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Friday, September 23, 2016

Posted Cheques for future dues of installments for present debt but not for future debts = whether in the facts of the present case, the dishonour of a post-dated cheque given for repayment of loan installment which is also described as “security” in the loan agreement is covered by Section 138 of the Negotiable Instruments Act, 1881 (“the Act”).=The agreement recorded that post-dated cheques towards payment of installment of loan (principal and interest) were given by way of security. = as per the case of the complainant, the cheques which were subject matter of the said complaint were towards the partial repayment of the dues under the loan agreement (para 5 of the complaint). As is clear from the above observations of this Court, it is well settled that while dealing with a quashing petition, the Court has ordinarily to proceed on the basis of averments in the complaint. The defence of the accused cannot be considered at this stage. The court considering the prayer for quashing does not adjudicate upon a disputed question of fact.- In Rangappa versus Sri Mohan[9], this Court held that once issuance of a cheque and signature thereon are admitted, presumption of a legally enforceable debt in favour of the holder of the cheque arises. It is for the accused to rebut the said presumption, though accused need not adduce his own evidence and can rely upon the material submitted by the complainant. However, mere statement of the accused may not be sufficient to rebut the said presumption. A post dated cheque is a well recognized mode of payment[10].-A post dated cheque is a well recognized mode of payment[10].- Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court. Accordingly, we do not find any merit in this appeal and the same is dismissed.

                                 REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                       criminal APPELLATE JURISDICTION

                      criminal APPEAL NO. 867 OF  2016
               (ARISING OUT OF S.L.P. (CRL.) NO. 5410 OF 2014)

SAMPELLY SATYANARAYANA RAO                               …APPELLANT

                                   VERSUS

INDIAN RENEWABLE ENERGY DEVELOPMENT
AGENCY LIMITED                                           ...RESPONDENT


                               J U D G M E N T


ADARSH KUMAR GOEL, J.

This appeal has been preferred against the  judgment  and  order  dated  8th
May, 2014 passed by the High Court of Delhi at New Delhi  in  Writ  Petition
(Criminal) No.1170 of 2011.
Question for consideration is whether in the facts of the present case,  the
dishonour of a post-dated cheque given for  repayment  of  loan  installment
which is also described as “security” in the loan agreement  is  covered  by
Section 138 of the Negotiable Instruments Act, 1881 (“the Act”).
The  appellant  is  Director  of  the  company  whose  cheques   have   been
dishonoured and who is also the co-accused.  The company is engaged  in  the
field of power generation.  The respondent  is  engaged  in  development  of
renewable energy and is a Government of India  enterprise.   Vide  the  loan
agreement dated 15th March, 2001, the respondent agreed to advance  loan  of
Rs.11.50 crores for setting up of 4.00 MW Biomass  based  Power  Project  in
the State  of  Andhra  Pradesh.   The  agreement  recorded  that  post-dated
cheques towards payment of installment  of  loan  (principal  and  interest)
were given by way of security.  The text of this part of  the  agreement  is
quoted in the later part of  this  order.   The  cheques  carried  different
dates depending on the  dates  when  the  installments  were  due  and  upon
dishonour thereof, complaints including the one dated 27th  September,  2002
were filed by the respondent in the court of  the  concerned  Magistrate  at
New Delhi.
The  appellant  approached  the  High  Court  to  seek   quashing   of   the
complaints arising out of 18 cheques of the value of about  Rs.10.3  crores.
Contention of the appellant in support of his  case  was  that  the  cheques
were given by way of security as mentioned in the agreement and that on  the
date the  cheques  were  issued,  no  debt  or  liability  was  due.   Thus,
dishonour of post-dated cheques given by way of security did not fall  under
Section 138 of the Act.  Reliance was placed on  clause  3.1  (iii)  of  the
agreement to the effect that deposit of post-dated cheques toward  repayment
of installments was by way of “security”.  Even  the  first  installment  as
per the agreement became due subsequent to the handing  over  of  the  post-
dated cheque.  Thus, contended the appellant, it was not  towards  discharge
of debt or liability in presenti  but for the amount payable in future.
The High Court did not accept the above contention and held :-
“10. In the present case when the post-dated cheques were issued,  the  loan
had been sanctioned and hence the same fall in the first  category  that  is
they were cheque issued for a debt in present but payable in future.  Hence,
I find no reason to quash the complaints. However,  these  observations  are
only prima facie in nature and it will be open for the  party  to  prove  to
the contrary during trial.”

