2017 (4) TMI 628 - HC - Indian Laws

Criminal complaint under Section 138 of Negotiable Instrument Act - cheque in question was a blank signed cheque handed over to the complainant by way of security - Held that - On the own showing of the complainant, the cheque was a security cheque, which came to be deposited on 8th March 2016. The law in this regard is wellsettled. In the case of Sampelly Satyanarayan Rao vs. Indian Renewable Energy Development Agency Limited 2016 (9) TMI 867 - SUPREME COURT wherein decision of this Court in Indus Airways Private Limited versus Magnum Aviation Private Limited 2014 (4) TMI 464 - SUPREME COURT discussed saying that while the purchaser may be liable for breach of the contract, when a contract provides that the purchaser has to pay in advance and cheque towards advance payment is dishonoured, it will not give rise to criminal liability under Section 138 of the Act. Issuance of cheque towards advance payment could not be considered as discharge of any subsisting liability. In view of the above, this application succeeds and is hereby allowed. The proceedings of the Criminal Case pending in the Court of the learned Additional Chief Metropolitan Magistrate, Court No.36, Ahmedabad are hereby quashed.

Summary

Issues:
1. Application under Section 482 of the Code of Criminal Procedure to quash a criminal complaint under Section 138 of the Negotiable Instrument Act, 1881.
2. Interpretation of a security cheque as a discharge of debt or liability.
3. Application of legal precedents regarding postdated cheques and their implications on criminal liability under Section 138 of the Act.

Issue 1: Application under Section 482 of the Code of Criminal Procedure
The applicant sought to quash a criminal complaint under Section 138 of the Negotiable Instrument Act. The applicant argued that the cheque in question was a security cheque handed over to the complainant for security purposes. The statutory notice issued by the complainant supported this claim, stating that the cheque was deposited as security and not for discharge of any existing liability.

Issue 2: Interpretation of a security cheque as a discharge of debt or liability
The Court referred to legal precedents to determine whether a security cheque should be considered as a discharge of debt or liability. Citing the case of Sampelly Satyanarayan Rao vs. Indian Renewable Energy Development Agency Limited, the Court emphasized that the nature of the transaction determines the applicability of Section 138 of the Act. If a debt exists or is legally recoverable at the time of the cheque, dishonor of such cheques falls under Section 138. In this case, the loan was disbursed before the cheques were issued, making them represent the outstanding liability.

Issue 3: Application of legal precedents regarding postdated cheques
The Court distinguished the present case from previous judgments where cheques were issued for advance payment and later dishonored. In this case, the cheque was for repayment of a loan installment, which had fallen due, making it a representation of an existing liability. The Court emphasized that the crucial question to determine the applicability of Section 138 is whether the cheque represents discharge of an existing enforceable debt or liability. The Court, therefore, allowed the application, quashing the criminal proceedings based on the interpretation of the security cheque as a representation of an existing liability.

In conclusion, the Court allowed the application under Section 482 of the Code of Criminal Procedure, quashing the criminal complaint under Section 138 of the Negotiable Instrument Act, based on the interpretation of the security cheque as a representation of an existing liability. The judgment relied on legal precedents to determine the nature of the transaction and the applicability of Section 138 in cases involving postdated cheques issued as security.