. clearly showed in the account of the respondent the debit balance of Rs.2.08.074/- with the details of all the financial transactions taking place between the parties during that period. Therefore, it appears to be absolutely incorrect and perverse for the appellate Court to conclude that the complainant had miserably failed to produce cogent proof, such as books of account, income-tax return/report etc., to prove that there was legally enforceable debt.

5. Against the above backdrop of facts, the respondent, accused person, appears to have taken shifting stands in defence to contend firstly that the cheque was misused, then that enforceable debt was not proved and. then before this Court, that a "blank cheque" was not a "cheque" at all. Issues regarding the burden of proving enforceable debt or other liability, the application of presumptions and the definition of "cheque" having been raised in this appeal, it would be necessary to first set out, as under, the relevant statutory provisions:

"S.5 Bill of exchange -

A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

A promise or order to pay is not "conditional", within the meaning of this Section and Section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which. according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain.

The sum payable may be "certain", within the meaning of this Section and Section 4, although it includes future interest or is payable at an indicated rate of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that payment is to be made may be a "certain person", within the meaning of this Section and Section 4, although he is mis-named or designated by descripttion only.

S.6 "Cheque"-

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Explanation I- For the purposes of this Section, the expressions-

(a) "a cheque in the electronic form" means........

(b) "a truncated cheque" means ..........

Explanation -II For the purposes of this Section, the expression "clearing house" means ........

S.13 "Negotiable instrument"-

(1)

A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. S.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 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 ease 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.

S.87 Effect of material alteration-

Any material alteration of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties;

Alteration by indorsee

-

And any such alteration, if made by an indorsee, discharges his indorser from all liability to him in respect of the consideration thereof.

The provisions of this Section are subject to those of Sections 20, 49, 86 and 125.

S.118 Presumptions as to negotiable instruments-

Until the contrary is proved, the following presumptions shall be made:-

(a) of consideration - that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted. indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;

(b) as to date - that every negotiable instrument bearing a dale was made or drawn on such date;

(c) as to time of acceptance - that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity;

(d) as to time of transfer - that every transfer of a negotiable instrument was made before its maturity;

(e) as to order of indorsements - that the indorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;

(f) as to stamps - that a lost promissory note, bill or exchange or cheque was duly stamped;

(g) that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

S.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, lo 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.

S.139 Presumption in favour of holder-

It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability".

6. Learned Counsel for the respondent-accused relied upon judgment of Kerala High Court in Capital Syndicate v. Jameela [2003 (2) Crimes 122] and the observations that cheque to be valid, should certainly specify the amount and details regarding payee. If at the time of issue, amount is not specified and payee is uncertain, then cheque does not become a valid negotiable instrument as defined in the Act. Though the subsequent putting of the date in an undated cheque would not always amount to material alteration rendering the instrument void under Section 87 of the Act, the subsequent insertion of the amount and the name ofthe payee without the consent of the drawer would amount lo material alteration rendering the instrument void under Section 87 of the Act. Another judgment of Kerala High Court in Joseph Sartho v. Gopinathan Nair [2009 (2) Crimes 463] was relied upon for the proposition that, when cheque did not represent the amount or part of the amount due. the accused cannot be made liable for dishonour of such cheque. In Kumar Exports v. Sharma Carpets [(2009) 2 SCC 513] where the defence that blank cheques were obtained as advance payment was found to be probable, it was held by the Supreme Court that the burden of proof would shift on the complainant; and since the complainant did not produce any books of account or stock register maintained by him in the course of his regular business to establish as a matter of fact that the goods were sold by him, presumptions were held to have been rebutted. It was observed that, a presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists. When a presumption is rebuttable, it only points out that the party on whom lies the duty of going forward with evidence on the fact presumed, and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of the presumption is over. It is also observed by the Supreme Court in Krishna Janardhan Bhat v. Datta raya G. Hegde [ 1 (2008) CCR 199] that existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act, It merely raises a presumption in favour of the holder of a cheque that the same has been issued for discharge of any debt or other liability. The Court went on to observe in para 34 that the statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have been rebutted. Other important principles of legal jurisprudence, namely presumption of innocence as a human right and the doctrine of reverse burden introduced by Section 139 should be delicately balanced. Such balancing acts, indisputably would largely depend upon the. factual matrix of each case, the materials brought on record and having regard to legal principles Governing the same. In M. S. Naranaya Menon v. State of Kerala [(2006) 6 SCC 39], the Supreme Court observed that, for rebutting the presumption of consideration, what is needed is to raise a probable defence. Even for that purpose, the evidence adduced on behalf of the complainant could be relied upon. It is not necessary for the Defendant to disprove the existence of consideration by way of direct evidence. The standard or proof evidently is preponderance of probabilities. Inference of preponderance of probabilities can be drawn not only from the materials on record but also by reference to the circumstances upon which the accused relies. The accused need not disprove the prosecution case in its entirety. Moreover, the onus on an accused is not as heavy as that of the prosecution. It may be compared with that on a Defendant in a civil proceeding.

