SEC. 138 OF N.I.ACT - whether the post-dated cheques issued by the appellants (hereinafter referred to as ‘purchasers’) as an advance payment in respect of purchase orders could be considered in discharge of legally enforceable debt or other liability, and, if so, whether the dishonour of such cheques amounts to an offence under Section 138 of the Negotiable Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High Court in
the impugned order has held that to be so. - APEX COURT HELD THAT if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or liability.If at
the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. =
whether the post-dated cheques issued by the
appellants (hereinafter referred to as ‘purchasers’) as an advance payment
in respect of purchase orders could be considered in discharge of legally
enforceable debt or other liability, and, if so, whether the dishonour of
such cheques amounts to an offence under Section 138 of the Negotiable
Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High Court in
the impugned order has held that to be so. =
19. The above reasoning of the Delhi High Court is clearly flawed
inasmuch as it failed to keep in mind the fine distinction between civil
liability and criminal liability under Section 138 of the N.I. Act.
If at
the time of entering into a contract, it is one of the conditions of the
contract that the purchaser has to pay the amount in advance and there is
breach of such condition then purchaser may have to make good the loss that
might have occasioned to the seller but that does not create a criminal
liability under Section 138.
For a criminal liability to be made out under
Section 138, there should be legally enforceable debt or other liability
subsisting on the date of drawal of the cheque.
We are unable to accept the
view of the Delhi High Court that the issuance of cheque towards advance
payment at the time of signing such contract has to be considered as
subsisting liability and dishonour of such cheque amounts to an offence
under Section 138 of the N.I. Act.
The Delhi High Court has traveled
beyond the scope of Section 138 of the N.I. Act by holding that the purpose
of enacting Section 138 of the N.I. Act would stand defeated if after
placing orders and giving advance payments, the instructions for stop
payments are issued and orders are cancelled.
In what we have discussed
above, if a cheque is issued as an advance payment for purchase of the
goods and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise and material or
goods for which purchase order was placed is not supplied by the supplier,
in our considered view, the cheque cannot be said to have been drawn for an
existing debt or liability.
20. In our opinion, the view taken by Andhra Pradesh High Court in
Swastik Coaters2, Madras High Court in Balaji Seafoods4, Gujarat High Court
in Shanku Concretes3 and Kerala High Court in Ullas5 is the correct view
and accords with the scheme of Section 138 of the N.I. Act.
21. The view taken by Delhi High Court is plainly wrong and does
not deserve acceptance.
22. Criminal Appeal is, accordingly, allowed; the impugned judgment
of Delhi High Court is set aside; and the order of the Sessions Judge is
restored.
2014 ( April. Part ) http://judis.nic.in/supremecourt/filename=41392
R.M. LODHA, SHIVA KIRTI SINGH
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 830 OF 2014
(Arising out of SLP (Crl.) No.9752 of 2010)
M/s. Indus Airways Pvt. Ltd. & Ors. … Appellants
Versus
M/s. Magnum Aviation Pvt. Ltd. & Anr. … Respondents
JUDGMENT
R.M. LODHA, J.
Leave granted.
2. The only question that arises for consideration in this appeal
by special leave is, whether the post-dated cheques issued by the
appellants (hereinafter referred to as ‘purchasers’) as an advance payment
in respect of purchase orders could be considered in discharge of legally
enforceable debt or other liability, and, if so, whether the dishonour of
such cheques amounts to an offence under Section 138 of the Negotiable
Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High Court in
the impugned order has held that to be so.
3. The brief facts are these: On 19.02.2007 and 26.02.2007, the
purchasers placed two purchase orders for supply of certain aircraft parts
with respondent No.1, M/s. Magnum Aviation Pvt. Ltd. (hereinafter referred
to as ‘supplier’). In respect of these purchase orders, the purchasers
also issued two post-dated cheques dated 15.03.2007 for a sum of
Rs.34,57,164/- and 20.03.2007 for a sum of Rs.15,91,820/-. The said
cheques were issued by way of advance payment for the purchase orders. One
of the terms and conditions of the contract was that the entire payment
would be given to the supplier in advance. The supplier says that the
advance payment was made by the purchasers as it had to procure the parts
from abroad.
4. These cheques got dishonoured when they were presented on the
ground that the purchasers had stopped payment.
5. It is not in dispute that the supplier received letter dated
22.03.2007 from the purchasers cancelling the purchase orders and
requesting the supplier to return both the cheques.
