2007 (11) TMI 592 - HC - Companies Law

Dishonour Of cheques - collaboration agreement - security for due performance of agreement - scope and ambit of the expression other liability occurring in Section 138 of the N.I. Act - Whether the cheques issued by the petitioners were towards discharge of a debt or other liability or merely as security - HELD THAT - In the instant case, the complainant and the other owner of the said property blocked their asset (property) till the period of completion of construction as provided in the agreement. The promise/act of the complainant and other owner of the said property of blocking their asset for a considerable period can very well be held to be a consideration within the meaning of Section 2(d) of the Indian Contract Act. Thus all reciprocal obligations of the builder would also be a consideration for the contract. We in the facts and circumstances of this case need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be part of debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The Appellant clearly said that nothing is due and the cheque was issued by way of security. The said defense has been accepted as probable. If the defense is acceptable as probable the cheque therfore cannot be held to have been issued on discharge of the debt as, for example, if a cheque is issued for security or any other purpose the same would not come within the purview of Section 138 of the Act. The afore-noted observations are emphasised are clarificatory in nature. Thus, no ground for quashing the complaint or the summoning order dated 23.9.2002 is made out.

Summary

Issues Involved:
1. Scope and ambit of the expression "other liability" in Section 138 of the N.I. Act.
2. Whether the cheques issued by the petitioners were towards discharge of a "debt or other liability" or merely as security.

Summary:

Issue 1: Scope and Ambit of "Other Liability" in Section 138 of the N.I. Act

The primary issue in this petition u/s 482 of the Code of Criminal Procedure, 1973 is the interpretation of the term "other liability" in Section 138 of the N.I. Act. The court noted that the expression "other liability" cannot be construed as akin to "debt" unless the rule of ejusdem generis applies. However, in Section 138, "other liability" follows only one word, "debt," which does not constitute a distinct genus, thus the rule of ejusdem generis is inapplicable. The Supreme Court in I.C.D.S. Ltd. v. Beemna Shabeer clarified that "other liability" must be given its ordinary and grammatical meaning, encompassing any "liability to pay." The court emphasized that phrases in Section 138 should be understood as they are in the commercial world, meaning "other liability" includes any obligation to pay.

Issue 2: Nature of Cheques Issued by Petitioners

The petitioners, directors of Ansal Buildwell Ltd., sought quashing of a complaint and summoning order u/s 138 of the N.I. Act, arguing that the cheques were issued as security, not for discharging a debt or liability. Clause V of the collaboration agreement required Ansal Buildwell Co. to deposit Rs. 138 lakhs as security for due performance, with cheques issued for this amount. The court distinguished between cheques issued as security and those issued for discharging a liability. A cheque given as security is not to be encashed immediately but becomes enforceable if a future obligation is not met. In this case, the cheques were part of the consideration under the contract, making them a liability to pay. The court held that the blocking of the complainant's property asset constituted consideration under Section 2(d) of the Indian Contract Act, making the cheques issued by the accused company a liability to pay at the time of issuance.

Conclusion:

The court concluded that the cheques issued by the petitioners were towards a liability to pay and not merely as security. Therefore, no grounds for quashing the complaint or the summoning order dated 23.9.2002 were made out. The petition was dismissed with no costs.