2018 (10) TMI 105 - HC - Indian Laws

Dishonor of Cheque - recovery of loan amount from petitioner-guarantor - section 138 of Negotiable Instruments Act - existence of subsisting liability / enforceable debt against the petitioner - whether the respondent can proceed against the petitioner straight away without proceeding against the Principal Debtors on the ground that the petitioner stood as a guarantor for the repayment of loan by the Principal Debtors? Held that - It is an admitted case that the petitioner stood as a guarantor for the balance amount of ₹ 28,54,000/- payable by Vijaya Prakash and Anand. The Hon ble Supreme Court in ICDS Ltd 2002 (8) TMI 577 - SUPREME COURT OF INDIA , has categorically held that in view of the language used under Section 138 of the Negotiable Instruments Act, any cheque which has been drawn for whatever reasons it may be, the liability under the provision cannot be avoided. The Supreme Court also went on to hold that issue as regards coextensive liability of the guarantor and the Principal Debtor is totally out of the purview of Section 138 of Negotiable Instruments Act. The Hon ble Supreme Court by relying upon the two expressions any cheque and other liabilities has categorically held that the moment the cheque is issued in discharge of any debt or other lability, there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of Negotiable Instruments Act. The application of Sections 126 and 128 of the Contract Act will have no relevance in a case under Section 138 of Negotiable Instruments Act. In view of the judgment of the Supreme Court, it is clear that the respondent need not really wait for the Principal Debtor to repay and they can always proceed against the petitioner who, admittedly stood as guarantor and issued cheque as security. The undertaking dated 06.06.2017 clearly states that the Principal Debtors will repay the amount of ₹ 28,54,000/-. The moment the Principal Debtors fail to make payment, the liability of the petitioner as a guarantor will come into operation. Since the principal debtor did not make any payment, the respondent proceeded to deposit the cheque on 09.10.2017. This Court does not find any ground to quash the proceedings and the petitioner has to face the proceedings before the Court below and raise all the defence available to him. It is made clear that the findings given in this order will have no bearing on the proceedings before the Court below and the petitioner is at liberty to raise all the contentions before the Court below and the Court below shall decide the case strictly on its own merits - the criminal original petition is dismissed.

Issues Involved:
1. Existence and subsistence of liability/enforceable debt against the petitioner.
2. Whether the petitioner, as a guarantor, can be held liable without proceeding against the principal debtors.
3. Applicability of judgments cited by both parties.
4. Interpretation and scope of Section 138 of the Negotiable Instruments Act.

Detailed Analysis:

1. Existence and Subsistence of Liability/Enforceable Debt Against the Petitioner:
The petitioner argued that the respondent failed to establish the existence of a subsisting liability or enforceable debt against him. The petitioner contended that he stood as a guarantor, and his liability would arise only if the principal debtors (Vijaya Prakash and Anand) failed to pay the amount. The complaint was silent regarding the cheques given by the principal debtors and whether they had paid the balance amount to the respondent. Thus, the petitioner asserted that there was no subsisting liability or legally enforceable debt against him until the principal debtors defaulted.

2. Liability of the Petitioner as a Guarantor Without Proceeding Against Principal Debtors:
The respondent argued that the petitioner, as a guarantor, was liable for the debt towards which he issued cheques. The respondent relied on judgments from the Supreme Court to substantiate that the liability of a guarantor is co-extensive with that of the principal debtor, and there was no requirement to wait for payment from the principal debtors before proceeding against the guarantor.

3. Applicability of Judgments Cited by Both Parties:
The petitioner relied on the Bombay High Court judgment in Kartik and another Vs HDFC Bank Ltd, which held that the liability of the guarantor arises only upon a written demand made by the complainant on the principal debtors. The liability was contingent upon the principal debtor not paying and the complainant making a demand on the guarantors.

The respondent relied on the Supreme Court judgments in ICDS Ltd Vs. Beena Shabeer and Don Ayengia Vs. State of Assam. The Supreme Court in ICDS Ltd held that the language of Section 138 of the Negotiable Instruments Act is broad enough to include any cheque issued for whatever reason, and the liability under this provision cannot be avoided. The court emphasized that the co-extensive liability of the guarantor and the principal debtor is irrelevant under Section 138. Similarly, in Don Ayengia, the Supreme Court held that if cheques are supported by consideration in the form of debt or liability, they attract the provisions of Section 138.

4. Interpretation and Scope of Section 138 of the Negotiable Instruments Act:
The court analyzed the judgments and concluded that the language of Section 138 is broad and inclusive, intending to cover any cheque issued for discharging any debt or liability. The court noted that the moment a cheque is issued in discharge of any debt or liability, there is no restriction on the application of Section 138. The court also highlighted that the liability of the petitioner as a guarantor was triggered the moment the principal debtors failed to make the payment.

Conclusion:
The court found no grounds to quash the proceedings against the petitioner. It held that the respondent need not wait for the principal debtors to repay and could proceed against the petitioner, who stood as a guarantor and issued the cheque as security. The court emphasized that the findings in this order would not affect the proceedings before the lower court, and the petitioner could raise all available defenses during the trial. Consequently, the criminal original petition was dismissed, and the presence of the petitioner before the trial court was dispensed with, except for specific occasions.

Order:
The criminal original petition is dismissed. The presence of the petitioner before the trial court is dispensed with, except during questioning under Section 313 of Cr.P.C and at the time of passing judgment. The petitioner shall be represented by counsel on all other occasions.

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