2002 (8) TMI 577 - SC - Indian Laws

Maintainability of a proceeding under section 138 of the Negotiable Instruments Act 1881 vis-a-vis a guarantor - Held that - Appeal allowed. 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. 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. Thus the High Court fell into a manifest error and as such the judgment impugned cannot obtain our concurrence.

Summary

Issues:
- Maintainability of a proceeding under section 138 of the Negotiable Instruments Act, 1881 concerning a guarantor.

Analysis:
1. The judgment revolves around the question of whether a proceeding under section 138 of the Negotiable Instruments Act, 1881 is maintainable against a guarantor. The High Court concluded that when a cheque is issued as security by a guarantor, no complaint lies under section 138 as the cheque is not for immediate payment of money towards the discharge of any debt or liability. This interpretation was based on the specific language of section 138, which requires the cheque to be for the payment of money from the account for the discharge of a debt or liability. The High Court also relied on a decision of the Kerala High Court to support its conclusion.

2. The judgment further discusses a decision of the Andhra Pradesh High Court, which supported the view that when a cheque is issued as security, no complaint can be maintained under section 138. However, the Supreme Court critically evaluates these interpretations. It emphasizes the significance of the language in section 138, particularly the phrase "Where any cheque," which indicates that if a cheque is drawn to discharge any debt or liability, the provision applies regardless of the reason for issuing the cheque. The Court highlights that the statute includes both the discharge of debt and other liabilities, which the High Court failed to appreciate in its decision.

3. The Supreme Court clarifies that the liability of a guarantor and the principal debtor is not within the purview of section 138. The Court emphasizes that the legislative intent is to hold liable anyone who issues a cheque for the discharge of any debt or liability, without any restriction based on the relationship between the parties. The Court criticizes the High Court for focusing on the issue of guarantee and overlooking the true intent of section 138. The Court also dismisses arguments related to other statutes like the Indian Contract Act, stating that the specific language of section 138 governs the matter at hand.

4. Ultimately, the Supreme Court finds that the High Court erred in its interpretation and allows the appeal. The Court quashes the High Court's judgment and restores the proceeding under section 138 against the guarantor. The judgment emphasizes the importance of adhering to the legislative intent of section 138 and holding accountable anyone who issues a cheque for the discharge of debt or liability, regardless of their role as a guarantor.