6.1 In Shreyas Agro Services Pvt. Ltd. v. Chandrakumar S.B. [2006 Cr.L.J. 3140], the Karnataka High Court held that, if the drawee were to dishonestly fill up any excess liability and if the extent of liability becomes a bona fide matter of civil dispute, the drawer has no obligation to facilitate the encashment of cheque. And the same High Court also held in Uppinangady Grama Panchayath, Puttur v. P. Narayana Prabhu [2006 Cr.L.J. 3141] that, to warrant prosecution under Section 138 of the Act, it is necessary that the cheque should have been issued in respect of either past or current existing debt or other legal liability. Where the cheque was obviously not issued towards payment of damages, there was no legal obligation on part of the accused to effect clearance of the cheques issued towards the rental liabilities for the period during which he was not in occupation of the premises. Again the same High Court in Keygien Global Ltd. v. Madhav Impex [2006 Cr.L.J. 3413] held, where admittedly the accused had not appropriated the goods supplied by the complainant, that the complainant had no right to seek value of the rejected and returned goods and if the rejection of goods were illegal, the complainant had remedy to sue for damages. The Andhra Pradesh High Court in Taher N. Khambati v. Vinayak Enterprises [Crimes (HC) 1995 (4) 204] held that, where the complainant had obtained a blank signed cheque with a view to use it as a threat for realization of an amount, it could not be construed that the accused had issued the cheque voluntarily for discharge of any debt or legal liability as envisaged under Section 138 of the Act. In Kamalammal v. C.K.Mohanan [2007 Cr.LJ. 3124], the Kerala High Court held that there is no presumption under Section 139 or any other provision of the Act that if a blank cheque is issued, it can be presumed that an implied authority is given to the holder of the cheque to fill it up towards discharge of a debt etc. It further held that the presumption available in Section 139 is only in respect of the purpose for which the cheque is received by the holder-complainant, i.e. for discharge of a debt or liability. In the facts of that case, there was no evidence to show that the holder/ complainant "received the cheque". The receipt of cheque by the complainant was held to be a very crucial factor in the peculiar facts and circumstances where the accused had a definite case that a blank signed cheque was handed over to PW.I (the power of attorney-holder) in connection with another transaction and it was misused by her to file the complaint. In Joseph Sartho v. Gopinathan Nair [2009 (2) Crimes 463 (Ker.), it was held that, where the amount of cheque was larger than the amount of debt or liability, dishoner of the cheque would not amount to an offence under Section 138 of the Act. In Avon Organics Ltd. v. Pioneer Products Ltd. (2004 (1) Crimes 567), the Andhra Pradesh High Court held as under:

"6.......If the cheque is not drawn for a specified amount, it does not fall under the definition of a "Bill of Exchange". It cannot be called a "Cheque" within the meaning of Sections 5 and 6 of the Act...."

"7.......The cheque is a kind of bill of exchange, which means the amount payable must be mentioned in the cheque. At the time of issuing the cheque, the amount payable under the cheque is not mentioned. Consent is not given for which the amount was being drawn. It was virtually committed to alteration of the cheque, which is not permissible. The letters do not make a specific mention that they can put the amount therein and they can draw. The act of the complainant in filling up the amount portion in words and figures and put the date as per his own choice is certainly a material alteration. A blank cheque cannot be enforced even though it is issued for legal liability........"

"10......I am of considered view that the cheque issued without mentioning the amount for which it is drawn is not a cheque at all. It is not a bill of exchange at all as it is not drawn for a certain amount. When such is the thing, the question of invoking Section 138 of the Act does not arise. May be there is lacunae in Section 138 of the Act, it cannot be said that it covers invalid cheques also. Such an interpretation cannot be put on to it. It is for the Legislature to look at the lacunae found........"

