2022 (1) TMI 800 - HC - Indian Laws

Dishonor of Cheque - insufficiency of funds - legally enforcement debt or not - Hire Purchase Agreement - petitioner alleges that respondent no.2 very conveniently did not produce copy of the Hire Purchase Agreement in the criminal complaint before the Judicial Magistrate - HELD THAT - In the instant case, prior to the filing of the criminal complaint before the concerned Judicial Magistrate, the financial institution, Shriram Transport Finance Company Ltd., had admittedly got repossession of the vehicle, therefore, the agreement entered into between the parties would get determined ipso facto by such repossession - the remedy available to the owner would be in accordance to the terms and conditions decided. Thus, the Court thereby laid down that once financial institution/owner exercised option of seizure of the vehicle, the postdated Cheques obtained from the hirer cannot be presented for encashment after the seizure. Though, the owner has to take recourse to other legal remedies for recovery of the balance amount, if any, when the vehicle is sold subsequently, the owner can recover the balance amount after adjusting the sale proceeds of the vehicle. Section 138 attracts the penal provision for debts or other liabilities , which may not be legally enforceable debts or other liabilities if the instrument by way of cheque is not supported by consideration. Section 43 of the N.I. Act deals with a negotiable instrument made without consideration. If a negotiable instrument is made or drawn without consideration it creates no obligation of payment between the parties to the transaction. Similarly, if the consideration for which the instrument was made or drawn has failed subsequently, then also the instrument creates no obligation at all - After repossession of the vehicle, Shriram Transport Finance Company Ltd. had sold the vehicle and the sale proceeds admittedly would be no doubt adjusted towards loan repayment, the complainant/owner has already initiated steps to recover the liability from the hirer. In this case, the cheque dated 13.12.2018 was presented, which came to be dishonoured because of funds insufficiency and the dishonoured memo was received by the Company on 19.12.2018. Thereafter, on 28.12.2018, the vehicle was repossessed by Shriram Transport Finance Company Ltd. respondent no.2, the notice demanding payment was served on 08.01.2019 and thereafter the complaint was filed on 22.02.2019. The complainant by suppressing the fact of repossession of vehicle before the Judicial Magistrate had prayed for relief. The learned Magistrate thus, relying on the facts pleaded, had issued summons - In view of the fact that vehicle was seized and was sold thereafter, the agreement between the complainant and accused stood terminated and there was no legally enforceable debt when the complaint was filed before the learned Magistrate. On repossession of vehicle, the agreement stood terminated, therefore cheques in the hands of financial institution becomes instrument for which consideration has failed, even being presented and dishonoured, no offence under Section 138 of the N.I. Act would be attracted. The proceedings before the learned Judicial Magistrate, First Class, Vadodara, Summons dated 22.02.2019 and all the consequential proceedings initiated in pursuance thereof are quashed and set aside qua the present petitioner - Application disposed off.

Summary

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881.
2. Validity of cheques issued as security under a Hire Purchase Agreement.
3. Impact of repossession and sale of the vehicle on the enforceability of the debt.
4. Suppression of material facts by the complainant.
5. Maintainability of the complaint filed by a power of attorney holder.

Issue-wise Detailed Analysis:

1. Legally Enforceable Debt under Section 138 of the N.I. Act:
The petitioner argued that since the vehicle was repossessed and subsequently sold by the respondent, the Hire Purchase Agreement was terminated, and thus, there was no legally enforceable debt for which the cheque could be presented. The court referred to the Supreme Court's decision in Indus Airways Private Limited Ors. Vs. Magnum Aviation Private Limited & Anr., emphasizing that for an offence under Section 138 to be made out, there must be a legally enforceable debt or liability subsisting on the date of drawal of the cheque. The court concluded that since the agreement was terminated upon repossession of the vehicle, no legally enforceable debt existed at the time of the cheque's presentation.

2. Validity of Cheques Issued as Security:
The petitioner contended that the cheques were issued as security and not for any existing debt. The court referred to the case of Rajkumar Sharma Vs. Shriram Finance Co. Ltd., where it was held that once a vehicle is repossessed and sold by the finance company, the hire-purchase agreement is determined, and the cheques issued as security cannot be presented for encashment. The court agreed with this view, stating that the cheques in question became instruments without consideration once the vehicle was repossessed and sold.

3. Impact of Repossession and Sale of the Vehicle:
The petitioner argued that the repossession and subsequent sale of the vehicle by the respondent terminated the Hire Purchase Agreement, and thus, any cheques issued under that agreement could not be enforced. The court noted that the respondent had indeed repossessed and sold the vehicle, and this act effectively terminated the agreement. Consequently, the cheques issued under the agreement could not be considered as being issued for a legally enforceable debt.

4. Suppression of Material Facts by the Complainant:
The petitioner alleged that the respondent suppressed material facts, such as the repossession and sale of the vehicle, in their complaint. The court found that the respondent had indeed failed to disclose these crucial facts, which would have influenced the learned Magistrate's decision to take cognizance of the matter. The court held that the suppression of these facts misled the court and invalidated the basis for the complaint under Section 138 of the N.I. Act.

5. Maintainability of the Complaint Filed by a Power of Attorney Holder:
The petitioner questioned the maintainability of the complaint filed by a power of attorney holder, arguing that the person lacked knowledge of the transaction. The court did not delve deeply into this issue, as the primary grounds for quashing the complaint were the lack of a legally enforceable debt and the suppression of material facts.

Conclusion:
The court allowed the petition, quashing the proceedings of Criminal Case No.7214/2019 before the learned Judicial Magistrate, First Class, Vadodara, including the summons dated 22.02.2019 and all consequential proceedings. The court concluded that since the vehicle was repossessed and sold, the Hire Purchase Agreement was terminated, and no legally enforceable debt existed at the time of the cheque's presentation. The suppression of material facts by the respondent further invalidated the complaint.