2015 (6) TMI 1274 - HC - Indian Laws

Dishonour of Cheque - legally enforceable debt or liability at the time of cheque presentation or not - security cheque or not - Section 138 NI Act - HELD THAT - It would defeat the object of Section 138 NI Act to hold that the seller/ service provider cannot enforce his right conferred by Section 138 NI Act in such a situation, as it would encourage dishonest buyers to evade their penal liability. It would erode the efficacy and credibility of commercial transactions undertaken on the basis of post-dated cheques, or cheques issued towards advance payment, with a credit period. The view of the Supreme Court in Indus Airways 2014 (4) TMI 464 - SUPREME COURT does not appear to take out from the scope of Section 138 NI Act cases of this nature, as what fell for examination was a fact situation where the advance cheque had been issued along with the purchase order, and the supply of goods was not made for whatever reason. The debt or other liability has to be a legally enforceable debt or other liability. Neither the main provision of Section 138, nor the explanation suggest that the debt or other liability should be in existence on the date of issuance of the cheque, i.e. on the date of its delivery to the drawee or someone on his behalf or, on the date that the cheque bears. The only reference to time in the Section, is the point of time when the cheque is returned unpaid by the drawers bank. The scope of Section 138 NI Act would cover cases where the ascertained and crystallised debt or other liability exists on the date that the cheque is presented, and not only to case where the debt or other liability exists on the date on which it was delivered to the seller as a post-dated cheque, or as a current cheque with credit period. The liability, though, should be in relation to the transaction in respect whereof the cheque is given, and cannot relate to some other independent liability - It would have to be examined on a case to case basis, whether an ascertained or crystallised debt or other liability exists, which could be enforced by resort to Section 138 NI Act, or not. There is no merit in the legal submission of the respondent accused that only on account of the fact that the cheque in question was issued as security in respect of a contingent liability, the complaint under Section 138 of the NI Act would not be maintainable. The learned Magistrate founded the impugned judgment on a wrong premise of law, holding that merely because the cheque in question was issued as a security cheque and held that the same could not be the basis of a complaint under Section 138 of the NI Act - the impugned judgment is, accordingly, set aside and the respondents/accused are held guilty and convicted of the offences under Section 138 of the NI Act. Appeal allowed.

Summary

Issues Involved:
1. Whether a cheque issued as security can attract liability under Section 138 of the Negotiable Instruments Act (NI Act).
2. The existence of a legally enforceable debt or liability at the time of cheque presentation.
3. The applicability of precedents and interpretations of Section 138 NI Act in the context of security cheques.

Issue-wise Analysis:

1. Cheque as Security and Liability under Section 138 NI Act:
The central issue was whether a cheque issued as a security could lead to criminal liability under Section 138 of the NI Act. The court examined various precedents, including the Supreme Court's decision in *Indus Airways Pvt. Ltd. vs M/s Magnum Aviation Pvt. Ltd.*, which highlighted that for a criminal liability under Section 138, there must be a legally enforceable debt or liability subsisting on the date of cheque issuance. However, the court also considered *I.C.D.S. Ltd. vs. Beena Shabeer*, where it was held that security cheques could fall under Section 138 if an existing liability was present at the time of cheque presentation. The court concluded that the mere classification of a cheque as a "security cheque" does not automatically negate liability under Section 138 if the cheque is dishonored when a debt or liability exists.

2. Existence of Legally Enforceable Debt or Liability:
The court scrutinized whether a legally enforceable debt or liability existed at the time of the cheque's presentation. The complainant provided evidence of share transactions and outstanding liabilities through daily sauda confirmations and cash difference bills. The accused's defense was that the cheque was a blank security cheque, not linked to any liability. However, the court found the defense unconvincing, noting that the accused failed to substantiate claims of blank signed documents. The court determined that the debt was ascertained and crystallized, thus supporting the complainant's claim of an existing liability when the cheque was presented.

3. Applicability of Precedents and Interpretation of Section 138 NI Act:
The court analyzed the applicability of various judicial precedents, including *Collage Culture vs. Apparel Export Promotion Council*, which distinguished between cheques issued for existing debts and those contingent upon future events. The court emphasized that the observation in *Indus Airways* was made in a different factual context and should not be applied mechanically. It reaffirmed that the existence of a debt or liability at the time of cheque presentation, rather than issuance, is crucial for Section 138 applicability. The court also highlighted that the decision in *Indus Airways* did not consider the earlier ruling in *Beena Shabeer*, which supported the inclusion of security cheques under Section 138 when a liability exists.

Conclusion:
The court concluded that the trial court erred in acquitting the accused based on the premise that a security cheque could not be the basis for a Section 138 complaint. It found that the accused failed to raise a probable defense against the complainant's evidence of an existing liability. Consequently, the judgment of acquittal was set aside, and the accused were convicted under Section 138 of the NI Act, reinforcing the principle that security cheques can attract criminal liability if a debt or liability is present at the time of presentation.