6.2 In Kamala S. v. Vidhyadharan M.J. [2008 (1) GLR 423], the Supreme Court held it to be well-settled that when two views were possible, the High Court exercising its appellate power against a judgment of acquittal shall not ordinarily interfere. In John K. John v. Tom Varghese [(2007) 12 SCC 714], the Supreme Court held that the High Court was entitled to take notice of the conduct of the parties and draw its own conclusion. If, upon analysis of the evidence brought on record by the parties, a finding of fact has been arrived at that the cheque had not been issued by the respondent in discharge of any debt, it could not be said to be perverse.

7. As against the above judgments relied upon for the respondent-accused person, the appellant-complainant relied upon Three-Judge bench decision of the Supreme Court in Hiten P.Dalal v. Bratindranath Banerjee [(2001) 6 SCC 16], for the proposition that it is obligatory on the Court to raise the presumption under Section 139 in every case where the factual basis therefor had been established and it does not conflict with the presumption of innocence. It was necessary for the accused to show on the basis of acceptable evidence either that his explanation in the written statement was so probable that a prudent man ought to accept it or to establish that the effect of the material brought on the record, in its totality, rendered the existence of the fact presumed, improbable. A Division Bench of Kerala Kigh Court in Lillykutty v. Lawrence [2003 (2) OCR 610] held that by putting the amount and the name in the cheque, there is no material alteration under Section 87 of the Act. There is no rule in the banking business that payee's name as well as the amount should be written by the drawer himself. No law provides that, in case of cheques, the entire body of the cheque should be written by the drawer only. What is material is the signature of the drawer and not the body of instrument. In the facts of that case, apart from interested testimony of the drawer, no independent evidence was adduced to discharge the burden; and the story put up by the drawer that the cheques were stolen was not supported by any independent evidence. Again, the Kerala High Court in Assoo Hajee v. K.I.Abdul Latheef [2005 Cr.L.J.640] where entries in the cheque were made in presence of the son of the accused after verifying the accounts with respect to the outstanding liability, the Court held that it became a "cheque" when the liability was acknowledged and entries were made in the cheque. Again, a Division Bench of the Kerala High Court in Bhaskaran Chandrasekharan v. Radhakrishnan [1998 Cr.L.J. 3228(1)] wherein the accused had admitted issuance of a cheque and there was no dispute regarding signature, amount or the payee's name, but the cheque was issued in connection with another business, the Court held that merely because there was some transactions between the plaintiff and the Defendant, it could not lead to the conclusion that the cheque was not supported by consideration. In India, the legal position is that an undated cheque may be invalid but not void. When a cheque is issued for valid consideration, with no dispute regarding signature, amount and name, it cannot be said that putting a date on the cheque by the payee, who is the holder of cheque in due course, would amount to material alteration rendering the instrument void. When date was put by payee or drawer, on the cheque, presumptions under Section 118 of the Act would arise; and the burden would be on the drawer of the cheque to establish that the payee had no authority to put the date and encash the cheque.

8. The plain and simple statutory language of the age-old law. as applied in myriad different factual situations, would clearly indicate that bills of exchange in general and cheques in particular represent money with the characteristics of contract in the form of either an order or a promise to pay money. The paper on which it is written possesses the quality of being negotiable. The Negotiable Instruments Act in most respects is a modification of the Common Law on the subject and its provisions are in many respects declaratory of the Common Law. The Law Commission of India has, in its report dated 26.9.1958, suggested re-arrangement of the Sections as the Act is defective in some respects. There are ambiguous provisions relating to the right of recourse of the holder against the drawer on dishonour and omission to deal with the effect of forgery of negotiable instruments. In the judgment of the Judicial Committee in The Bank of Baroda v. Punjab National Bank Ltd. [1944 PC 58], Lord Wright said:

"There is no provision in the Negotiable Instruments Act as to a post-dated instrument such as there is in the English Bills of Exchange Act, 1882, Section 13 (2), which says that a bill is not invalid by reason only that it is ante-dated or post-dated.  There are certain differences between the English Act and the Indian Act which preceded the former by a year. But substantially the two Acts correspond. Both have been based on the law developed by the English Courts as a part of the Law Merchant, which the Common Law originally received on the basis of what was proved to the Court to be the custom of European businessmen in their dealings but which eventually, under the name of the Law Merchant, was integrated with and became a part of the Common Law. The law of negotiable instruments was peculiarly adapted to codification, because it was so largely precise and formal. Hence, the English Act was described as a codifying Act, and so was in fact the Indian Act. Both were based on the English decisions and hence these and later decisions of either country are commonly cited and relied upon. And in addition, decision from other common law jurisdiction are frequently cited as in the present case is done by the Chief Justice. But the Law Merchant is not a closed book nor is it fixed or stereotyped...."