6. The supplier sent response to the letter dated 22.03.2007 on
23.03.2007 asking the purchasers as to when the supplier could collect the
payment. Thereafter, on 12.04.2007, the supplier sent a notice to the
purchasers and then filed a complaint against the purchasers under Section
138 of the N.I. Act before the Court of Additional Chief Metropolitan
Magistrate, New Delhi.
7. On 22.05.2007, the concerned Additional Chief Metropolitan
Magistrate took cognizance of the alleged offence and issued summons to the
purchasers.
8. The purchasers challenged the order issuing summons in a
revision petition under Section 397 of the Code of Criminal Procedure, 1973
(for short, ‘Code’). The Additional Sessions Judge, after hearing the
parties, allowed the revision petition vide order dated 02.09.2008 and
quashed the process issued by the Additional Chief Metropolitan Magistrate.
9. The supplier challenged the order of the Additional Sessions
Judge in a petition under Section 482 of the Code before the High Court.
The High Court allowed the petition, set aside the order of the Additional
Sessions Judge and restored the order of the Additional Chief Metropolitan
Magistrate issuing process to the purchasers.
10. The Delhi High Court following its earlier decision in Mojj
Engineering[1] held that the issuance of a cheque at the time of signing
such contract has to be considered against a liability, as the amount
written in the cheque is payable by the person on the date mentioned in the
cheque.
11. Section 138 of the N.I. Act 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.”
12. The interpretation of the expression ‘for discharge of any debt
or other liability’ occurring in Section 138 of the N.I. Act is significant
and decisive of the matter.
13. The explanation appended to Section 138 explains the meaning of
the expression ‘debt or other liability’ for the purpose of Section 138.
This expression means a legally enforceable debt or other liability.
Section 138 treats dishonoured cheque as an offence, if the cheque has been
issued in discharge of any debt or other liability. The explanation leaves
no manner of doubt that to attract an offence under Section 138, there
should be legally enforceable debt or other liability subsisting on the
date of drawal of the cheque. In other words, drawal of the cheque in
discharge of existing or past adjudicated liability is sine qua non for
bringing an offence under Section 138. If a cheque is issued as an advance
payment for purchase of the goods and for any reason purchase order is not
carried to its logical conclusion either because of its cancellation or
otherwise, and material or goods for which purchase order was placed is not
supplied, in our considered view, the cheque cannot be held to have been
drawn for an exiting debt or liability. The payment by cheque in the nature
of advance payment indicates that at the time of drawal of cheque, there
was no existing liability.
14. In Swastik Coaters[2] , the single Judge of the Andhra Pradesh
High Court while considering the explanation to Section 138 held:
“……..Explanation to Section 138 of the Negotiable Instruments
Act clearly makes it clear that the cheque shall be relateable
to an enforceable liability or debt and as on the date of the
issuing of the cheque there was no existing liability in the
sense that the title in the property had not passed on to the
accused since the goods were not delivered. ……..”
15. The Gujarat High Court in Shanku Concretes[3] dealing with
Section 138 of the N.I. Act held that to attract Section 138 of the N.I.
Act, there must be subsisting liability or debt on the date when the cheque
was delivered. The very fact that the payment was agreed to some future
date and there was no debt or liability on the date of delivery of the
cheques would take the case out of the purview of Section 138 of the N.I.
Act. While holding so, Gujarat High Court followed a decision of the
Madras High Court in Balaji Seafoods[4].
16. In Balaji Seafoods4, the Madras High Court held:
“Section 138 of the Negotiable Instruments Act makes it clear
that where the 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 under Section 138
of the Act. The explanation reads that for the purposes of this
section, ‘debt or other liability’ means a legally enforceable
debt or liability.”
17. The Kerala High Court in Ullas[5] had an occasion to consider
Section 138 of the N.I. Act. In that case, the post-dated cheque was issued
by the accused along with the order for supply of goods. The supply of
goods was not made by the complainant. The accused first instructed the
bank to stop payment against the cheque and then requested the complainant
not to present the cheque as he had not supplied the goods. The cheque was
dishonoured. The single Judge of the Kerala High Court held, “………Ext.P1
cheque cannot be stated to be one issued in discharge of the liability to
the tune of the amount covered by it, which was really issued, as is
revealed by Ext. D1, as the price amount for 28 numbers of mixies, which
the complainant had not supplied. …..”
18. The reasoning of the Delhi High Court in the impugned order is
as follows:
“8. If at the time of entering into a contract it is one of
the conditions of the contract that the purchaser has to pay the
amount in advance then advance payment is a liability of the
purchaser. The seller of the items would not have entered into
contract unless the advance payment was made to him. A condition
of advance payment is normally put by the seller for the reason
that the purchaser may not later on retract and refuse to take
the goods either manufactured for him or procured for him.