We have heard learned counsel for the parties.
It will be appropriate to reproduce  the  statutory  provision  in  question
which is as follows :
“138. Dishonour of cheque for insufficiency, etc., of funds in the  account.
- Where any cheque drawn by a person on an account maintained by him with  a
banker for payment of any amount of money to  another  person  from  out  of
that account for the discharge, in whole or in part, of any  debt  or  other
liability, is returned by the bank unpaid, either because of the  amount  of
money standing to the credit of that account is insufficient to  honour  the
cheque or that it exceeds the amount arranged to be paid from  that  account
by an agreement made with that bank, such person shall  be  deemed  to  have
committed an offence and shall, without prejudice to  any  other  provisions
of this Act, be punished with imprisonment for a term which may be  extended
to two years, or with fine which may extend  to  twice  the  amount  of  the
cheque, or with both:

      Provided that nothing contained in this section shall apply unless –
(a) the cheque has been presented to the bank within a period of six  months
from the date on which it is drawn or within the  period  of  its  validity,
whichever is earlier;
(b) the payee or the holder in due course of the cheque,  as  the  case  may
be, makes a demand for the payment of the said amount of money by  giving  a
notice in writing, to the drawer of the cheque, within thirty  days  of  the
receipt of information by him from the bank  regarding  the  return  of  the
cheque as unpaid; and
 (c) the drawer of such cheque fails to make the payment of the said  amount
of money to the payee or, as the case may be, to the holder  in  due  course
of the cheque, within fifteen days of the receipt of the said notice.
Explanation. - For the purposes of this section, "debt or  other  liability"
means a legally enforceable debt or other liability.”

Clause 3.1(iii) of the agreement may also be noted :-

      “ 3.1      SECURITY FOR THE LOAN
       The  loan  together  with  the  interest,  interest  tax,  liquidated
damages, commitment fee, up front fee prima on repayment or  on  redemption,
costs, expenses and other monies shall be secured by ;

xxxxx
xxxxx
Deposit  of  Post  dated  cheques  towards  repayment  of  installments   of
principal of loan amount in accordance with agreed  repayment  schedule  and
installments of interest payable thereon.”


Reference may now be made to the decision of this  Court  in           Indus
Airways Private Limited versus Magnum Aviation Private      Limited [1],  on
which strong reliance has been placed by learned counsel for the  appellant.
 The question therein  was  whether  post-dated  cheque  issued  by  way  of
advance payment for a purchase order could be considered  for  discharge  of
legally enforceable debt.  The cheque was issued by way of  advance  payment
for the purchase order but the purchase order was cancelled and  payment  of
the cheque was stopped.  This Court held that while  the  purchaser  may  be
liable for breach of  the  contract,  when  a  contract  provides  that  the
purchaser has to pay in  advance  and  cheque  towards  advance  payment  is
dishonoured, it will not give rise to criminal liability under  Section  138
of the Act.  Issuance  of  cheque  towards  advance  payment  could  not  be
considered as discharge of any subsisting liability.  View  to  this  effect
of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd.  versus  Deepak
Bros.[2], Madras High Court in Balaji Seafoods Exports (India)  Ltd.  versus
Mac Industries Ltd.[3], Gujarat High Court  in  Shanku  Concretes  (P)  Ltd.
versus State of Gujarat[4] and Kerala High  Court  in  Supply  House  versus
Ullas[5] was held to be correct view as  against  the  view  of  Delhi  High
Court    in     Magnum     Aviation     (P)     Ltd.     versus     State[6]
and  Mojj  Engg.  Systems  Ltd.  versus  A.B.  Sugars  Ltd.[7]   which   was
disapproved.
We have given due consideration to the submission advanced on behalf of  the
appellant    as    well    as    the    observations    of    this     Court
in Indus Airways (supra) with reference to the explanation  to  Section  138
of the  Act  and  the  expression  “for  discharge  of  any  debt  or  other
liability” occurring in Section 138 of the Act.  We are  of  the  view  that
the question whether a post-dated  cheque  is  for  “discharge  of  debt  or
liability” depends on the nature of the transaction.  If on the date of  the
cheque  liability  or  debt  exists  or  the  amount  has   become   legally
recoverable, the Section is attracted and not otherwise.
Reference to the facts of the present case clearly  shows  that  though  the
word  “security” is used in clause  3.1(iii)  of  the  agreement,  the  said
expression refers to the cheques being towards  repayment  of  installments.
The repayment becomes due under  the  agreement,  the  moment  the  loan  is
advanced and the installment falls due.  It is undisputed that the loan  was
duly disbursed on 28th February, 2002 which was prior to  the  date  of  the
cheques.  Once the loan was disbursed and installments have  fallen  due  on
the date of the cheque as per  the  agreement,  dishonour  of  such  cheques
would fall under Section 138 of the Act.  The cheques undoubtedly  represent
the outstanding liability.
Judgment in Indus Airways (supra) is clearly  distinguishable.   As  already
noted, it was held therein that liability arising out of  claim  for  breach
of contract under Section 138, which  arises  on  account  of  dishonour  of
cheque issued was not by itself  at  par  with  criminal  liability  towards
discharge of acknowledged  and  admitted  debt  under  a  loan  transaction.
Dishonour of cheque issued for  discharge  of  later  liability  is  clearly
covered by the statute in question.  Admittedly, on the date of  the  cheque
there was a debt/liability in presenti in terms of the  loan  agreement,  as
against the case of Indus Airways (supra) where the purchase order had  been
cancelled and cheque issued towards advance payment for the  purchase  order
was dishonoured.  In that case, it was found that the cheque  had  not  been
issued for discharge of liability but as  advance  for  the  purchase  order
which was cancelled.  Keeping in mind this fine but  real  distinction,  the
said judgment cannot be applied to  a  case  of  present  nature  where  the
cheque was for repayment of loan installment which  had  fallen  due  though
such  deposit  of  cheques  towards  repayment  of  installments  was   also
described as “security” in the loan agreement.  In applying the judgment  in
Indus Airways (supra), one cannot lose sight of  the  difference  between  a
transaction of purchase  order  which  is  cancelled  and  that  of  a  loan
transaction where loan has actually been advanced and its repayment  is  due
on the date of the cheque.  .
Crucial question to determine applicability of Section 138  of  the  Act  is
whether the cheque represents discharge  of  existing  enforceable  debt  or
liability or whether it  represents  advance  payment  without  there  being
subsisting debt or liability.  While approving the views of  different  High
Courts noted earlier, this is the underlying principle as can  be  discerned
from discussion of the said cases in the judgment of this Court.
In   Balaji Seafoods (supra), the High Court noted that the cheque  was  not
handed over with the intention of discharging the  subsisting  liability  or
debt.  There is, thus, no similarity  in  the  facts  of  that  case  simply
because in that case also loan was advanced.  It  was  noticed  specifically
therein – as was the admitted case of the parties  –  that  the  cheque  was
issued as “security”  for  the  advance  and  was  not  intended  to  be  in
discharge of the liability, as in the present case.
In HMT Watches Ltd. versus M.A. Abida[8],  relied  upon  on  behalf  of  the
respondent, this Court dealt with the contention that the proceedings  under
Section 138 were  liable  to  be  quashed  as  the  cheques  were  given  as
“security” as per defence of the accused. Negativing  the  contention,  this
Court held :-

