2004 (4) TMI 655 - HC - Indian Laws

Interpretation of contract terms - Breach of contract - Damages assessment - Petitioner entered into a hire purchase agreement - Whether the post dated cheques issued by the hirer at the time of execution of the agreement continue to remain as valid instruments supported by consideration once the agreement gets determined ipso facto? - HELD THAT - It is undoubtedly true that the owner/financier is entitled to enforce payment of monthly instalments as undertaken by the hirer. The post dated cheques issued by the hirer towards equaled monthly hire can be presented for encashment every month. Those cheques represent payments towards discharge of the liability covered under the agreement between the parties. According to the petitioner 48 post dated cheques were handed over to the owner at the time when Annexure A8 agreement was executed. This assertion made by the petitioner has not been controverted by respondent No. 2/owner in the counter affidavit filed before this court. The details of these cheques are given in the agreement itself. Bach of these cheques had to be presented for encashment on an agreed date every month. The due date for payment of monthly hire charges as stipulated in Annexure A8 agreement was 5th of every month. Thus every cheque issued by the petitioner albeit in advance can be said to be supported by consideration at least on the date when the hire charges would become due. But a reading of clause 9 extracted above will clearly show that the agreement gets determined ipso facto if and when the hirer commits default in payment of any of the instalments of hire. Various other contingencies which would result in determination of the agreement are also enumerated in the agreement with which we are not concerned in this case. It is pertinent to note that in the second schedule of the agreement the total value of the vehicle and the amount financed the rate of hire purchase charge in percentage etc. are mentioned. The second schedule also contains the details of 48 instalments viz. the date on which the hire money becomes due and the amount payable as hire money every month etc. It is contended by learned counsel for the petitioner that applying the principles laid down in Sundaram Finance s case 1965 (11) TMI 123 - SUPREME COURT the hire purchase agreement in this case (Annexure A8) can be construed only as a loan agreement. If any amount is payable by the loanee towards the liability the remedy available is only to sue for the balance. Thus the post-dated cheques cannot be said to have been supported by any consideration and therefore there is no legally enforceable debt or liability to attract the provisions of Section 138 of the Negotiable Instruments Act. He submits that the above dictum is apposite to the facts and circumstances of this case. Thus I do not deem it necessary to consider the above contention. The Supreme Court had taken the view that the hire purchase agreement in Sundaram Finance Ltd. s case 1965 (11) TMI 123 - SUPREME COURT was only a loan agreement in the context of exigibility of sales tax on vehicles for which finance was arranged in collaboration with dealers of those vehicles. In my view the facts revealed in this case would make it clear that the cheque was presented for encashment after the vehicle was seized by the complainant. The seizure was in May 1999 and the cheque was presented for encashment in September 1999. Thus even going by the terms in Annexure A8 agreement it stood determined ipso facto on default of the hirer to pay the instalments and also on seizure of the vehicle by the owner. The remedy available to the owner has been provided under clause 9. It is also on record that the complaint/owner has taken recourse to that remedy as provided under the above clause. A suit has been filed before the High Court of Madras. Under such circumstances I have no hesitation to hold that Annexure A1 complaint filed against the petitioner is not sustainable. I am also inclined to agree with the contention that once the financier/owner under a hire purchase agreement exercised the option of seizure of the vehicle the post dated cheques obtained from the hirer cannot be presented for encashment after the seizure. The owner has to take recourse to other legal remedies for recovery of the balance amount. If and when the vehicle is sold subsequently the owner can recover the balance amount after adjusting the sale proceeds of the vehicle. Of course in the post seizure scenario it may be open to the parties to agree upon a new schedule of payment or restructuring of the hire transaction. Thus I am satisfied that the criminal proceeding pending against the petitioner in Annexure A1 is liable to be quashed. Accordingly Annexure A1 is quashed.

Summary

Issues Involved:
1. Liability under Section 138 of the Negotiable Instruments Act after repossession of the vehicle.
2. Validity and enforceability of post-dated cheques after termination of the hire purchase agreement.
3. The concept of "consideration" under the Negotiable Instruments Act.
4. Abuse of judicial process by the complainant.

Detailed Analysis:

1. Liability under Section 138 of the Negotiable Instruments Act after repossession of the vehicle:
The core issue is whether the hirer of a motor vehicle can be prosecuted under Section 138 of the Negotiable Instruments Act after the vehicle has been repossessed by the owner and the hire purchase agreement has been terminated. The court noted that the hirer defaulted on the repayment, leading to the repossession of the vehicle by the owner. The owner then presented a post-dated cheque for encashment, which was dishonored. The hirer argued that the hire purchase agreement was terminated ipso facto upon repossession, making the cheque unenforceable.

2. Validity and enforceability of post-dated cheques after termination of the hire purchase agreement:
The court examined the terms of the hire purchase agreement, specifically Clauses 8 and 9, which allow the hirer to terminate the hiring by returning the vehicle and safeguard the owner's right to claim arrears and damages. The court found that once the agreement is terminated and the vehicle repossessed, the post-dated cheques lose their enforceability as they are no longer supported by consideration.

3. The concept of "consideration" under the Negotiable Instruments Act:
The court emphasized that consideration is essential for any legally enforceable contract. Section 43 of the Negotiable Instruments Act states that a negotiable instrument made without consideration creates no obligation of payment. The court concluded that the post-dated cheques issued by the hirer were initially supported by consideration but became instruments without consideration after the vehicle was repossessed and the agreement terminated. Therefore, the cheque in question was not supported by any consideration, making it unenforceable under Section 138 of the Act.

4. Abuse of judicial process by the complainant:
The court also addressed the issue of abuse of judicial process by the complainant. It was noted that the complainant had filed multiple cases in different jurisdictions using post-dated cheques from the same transaction, indicating an attempt to harass the petitioner. The court found this conduct to be an abuse of judicial process and not countenanced.

Conclusion:
The court held that the post-dated cheques issued by the hirer were not enforceable after the termination of the hire purchase agreement and repossession of the vehicle. The criminal proceedings initiated against the petitioner under Section 138 of the Negotiable Instruments Act were found to be unsustainable and were quashed. The court also acknowledged the abuse of judicial process by the complainant and allowed the petition to quash the criminal proceedings.