Payment of cost of the goods in advance being one of the
conditions of the contract becomes liability of the purchaser.
The purchaser who had issued the cheque could have been asked to
make payment either by draft or in cash. Since giving cheque is
a mode of payment like any other mode of payment, it is normally
accepted as a payment. The issuance of a cheque at the time of
signing such contract has to be considered against a liability
as the amount written in the cheque is payable by the person on
the date mentioned in the cheque. Where the seller or
manufacturer, on the basis of cheques issued, manufactures the
goods or procures the goods from outside, and has acted upon the
contract, the liability of the purchaser gets fastened, the
moment the seller or manufacturer acts upon the contract and
procures the goods. If for any reason, the seller fails to
manufacture the goods or procure the goods it is only under
those circumstances that no liability is created. However, where
the goods or raw material has been procured for the purchaser by
seller or goods have been manufactured by the seller, it cannot
be said that the cheques were not issued against the liability.
I consider that if the liability is not construed in this
manner, the sole purpose of making dishonour of the cheque as an
offence stands defeated. The purpose of making or enacting
Section 138 of the N.I. Act was to enhance the acceptability of
cheque in settlement of commercial transactions, to infuse trust
into commercial transactions and to make a cheque as a reliable
negotiable instrument and to see that the cheques of business
transactions are not dishonoured. The purpose of Negotiable
Instrument Act is to make an orderly statement of rules of law
relating to negotiable instruments and to ensure that mercantile
instruments should be equated with goods passing from one hand
to other. The sole purpose of the Act would stand defeated if
after placing orders and giving advance payments, the stop
payments are issued and orders are cancelled on the ground of
pricing of the goods as was done in this case.”
19. The above reasoning of the Delhi High Court is clearly flawed
inasmuch as it failed to keep in mind the fine distinction between civil
liability and criminal liability under Section 138 of the N.I. Act. If at
the time of entering into a contract, it is one of the conditions of the
contract that the purchaser has to pay the amount in advance and there is
breach of such condition then purchaser may have to make good the loss that
might have occasioned to the seller but that does not create a criminal
liability under Section 138. For a criminal liability to be made out under
Section 138, there should be legally enforceable debt or other liability
subsisting on the date of drawal of the cheque. We are unable to accept the
view of the Delhi High Court that the issuance of cheque towards advance
payment at the time of signing such contract has to be considered as
subsisting liability and dishonour of such cheque amounts to an offence
under Section 138 of the N.I. Act. The Delhi High Court has traveled
beyond the scope of Section 138 of the N.I. Act by holding that the purpose
of enacting Section 138 of the N.I. Act would stand defeated if after
placing orders and giving advance payments, the instructions for stop
payments are issued and orders are cancelled. In what we have discussed
above, if a cheque is issued as an advance payment for purchase of the
goods and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise and material or
goods for which purchase order was placed is not supplied by the supplier,
in our considered view, the cheque cannot be said to have been drawn for an
existing debt or liability.
20. In our opinion, the view taken by Andhra Pradesh High Court in
Swastik Coaters2, Madras High Court in Balaji Seafoods4, Gujarat High Court
in Shanku Concretes3 and Kerala High Court in Ullas5 is the correct view
and accords with the scheme of Section 138 of the N.I. Act.
21. The view taken by Delhi High Court is plainly wrong and does
not deserve acceptance.
22. Criminal Appeal is, accordingly, allowed; the impugned judgment
of Delhi High Court is set aside; and the order of the Sessions Judge is
restored.
…..………………………….J.
(R.M. Lodha)
…..………………………….J. (Shiva Kirti Singh)
New Delhi,
April 7, 2014.
-----------------------
[1] M/s. Mojj Engineering Systems Limited and others v. M/s. A.B. Sugars
Ltd. [154 (2008) Delhi Law
Times 579]
[2] M/s. Swastik Coaters Pvt. Ltd v. M/s. Deepak Brothers and others;
[1997 Cri. L.J. 1942 (AP)]
[3] Shanku Concretes Pvt. Ltd. and others v. State of Gujarat and
another; [2000 Cri. L.J.1988 (Guj.)]