Upon the authority of various judgments of the British Courts, it is culled out in Bhashyam & Adiga's "The Negotiable Instruments Act" 17th Edition at page 204, as under:

"The authority implied by a signature to a blank instrument is so wide that the party so signing is bound to a holder in due course even though the holder was authorized to fill for a certain amount, and he in fact inserts a greater amount; but it is necessary that the sum ought not to exceed the amount covered by the stamp. Swan v. North British Australasian Co. [(19863)2 H&C 175 Llyods Bank v. Cooke [(1907) 1 KB 794 Garrard v. Lewis [(11882) 10 QBD 30 Herdman v. Wheeleer [(1902) 1 KB 361."

8.1 No contract gives rise to any liability, unless the transaction is supported by consideration. However, an important distinction in the case of negotiable instruments is to be noticed. These instruments being mercantile instruments intended for free circulation like cash, the Law Merchant lays down restrictions as to the defence of want of consideration. If a negotiable instrument is made, drawn, accepted, indorsed or transferred without consideration or for a consideration which fails, it creates no obligation between the parties to the transaction. Partial absence or partial failure of consideration consisting of money stands on the same footing as its total absence or failure. Hence, the payee is not entitled to recover to the extent to which the consideration has failed or is absent, but in case of partial absence or failure of consideration not consisting of money, such part of the consideration must be ascertainable in money without collateral Inquiry; otherwise it will not bar the recovery of the whole amount. The general rules of evidence relating to negotiable instruments are those contained in the Indian Evidence Act, but some special presumptions arising out of the peculiar incidents attached to negotiable instrument are set out in the Act.

9. The presumption under Section 139 is mandatory but rebuttable by proof of facts contrary to the receipt of cheque for discharge of any debt or other liability. The initial burden, however, of proving that the cheque was drawn by the drawee for payment of any amount of money and it being returned by the bank unpaid remains with the complainant. The presumptions under Section 118 are also mandatory but rebuttable and could be availed only until the contrary is proved. Even as a bill of exchange, by definition, requires signature of the maker as also direction to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument, the provisions of Section 20 permits signature and delivery of an incomplete negotiable instrument and provides that the maker thereby gives prima facie authority to the holder thereof to make or complete it into a negotiable instrument and makes the signatory of such instrument liable to any holder in due course to the extent of the amount intended to be paid thereunder. Therefore, harmonious reading of the provisions of Sections 5, 6, 20, 118 and 139 would clearly indicate that a cheque could be drawn, delivered and received by the payee or holder in due course and could legally be completed under a legal authority and when such inchoate instrument is completed to make it a negotiable instrument, it would fall within the definition of "bill of exchange" and would render the signatory liable upon such instrument to the extent the amount mentioned therein is intended by him to be paid thereunder. Unless and until contrary is proved, such negotiable instrument would be presumed to be made or drawn for consideration and receipt thereof would be presumed to be for discharge, in whole or in part, of any debt or other liability. However, such debt or other liability is not by any legal presumption presumed to be a legally enforceable debt or other liability. Therefore, the onus of proving that the presumed or proved debt or legal liability was legally enforceable remains with the Complainant. Consequently, in all given fact-situations, the Court is required to examine whether the presumptions regarding consideration and there being any debt or other liability are rebutted by the accused person by preponderance of probabilities and whether the complainant has proved that the debt or other liability, presumed or proved by overwhelming evidence, was legally enforceable. Although there is no presumption as regards any debt or other liability being legally enforceable, it would be found that once a debt or other liability is presumed and not properly rebutted, it would be legally enforceable, unless and until it is shown to be legally unenforceable. Such scheme of the provisions of law clearly indicates the object of serving the purpose of realization of the promise apparently contained in a negotiable instrument, which is that the amount for payment of which the bill of exchange was intended to be made will be paid to the payee or the holder in due course.

9.1 Any material alteration of a negotiable instrument, however, renders it void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless the alteration was made in order to carry out the common intention of the original parties. The provision to that effect contained in Section 87 has to be read in harmony with Section 20 which permits and authorizes the holder of a negotiable instrument to complete the instrument for any amount and renders the drawer liable to the holder in due course to the extent of the amount intended by the drawer to be paid under such instrument. It is clear from plain reading of provisions of Section 20 and 87 that the injunction, under the pain of invalidating a negotiable instrument, against alteration operates only after an inchoate instrument is completed or a complete instrument falls within the definition of "negotiable instrument". Therefore, the legally permissible completion of an inchoate instrument cannot be construed as material alteration of a negotiable instrument.

