2019 (7) TMI 1232 - HC - Indian Laws

Dishonor of Cheque - existence of legally enforceable debt or liability - pre-summoning evidence - HELD THAT - Supreme Court in Pepsi Foods Ltd. and Another Vs. Special Judicial Magistrate and Others 1997 (11) TMI 518 - SUPREME COURT had quashed the complaint and the summoning order, as it was found that there were no averments in the complaint on the basis of which a complaint could be maintained. In the instant case, to assert the necessary ingredients of existing debt or liability, it is required to be averred in a complaint of Section 138 of NI Act, as to what is the factual basis to show existing debt or liability. This Court is of the considered opinion that necessary ingredients to maintain the complaints in question are lacking, thereby rendering the impugned order unsustainable and so, continuance of proceedings arising out of the complaints in question would be an exercise in futility. Petition disposed off.

Summary

Issues:
Quashing of complaints under Section 138 of Negotiable Instruments Act, 1881 and summoning orders based on security cheques.

Analysis:
The case involved the quashing of complaints under Section 138 of the Negotiable Instruments Act, 1881, and summoning orders on the grounds that the cheques in question were issued as security cheques. The respondent-complainant alleged that the cheques were dishonored due to "Exceeds Arrangement" and "Signature differs." The petitioner argued that the cheques were issued as security under two Memorandums of Understanding (MOUs) for supply and trading of iron ore, which did not materialize. The respondent did not return the cheques after the MOUs were canceled but presented them for encashment. The petitioner relied on legal precedents to support the claim that the cheques were security cheques and that no legally enforceable debt or liability existed.

The respondent contended that the MOUs covered not only iron ore but also steel items, and the cheques were issued against the liability for steel items, amounting to ?12 crores at the time of presentation. The court considered the submissions, pre-summoning evidence, and legal precedents. Referring to previous judgments, the court emphasized the importance of averments in a complaint under Section 138 of the NI Act to establish the existence of a debt or liability. The court found that the complaints lacked necessary details regarding the nature of the transaction between the parties, rendering them unsustainable.

Citing a similar case, the court highlighted the significance of specific pleadings to support the transaction's validity. The court concluded that the complaints in question did not meet the essential requirements to maintain the case under Section 138 of the NI Act. Consequently, the court quashed the impugned complaints and summoning orders, deeming further proceedings futile. The petitions and applications were disposed of accordingly.