[4] M/s. Balaji Seafoods Exports (India) Ltd. and another v. Mac
Industries Ltd.; [1999 (1) CTC 6]
[5] Supply House, Represented by Managing Partner v. Ullas, Proprietor
Bright Agencies and another;
[2006 Cri. L.J. 4330 (Kerala)]
-----------------------
10
the impugned order has held that to be so. - APEX COURT HELD THAT if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or liability.If at
the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. =
whether the post-dated cheques issued by the
appellants (hereinafter referred to as ‘purchasers’) as an advance payment
in respect of purchase orders could be considered in discharge of legally
enforceable debt or other liability, and, if so, whether the dishonour of
such cheques amounts to an offence under Section 138 of the Negotiable
Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High Court in
the impugned order has held that to be so. =
19. The above reasoning of the Delhi High Court is clearly flawed
inasmuch as it failed to keep in mind the fine distinction between civil
liability and criminal liability under Section 138 of the N.I. Act.
If at
the time of entering into a contract, it is one of the conditions of the
contract that the purchaser has to pay the amount in advance and there is
breach of such condition then purchaser may have to make good the loss that
might have occasioned to the seller but that does not create a criminal
liability under Section 138.
For a criminal liability to be made out under
Section 138, there should be legally enforceable debt or other liability
subsisting on the date of drawal of the cheque.
We are unable to accept the
view of the Delhi High Court that the issuance of cheque towards advance
payment at the time of signing such contract has to be considered as
subsisting liability and dishonour of such cheque amounts to an offence
under Section 138 of the N.I. Act.
The Delhi High Court has traveled
beyond the scope of Section 138 of the N.I. Act by holding that the purpose
of enacting Section 138 of the N.I. Act would stand defeated if after
placing orders and giving advance payments, the instructions for stop
payments are issued and orders are cancelled.
In what we have discussed
above, if a cheque is issued as an advance payment for purchase of the
goods and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise and material or
goods for which purchase order was placed is not supplied by the supplier,
in our considered view, the cheque cannot be said to have been drawn for an
existing debt or liability.
20. In our opinion, the view taken by Andhra Pradesh High Court in
Swastik Coaters2, Madras High Court in Balaji Seafoods4, Gujarat High Court
in Shanku Concretes3 and Kerala High Court in Ullas5 is the correct view
and accords with the scheme of Section 138 of the N.I. Act.
21. The view taken by Delhi High Court is plainly wrong and does
not deserve acceptance.
22. Criminal Appeal is, accordingly, allowed; the impugned judgment
of Delhi High Court is set aside; and the order of the Sessions Judge is
restored.
2014 ( April. Part ) http://judis.nic.in/supremecourt/filename=41392
R.M. LODHA, SHIVA KIRTI SINGH
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 830 OF 2014
(Arising out of SLP (Crl.) No.9752 of 2010)
M/s. Indus Airways Pvt. Ltd. & Ors. … Appellants
Versus
M/s. Magnum Aviation Pvt. Ltd. & Anr. … Respondents
JUDGMENT
R.M. LODHA, J.
Leave granted.
2. The only question that arises for consideration in this appeal
by special leave is, whether the post-dated cheques issued by the
appellants (hereinafter referred to as ‘purchasers’) as an advance payment
in respect of purchase orders could be considered in discharge of legally
enforceable debt or other liability, and, if so, whether the dishonour of
such cheques amounts to an offence under Section 138 of the Negotiable
Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High Court in
the impugned order has held that to be so.
3. The brief facts are these: On 19.02.2007 and 26.02.2007, the
purchasers placed two purchase orders for supply of certain aircraft parts
with respondent No.1, M/s. Magnum Aviation Pvt. Ltd. (hereinafter referred
to as ‘supplier’). In respect of these purchase orders, the purchasers
also issued two post-dated cheques dated 15.03.2007 for a sum of
Rs.34,57,164/- and 20.03.2007 for a sum of Rs.15,91,820/-. The said
cheques were issued by way of advance payment for the purchase orders. One
of the terms and conditions of the contract was that the entire payment
would be given to the supplier in advance. The supplier says that the
advance payment was made by the purchasers as it had to procure the parts
from abroad.
4. These cheques got dishonoured when they were presented on the
ground that the purchasers had stopped payment.
5. It is not in dispute that the supplier received letter dated
22.03.2007 from the purchasers cancelling the purchase orders and
requesting the supplier to return both the cheques.
6. The supplier sent response to the letter dated 22.03.2007 on
23.03.2007 asking the purchasers as to when the supplier could collect the
payment. Thereafter, on 12.04.2007, the supplier sent a notice to the
purchasers and then filed a complaint against the purchasers under Section
138 of the N.I. Act before the Court of Additional Chief Metropolitan
Magistrate, New Delhi.
