2007 (10) TMI 659 - HC - Indian Laws

Dishonor of Cheque - Post dated cheques was given as Earnest money deposit Or Security - Legally enforceable debt u/s 138 of the Negotiable Instruments Act 1881 Or not? - The difference in the two kinds of post-dated cheques would be that the cheque issued under first circumstance would be for a debt due, only payment being postponed - The latter cheque would be by way of a security - HELD THAT - A post dated cheque may be issued under 2 circumstances. Under circumstance one, it may be issued for a debt in presenti but payable in future. Under second circumstance it may be issued for a debt which may become payable in future upon the occurrence of a contingent event. The word 'due' means 'outstanding at the relevant date' . The debt has to be in existence as a crystallized demand akin to a liquidated damages and not a demand which may or may not come into existence; coming into existence being contingent upon the happening of an event. It would be relevant to note that the statute does not refer to the debt being payable, meaning thereby, a post dated cheque for a debt due but payment postponed at a future date would attract Section 138 of the Negotiable Instruments Act 1881. But the cheque issued not for an existing due, but issued by way of a security, would not attract Section 138 of the Negotiable Instruments Act 1881, for it has not been issued for a debt which has come into in existence. Looking to the precedent, I find that in the decision M.S.Narayana Menon @Mani vs. State of Kerala Anr. 2006 (7) TMI 576 - SUPREME COURT , it was observed that - If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act.'' Thus, the petition must succeed - The summoning order is quashed.

Summary

Issues:
1. Whether the complainant has an actionable cause under Section 138 of the Negotiable Instruments Act 1881?
2. Whether the post-dated cheques issued by the petitioners constitute a debt due or a security?
3. Whether the cheques were issued for an existing debt or contingent event, affecting the applicability of Section 138 of the Negotiable Instruments Act 1881?

Analysis:

Issue 1:
The petitioners argued that the complainant lacked an actionable cause under Section 138 of the Negotiable Instruments Act 1881. They contended that the issuance of a cheque for a debt due towards the discharge of a liability is essential for the application of Section 138. The petitioners highlighted that a cheque given as collateral security or for a future contingent event cannot form the basis of an action under Section 138.

Issue 2:
The court examined the circumstances under which the post-dated cheques were issued. The cheques were towards replacement of earlier cheques issued as earnest money deposits. The earnest money was liable to be forfeited only if the petitioners failed to exhaust the quota issued for garment export. The court distinguished between post-dated cheques issued for a debt due, where payment is postponed, and those issued as security. It emphasized that a cheque issued as security, not for an existing debt, would not attract Section 138.

Issue 3:
The court referred to Section 138 of the Negotiable Instruments Act 1881, emphasizing that the statute does not require the debt to be payable immediately. However, it must be legally enforceable. Citing a precedent, the court noted that if a cheque is issued for security or other purposes, not for debt discharge, it would not fall under Section 138. Based on this analysis, the court quashed the summoning order dated 21.1.2004, ruling in favor of the petitioners.

This detailed analysis of the judgment from the Delhi High Court provides a comprehensive understanding of the legal principles applied in determining the quashing of the summoning order under Section 138 of the Negotiable Instruments Act 1881.