2017 (4) TMI 1068 - HC - Indian Laws

Complain under Section 138 of the Negotiable Instruments Act for the dishonour of the cheques - Held that - In order to attract the penal provisions for the bouncing of a cheque, it is essential that the dishonoured cheque should have been issued in discharge, wholly or in part, or any debt or other liability of the drawer to the payee. The explanation to Section 138 of the Negotiable Instruments Act defines the expression debt or other liability as a legally enforceable debt or other liability. Unless the two conditions set out in Section 138 of the Act are satisfied, no criminal liability can be fastened. This is also in accordance with the general scheme as laid down in Section 118(a) of the Negotiable Instruments Act. It also enforces the doctrine of consideration as laid down in Section 2(d) of the Indian Contract Act, 1872. The applicants have levelled serious allegations against the officials of the department of exerting undue pressure, threat and duress while obtaining the cheques in question. Indisputably, as on date, the adjudication at the end of the competent authority under the Act is yet to take place. I find it extremely difficult to accept the argument of the learned counsel appearing for the department that the liability was fixed on the basis of the statements made by the applicant no.2 herein dated 7th November 2012 and 8th November 2012 respectively under Section 14 of the Central Excise Act, 1944. It appears that the department construed the two statements recorded under Section 14 of the Act, 1944 as a confession on the part of the applicants of indulging into fraudulent availment of the Cenvat Credit of ₹ 3.27 crore on the basis of phony cenventible invoices issued by the various ship breaking units of Bhavnagar. Let me assume for the moment that at the end of the search operation the officials were able to collect something incriminating against the applicants as regards the evasion of the excise duty. However, it cannot be said that the cheques which were obtained by the department were towards the discharge of the existing enforceable debt or liability. The liability was yet to be determined by the competent authority under the provisions of the Act. In the absence of any adjudication by a competent authority under the provisions of the Act as regards the liability of the applicants to pay the excise duty, it cannot be said that on the date when the cheques were drawn there was an existing enforceable debt or liability. For the foregoing reasons, all the three applications are allowed. The proceedings of the Criminal Cases pending in the court of the learned Metropolitan Magistrate, Court No.36, Ahmedabad, are hereby quashed.

Summary

Issues Involved:
1. Quashing of proceedings under Section 138 of the Negotiable Instruments Act.
2. Legally enforceable debt or liability.
3. Allegations of coercion and duress in obtaining cheques.
4. Adjudication of liability under the Central Excise Act, 1944.

Detailed Analysis:

1. Quashing of Proceedings under Section 138 of the Negotiable Instruments Act:
The applicants sought to quash the proceedings of Criminal Case No.746 of 2013 under Section 138 of the Negotiable Instruments Act for the dishonour of cheques. The primary contention was that the cheques were not issued in discharge of any legally enforceable debt or liability but were obtained under duress by the Central Excise Department officials.

2. Legally Enforceable Debt or Liability:
The court examined whether the cheques were issued for a legally enforceable debt or liability. The complaint alleged that the cheques were issued towards the discharge of excise duty liability. However, the applicants argued that there was no adjudicated liability at the time the cheques were issued. The court noted that for the penal provisions of Section 138 to apply, the dishonoured cheque must be issued in discharge of a legally enforceable debt or liability. The court referred to the Supreme Court's decision in Sampelly Satyanarayana Rao v. Indian Agency Limited, emphasizing that the cheque must represent an existing enforceable debt or liability.

3. Allegations of Coercion and Duress in Obtaining Cheques:
The applicants contended that the cheques were obtained under threat, pressure, and duress by the Central Excise officials. They claimed that the applicant no.2 was coerced into giving a statement that the cheques were issued voluntarily. The court found these allegations significant and noted that the liability to pay excise duty was yet to be determined through proper adjudication under the Central Excise Act.

4. Adjudication of Liability under the Central Excise Act, 1944:
The court highlighted the procedural requirements for determining liability under the Central Excise Act. It referred to various provisions, including Rule 14 of the CENVAT Credit Rules and Section 11A of the Central Excise Act, which outline the process for recovering wrongly availed CENVAT credit and unpaid duties. The court emphasized that without following these procedures, the liability could not be determined solely based on statements obtained under Section 14 of the Act. The court also referred to a Division Bench decision in a similar case under the Value Added Tax Act, where the authorities were directed to return cheques obtained without proper adjudication of tax liability.

Conclusion:
The court concluded that the cheques were not issued in discharge of any existing enforceable debt or liability, as the liability was yet to be adjudicated by the competent authority under the Central Excise Act. Consequently, the penal provisions of Section 138 of the Negotiable Instruments Act were not attracted. The court allowed the applications and quashed the proceedings of Criminal Case No.746 of 2013 and related cases, ruling that there was no legally enforceable debt or liability at the time the cheques were issued.