Negotiable Instruments Act (26 of 1881), S. 138, Explanation — Dishonour of Cheque — Post-dated cheque issued as advance payment for purchase of goods — Non-supply of goods and cancellation of purchase order — Criminal liability thereunder — Drawal of cheque in discharge of an existing or past adjudicated liability is a sine qua non to attract Section 138. [Paras 12 & 13] — To attract an offence under Section 138 of the N.I. Act, a legally enforceable debt or other liability must be subsisting on the date of drawal of the cheque. Where a post-dated cheque is issued as an advance payment for the supply of goods under a purchase order, and the order is subsequently cancelled without the goods being supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of the cheque, no existing liability had accrued.

 NEGOTIABLE INSTRUMENTS ACT, 1881 — Section 138 — Code of Criminal Procedure, 1973 — Section 482 — Dishonour of Cheque — Advance Payment for Purchase Order — Absence of subsisting debt or liability — Non-applicability of Section 138.

(A) Negotiable Instruments Act (26 of 1881), S. 138, Explanation — Dishonour of Cheque — Post-dated cheque issued as advance payment for purchase of goods — Non-supply of goods and cancellation of purchase order — Criminal liability thereunder — Drawal of cheque in discharge of an existing or past adjudicated liability is a sine qua non to attract Section 138.

• [Paras 12 & 13] — To attract an offence under Section 138 of the N.I. Act, a legally enforceable debt or other liability must be subsisting on the date of drawal of the cheque. Where a post-dated cheque is issued as an advance payment for the supply of goods under a purchase order, and the order is subsequently cancelled without the goods being supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of the cheque, no existing liability had accrued.

(B) Negotiable Instruments Act (26 of 1881), S. 138 — Civil Liability vs. Criminal Liability — Breach of contract condition requiring advance payment — Distinction.

• [Para 19] — A condition in a contract requiring advance payment creates a contractual obligation, and a breach thereof may give rise to civil liability to make good any losses incurred by the seller. However, breach of such a condition does not create criminal liability under Section 138 of the N.I. Act. For criminal liability to arise under Section 138, there must be a legally enforceable debt or liability subsisting on the date the cheque is drawn. The High Court erred in expanding the scope of Section 138 by equating contractual breach with criminal liability.

(C) Code of Criminal Procedure (2 of 1974), S. 482 — Negotiable Instruments Act (26 of 1881), S. 138 — Quashing of summons order — High Court improperly setting aside Sessions Court's order quashing process.

• [Paras 18, 19, 21 & 22] — The Delhi High Court erred in setting aside the Sessions Judge's order that had quashed the summons issued by the Magistrate. Where no goods were supplied pursuant to purchase orders and the orders were cancelled prior to presentation of advance cheques, no offence under Section 138 is made out. Impugned High Court judgment set aside and the Sessions Court order quashing the process restored.

Judicial Outcome:

• Appeal allowed. Judgment of the Delhi High Court set aside. Order of the Additional Sessions Judge quashing the process/summons restored.

Cases Approved / Followed:

1. Swastik Coaters Pvt. Ltd. v. Deepak Brothers, 1997 Cri LJ 1942 (AP) — Approved

2. Shanku Concretes Pvt. Ltd. v. State of Gujarat, 2000 Cri LJ 1988 (Guj) — Approved

3. Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., 1999 (1) CTC 6 (Mad) — Approved

4. Supply House v. Ullas, 2006 Cri LJ 4330 (Ker) — Approved

Cases Overruled / Disapproved:

1. Mojj Engineering Systems Ltd. v. A.B. Sugars Ltd., 154 (2008) DLT 579 (Del) — Overruled