“10. Having heard the learned counsel for the parties, we are  of  the  view
that the accused (Respondent  1)  challenged  the  proceedings  of  criminal
complaint cases before the High Court, taking factual defences. Whether  the
cheques were given as security or not,  or  whether  there  was  outstanding
liability or not is a question of fact  which  could  have  been  determined
only by the trial court after recording evidence  of  the  parties.  In  our
opinion, the High Court should not have expressed its view on  the  disputed
questions of fact in a petition under Section 482 of the  Code  of  Criminal
Procedure, to come to a conclusion that the offence is  not  made  out.  The
High Court has erred in law in going into the factual aspects of the  matter
which were not admitted between the parties. The High  Court  further  erred
in observing that Section 138(b) of the NI Act stood uncomplied  with,  even
though Respondent 1 (accused) had admitted that he  replied  to  the  notice
issued by the complainant. Also, the fact, as to whether  the  signatory  of
demand notice was authorised by the complainant company or  not,  could  not
have been examined by the High Court in its jurisdiction under  Section  482
of the Code of Criminal Procedure when such plea  was  controverted  by  the
complainant before it.

11. In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd.  [(2008)  13
SCC 678], this Court has made  the  following  observations  explaining  the
parameters of jurisdiction of the High Court in exercising its  jurisdiction
under Section 482 of the Code of Criminal Procedure: (SCC pp. 685-87,  paras
17 & 22)
“17. The parameters of jurisdiction of the  High  Court  in  exercising  its
jurisdiction under Section 482 of the Code  of  Criminal  Procedure  is  now
well settled. Although it is of wide amplitude, a great deal of  caution  is
also required in its exercise. What is required is application of the  well-
known legal principles involved in the matter.
                       ***
22. Ordinarily, a defence of an accused although  appears  to  be  plausible
should  not  be  taken  into  consideration  for  exercise   of   the   said
jurisdiction. Yet again, the High Court at that stage would  not  ordinarily
enter into a disputed question of fact. It,  however,  does  not  mean  that
documents of unimpeachable character should not be taken into  consideration
at any cost for the purpose of finding out as to whether continuance of  the
criminal proceedings would amount to an abuse of process of  court  or  that
the complaint petition is filed for causing mere harassment to the  accused.
While we are not oblivious of the fact  that  although  a  large  number  of
disputes should ordinarily be determined  only  by  the  civil  courts,  but
criminal cases are filed only for achieving the ultimate  goal,  namely,  to
force the accused to pay the amount due to the complainant immediately.  The
courts on the one hand should not encourage such a  practice;  but,  on  the
other, cannot also travel beyond its  jurisdiction  to  interfere  with  the
proceeding which is otherwise genuine. The courts cannot also lose sight  of
the fact that in  certain  matters,  both  civil  proceedings  and  criminal
proceedings would be maintainable.”