7. On 22.05.2007, the concerned Additional Chief Metropolitan
Magistrate took cognizance of the alleged offence and issued summons to the
purchasers.
8. The purchasers challenged the order issuing summons in a
revision petition under Section 397 of the Code of Criminal Procedure, 1973
(for short, ‘Code’). The Additional Sessions Judge, after hearing the
parties, allowed the revision petition vide order dated 02.09.2008 and
quashed the process issued by the Additional Chief Metropolitan Magistrate.
9. The supplier challenged the order of the Additional Sessions
Judge in a petition under Section 482 of the Code before the High Court.
The High Court allowed the petition, set aside the order of the Additional
Sessions Judge and restored the order of the Additional Chief Metropolitan
Magistrate issuing process to the purchasers.
10. The Delhi High Court following its earlier decision in Mojj
Engineering[1] held that the issuance of a cheque at the time of signing
such contract has to be considered against a liability, as the amount
written in the cheque is payable by the person on the date mentioned in the
cheque.
11. Section 138 of the N.I. Act 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.”
12. The interpretation of the expression ‘for discharge of any debt
or other liability’ occurring in Section 138 of the N.I. Act is significant
and decisive of the matter.
13. The explanation appended to Section 138 explains the meaning of
the expression ‘debt or other liability’ for the purpose of Section 138.
This expression means a legally enforceable debt or other liability.
Section 138 treats dishonoured cheque as an offence, if the cheque has been
issued in discharge of any debt or other liability. The explanation leaves
no manner of doubt that to attract an offence under Section 138, there
should be legally enforceable debt or other liability subsisting on the
date of drawal of the cheque. In other words, drawal of the cheque in
discharge of existing or past adjudicated liability is sine qua non for
bringing an offence under Section 138. If a cheque is issued as an advance
payment for purchase of the goods and for any reason purchase order is not
carried to its logical conclusion either because of its cancellation or
otherwise, and material or goods for which purchase order was placed is not
supplied, in our considered view, the cheque cannot be held to have been
drawn for an exiting debt or liability. The payment by cheque in the nature
of advance payment indicates that at the time of drawal of cheque, there
was no existing liability.
14. In Swastik Coaters[2] , the single Judge of the Andhra Pradesh
High Court while considering the explanation to Section 138 held:
“……..Explanation to Section 138 of the Negotiable Instruments
Act clearly makes it clear that the cheque shall be relateable
to an enforceable liability or debt and as on the date of the
issuing of the cheque there was no existing liability in the
sense that the title in the property had not passed on to the
accused since the goods were not delivered. ……..”
15. The Gujarat High Court in Shanku Concretes[3] dealing with
Section 138 of the N.I. Act held that to attract Section 138 of the N.I.
Act, there must be subsisting liability or debt on the date when the cheque
was delivered. The very fact that the payment was agreed to some future
date and there was no debt or liability on the date of delivery of the
cheques would take the case out of the purview of Section 138 of the N.I.
Act. While holding so, Gujarat High Court followed a decision of the
Madras High Court in Balaji Seafoods[4].
16. In Balaji Seafoods4, the Madras High Court held:
“Section 138 of the Negotiable Instruments Act makes it clear
that where the 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 under Section 138
of the Act. The explanation reads that for the purposes of this
section, ‘debt or other liability’ means a legally enforceable
debt or liability.”
17. The Kerala High Court in Ullas[5] had an occasion to consider
Section 138 of the N.I. Act. In that case, the post-dated cheque was issued
by the accused along with the order for supply of goods. The supply of
goods was not made by the complainant. The accused first instructed the
bank to stop payment against the cheque and then requested the complainant
not to present the cheque as he had not supplied the goods. The cheque was
dishonoured. The single Judge of the Kerala High Court held, “………Ext.P1
cheque cannot be stated to be one issued in discharge of the liability to
the tune of the amount covered by it, which was really issued, as is
revealed by Ext. D1, as the price amount for 28 numbers of mixies, which
the complainant had not supplied. …..”
18. The reasoning of the Delhi High Court in the impugned order is
as follows:
“8. If at the time of entering into a contract it is one of
the conditions of the contract that the purchaser has to pay the
amount in advance then advance payment is a liability of the
purchaser. The seller of the items would not have entered into
contract unless the advance payment was made to him. A condition
of advance payment is normally put by the seller for the reason
that the purchaser may not later on retract and refuse to take
the goods either manufactured for him or procured for him.