10. The above analysis of the statutory provisions leads to the conclusion that, when a cheque bearing only signature of the drawer is delivered and received by a payee for the discharge, in whole or in part, of any debt or liability, there is an implied authority for the person receiving such cheque to complete it by filling the blanks and the amount having been filled up under such implied authority would be the amount intended by him to be paid thereunder. The focus in such cases would shift to the aspect of such amount being for the discharge, in whole or in part, of any legally enforceable debt or other liability. Therefore, even with the props of legal presumptions, the onus of proving legally enforceable debt or other liability for the discharge of which a cheque must have been drawn has to be discharged by the prosecution for bringing home the charge of dishonour of cheque. It may, however, be facetious to hold that a blank cheque, drawn by a person on an account maintained by him with a banker, for payment of any amount of money to another person, by merely putting his signature on it, would not be a "cheque" in the first place, because of not being a "bill of exchange" as it did not contain direction to a certain person to pay a certain sum of money to or to the order of a certain person or to the bearer of the instrument. When the Negotiable Instruments Act expressly permits and authorizes by a substantive provision the completion of an inchoate instrument by Section 20 with the safeguard provided in Section 87, provisions of Sections 5 and 6 defining "bill of exchange" and "cheque" have to be harmoniously read to mean that an instrument which was initially not a "cheque" falling within the definition of Section 6 would become a "cheque" when it was completed by filling the blanks and its dishonour shall have all the legal consequences of dishonour of a cheque proper.

11. Applying the above construction of the relevant provisions in light of the overall scheme of the Act, it would appear that, in the facts of the present case, whether the amount in the cheque in question was not mentioned at the time of drawing it and whether it was filled up afterwards by the payee becomes immaterial and pales into insignificance. Therefore, the sole issue requiring consideration in this appeal is as to whether the cheque was drawn, delivered and received for payment of any amount to the payee for the discharge, in whole or in part, of any legally enforceable debt or other liability. As seen earlier, the complainant, appellant herein, had proved by oral and documentary evidence that there was sale of goods worth Rs. 1,48,668/- as per the invoice dated 05.7.2003 containing conditions stipulating return of goods within seven days and payment of interest @ 24% per annum after due dale and the statement of accounts for the financial years 2002-2003 and 2003-2004 and debit notes proved the debt. Thus, as against the proof of total debit balance and liability of the cheque amount, the respondent-accused person had only disputed liability by stating and proving that the goods sold by the aforesaid invoice was sought to be returned after nearly 75 days. Therefore, on the one hand, the complainant had adduced sufficient evidence proving legally enforceable debt in terms of the amount due on sale of goods, with express stipulations, the debit notes issued and the accounts maintained in the regular course of business and. on the other hand, the accused person had only proved an attempt to return the goods. Thus, the legal presumptions in favour of the complainant and the proof of legal liability of the accused were not rebutted or disproved by any credible preponderance of probabilities. Under such circumstances, not only all the ingredients and circumstances for constituting the offence of dishonour of cheque were fulfilled, but the accused person appeared to have relied upon irrelevant facts for setting up a dishonest defence by denying any liability. Therefore, it is a fit case for convicting the respondent for the offence punishable under Section 138 of the Act and sentencing her to proper punishment.

12. In view of the submissions made on behalf of the respondent that she was a woman in whose name the actual business might have been carried by other persons, it is deemed proper that the punishment is restricted to fine. Accordingly, the appeal is allowed, the impugned judgment dated 12.01.2009 in Criminal Appeal No.48 of 2008 of learned Sessions Judge, is set aside and convicting the accused and modifying the punishment, she is sentenced to pay fine of Rs.4,15,000/- and, in case of default in making payment thereof within one month, she shall undergo simple imprisonment for two years. In case the fine is paid as aforesaid, the amount of Rs.4.00,000 therefrom shall be paid to the appellant under the provisions of Section 357 of Cr.P.C.

(MCB)(Appeal allowed)

Nitish Banka (lawyer)     25 March 2018

Posted by: nitish788  Categories: Landmark Judgements NI 138 
 

 

Security cheque and offence under 138 NI act

NI 138 Quashing

How your Security cheque can save you from cheque bouncing offence under NI 138

Is it cheating?

 

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

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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 ra
tes 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 ou
t 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.

 

 

 

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