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2021 (11) TMI 66 - SC - Indian Laws


Issues Involved:
1. Legality of the High Court's decision to set aside the orders of the Judicial Magistrate.
2. Applicability of Section 420 IPC (Indian Penal Code) for the alleged cheating.
3. Applicability of Section 138 of the Negotiable Instruments Act (N.I. Act) for the dishonored cheques.

Detailed Analysis:

1. Legality of the High Court's Decision:
The appellant challenged the High Court's order which set aside the Judicial Magistrate's orders dated 04.07.2016 and 13.06.2019. The Magistrate had taken cognizance of the offense and issued summons, which the High Court reversed. The appellant argued that the High Court erred in concluding that the cheques issued were for security and not for the discharge of a legally recoverable debt.

2. Applicability of Section 420 IPC:
The High Court concluded that the case was a simple non-refunding of a loan and did not constitute cheating under Section 420 IPC. The Supreme Court agreed with this conclusion, noting that the transaction was a business loan with an agreement for repayment. There was no evidence of mens rea (criminal intent) to cheat on the part of the respondent, and mere dishonor of cheques did not imply an intention to cheat.

3. Applicability of Section 138 of the N.I. Act:
The Supreme Court examined whether the dishonored cheques could be considered as issued for the discharge of a legally recoverable debt. The High Court had ruled that since the cheques were given as security, Section 138 of the N.I. Act did not apply. The Supreme Court disagreed, referencing its own precedents, including Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Ltd. and M/s Womb Laboratories Pvt. Ltd. vs. Vijay Ahuja and Anr., which clarified that cheques issued as security could still be considered for the discharge of a debt if the debt had become due.

The Supreme Court emphasized that a cheque issued as security does not become a worthless piece of paper. If the debt becomes due and the cheque is presented and dishonored, the provisions of Section 138 of the N.I. Act are attracted. The appellant had presented the cheques after the due date for repayment, and the cheques were dishonored due to insufficient funds, thus prima facie establishing a case under Section 138.

Conclusion:
The Supreme Court set aside the High Court's order and restored the Judicial Magistrate's orders. It concluded that the complaint under Section 138 of the N.I. Act was maintainable and should proceed to trial. However, it upheld the High Court's decision that no case under Section 420 IPC was made out. All contentions and defenses were left open for consideration during the trial, and the trial court was directed to proceed independently based on the evidence presented.

 

 

 

 

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