Payment of cost of the goods in advance being one of the
conditions of the contract becomes liability of the purchaser.
The purchaser who had issued the cheque could have been asked to
make payment either by draft or in cash. Since giving cheque is
a mode of payment like any other mode of payment, it is normally
accepted as a payment. The issuance of a cheque at the time of
signing such contract has to be considered against a liability
as the amount written in the cheque is payable by the person on
the date mentioned in the cheque. Where the seller or
manufacturer, on the basis of cheques issued, manufactures the
goods or procures the goods from outside, and has acted upon the
contract, the liability of the purchaser gets fastened, the
moment the seller or manufacturer acts upon the contract and
procures the goods. If for any reason, the seller fails to
manufacture the goods or procure the goods it is only under
those circumstances that no liability is created. However, where
the goods or raw material has been procured for the purchaser by
seller or goods have been manufactured by the seller, it cannot
be said that the cheques were not issued against the liability.
I consider that if the liability is not construed in this
manner, the sole purpose of making dishonour of the cheque as an
offence stands defeated. The purpose of making or enacting
Section 138 of the N.I. Act was to enhance the acceptability of
cheque in settlement of commercial transactions, to infuse trust
into commercial transactions and to make a cheque as a reliable
negotiable instrument and to see that the cheques of business
transactions are not dishonoured. The purpose of Negotiable
Instrument Act is to make an orderly statement of rules of law
relating to negotiable instruments and to ensure that mercantile
instruments should be equated with goods passing from one hand
to other. The sole purpose of the Act would stand defeated if
after placing orders and giving advance payments, the stop
payments are issued and orders are cancelled on the ground of
pricing of the goods as was done in this case.”
19. The above reasoning of the Delhi High Court is clearly flawed
inasmuch as it failed to keep in mind the fine distinction between civil
liability and criminal liability under Section 138 of the N.I. Act. If at
the time of entering into a contract, it is one of the conditions of the
contract that the purchaser has to pay the amount in advance and there is
breach of such condition then purchaser may have to make good the loss that
might have occasioned to the seller but that does not create a criminal
liability under Section 138. For a criminal liability to be made out under
Section 138, there should be legally enforceable debt or other liability
subsisting on the date of drawal of the cheque. We are unable to accept the
view of the Delhi High Court that the issuance of cheque towards advance
payment at the time of signing such contract has to be considered as
subsisting liability and dishonour of such cheque amounts to an offence
under Section 138 of the N.I. Act. The Delhi High Court has traveled
beyond the scope of Section 138 of the N.I. Act by holding that the purpose
of enacting Section 138 of the N.I. Act would stand defeated if after
placing orders and giving advance payments, the instructions for stop
payments are issued and orders are cancelled. In what we have discussed
above, if a cheque is issued as an advance payment for purchase of the
goods and for any reason purchase order is not carried to its logical
conclusion either because of its cancellation or otherwise and material or
goods for which purchase order was placed is not supplied by the supplier,
in our considered view, the cheque cannot be said to have been drawn for an
existing debt or liability.
20. In our opinion, the view taken by Andhra Pradesh High Court in
Swastik Coaters2, Madras High Court in Balaji Seafoods4, Gujarat High Court
in Shanku Concretes3 and Kerala High Court in Ullas5 is the correct view
and accords with the scheme of Section 138 of the N.I. Act.
21. The view taken by Delhi High Court is plainly wrong and does
not deserve acceptance.
22. Criminal Appeal is, accordingly, allowed; the impugned judgment
of Delhi High Court is set aside; and the order of the Sessions Judge is
restored.
…..………………………….J.
(R.M. Lodha)
…..………………………….J. (Shiva Kirti Singh)
New Delhi,
April 7, 2014.
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[1] M/s. Mojj Engineering Systems Limited and others v. M/s. A.B. Sugars
Ltd. [154 (2008) Delhi Law
Times 579]
[2] M/s. Swastik Coaters Pvt. Ltd v. M/s. Deepak Brothers and others;
[1997 Cri. L.J. 1942 (AP)]
[3] Shanku Concretes Pvt. Ltd. and others v. State of Gujarat and
another; [2000 Cri. L.J.1988 (Guj.)]
[4] M/s. Balaji Seafoods Exports (India) Ltd. and another v. Mac
Industries Ltd.; [1999 (1) CTC 6]
[5] Supply House, Represented by Managing Partner v. Ullas, Proprietor
Bright Agencies and another;
[2006 Cri. L.J. 4330 (Kerala)]
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