12. In Rallis India Ltd. v. Poduru Vidya Bhushan [(2011) 13  SCC  88],  this
Court expressed its views on this point as under: (SCC p. 93, para 12)
“12. At the threshold, the High Court should not have  interfered  with  the
cognizance of the complaints having been taken by the trial court. The  High
Court could not have discharged the respondents of  the  said  liability  at
the threshold. Unless the parties are given opportunity  to  lead  evidence,
it is not possible to come to a definite conclusion as to what was the  date
when  the  earlier  partnership  was  dissolved  and  since  what  date  the
respondents ceased to be the partners of the firm.”

 We are in  respectful  agreement  with  the  above  observations.   In  the
present case, reference to the complaint (a copy of which is Annexures  P-7)
shows that as per the case  of  the  complainant,  the  cheques  which  were
subject matter of the said complaint were towards the partial  repayment  of
the dues under the loan agreement (para 5 of the complaint).
As is clear from the above observations of this Court, it  is  well  settled
that while dealing with a quashing petition, the  Court  has  ordinarily  to
proceed on the basis of averments in the  complaint.   The  defence  of  the
accused cannot be considered at  this  stage.   The  court  considering  the
prayer for quashing does not adjudicate upon a disputed question of fact.
In Rangappa versus Sri Mohan[9], this Court held that  once  issuance  of  a
cheque  and  signature  thereon  are  admitted,  presumption  of  a  legally
enforceable debt in favour of the holder of the cheque arises.   It  is  for
the accused to rebut the said presumption, though accused  need  not  adduce
his  own  evidence  and  can  rely  upon  the  material  submitted  by   the
complainant.  However, mere statement of the accused may not  be  sufficient
to rebut the said presumption.  A post dated cheque  is  a  well  recognized
mode of payment[10].
Thus, the question has to be  answered  in  favour  of  the  respondent  and
against the appellant.  Dishonour of cheque in the present  case  being  for
discharge of existing liability is covered by Section 138  of  the  Act,  as
rightly held by the High Court.
Accordingly, we do not find any  merit  in  this  appeal  and  the  same  is
dismissed.  Since we have only gone into the question  whether  on  admitted
facts, case for quashing has not been made out, the  appellant  will  be  at
liberty to contest the matter in trial court in accordance with law.


                                                        ………………………………………………J.
       ( DIPAK MISRA )


                                                        ………………………………………………J.
                              ( ADARSH KUMAR GOEL )
New Delhi;
september  19, 2016.


ITEM NO.1A-For JUDGMENT      COURT NO.8               SECTION II

               S U P R E M E  C O U R T  O F  I N D I A
                       RECORD OF PROCEEDINGS

Criminal Appeal  No(s).  867/2016

SAMPELLY SATYANARAYANA RAO                          Appellant(s)

                                VERSUS

INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED Respondent(s)


Date : 19/09/2016 This appeal was called on for pronouncement of JUDGMENT
today.

For Appellant(s)
                     Mr. Lakshmi Raman Singh,Adv.

For Respondent(s)
                     Mr. Annam D. N. Rao,Adv.


      Hon'ble Mr. Justice Adarsh Kumar Goel pronounced the judgment  of  the
Bench comprising Hon'ble Mr. Justice Dipak Misra and His Lordship.
      The appeal is dismissed in terms of the signed judgment.
      Pending application(s), if any, stand(s) disposed of.

|(VINOD KUMAR JHA)                      | |(MALA KUMARI SHARMA)                  |
|AR-CUM-PS                              | |COURT MASTER                          |



   (Signed Reportable judgment is placed on the file)

|                                       | |                                      |


-----------------------
[1]   [2] (2014) 12 SCC 539
[3]   [4] (1997) Crl. LJ 1942 (AP)
[5]   [6] (1999) 1 CTC 6 (Mad)
[7]   [8] (2000) Crl LJ 1988 (Guj)
[9]   [10] (2006) Crl. LJ 4330 (Ker)
[11]  [12] (2010) 172 DLT 91: (2010) 118 DRJ 505
[13]  [14] (2008) 154 DLT 579
[15]  [16] (2015) 11 SCC 776
[17]  [18] (2010) 11 SCC 441
[19]  [20] Goaplast (P) Ltd. versus Chico Ursula D’ Souza (2003) 3 SCC 232

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