2021 (11) TMI 449 - HC - Indian Laws

Dishonor of Cheque - existence of enforceable debt or not - whether the cheque was given only as a security to ensure the payment? - HELD THAT - On a perusal of E-mails sent by the learned counsel for the private complainant, it is seen that the amount is only as an investment not as a loan as projected by PW1 in the witness box assumes significance - Ex. D1 is exchange of email between the respective counsels. In Ex. D2/E-mail sent to the accused from the complainant, it is specifically mentioned in Clause (2) in reply namely mail given by the complainant is to help us to move forward to consider investing in ABL as a whole. Under Ex. D5, in third page, it is mentioned as investment not as a loan. Even under Ex. D10/series of email sent by defacto complainant to the accused it refers to investment proposals only. Thus, this Court finds that Ex. P3/cheque was issued only as a security for the investment and not for the hand loan as projected by PW1. The Lower Appellate Court has considered the same and has arrived at the similar conclusion that in the absence of anything reflecting on the transaction as a loan, which is only an investment made therefor, for which it was agreed to pay ₹ 48,87,200/- principle amount ₹ 46,00,000/- along with interest for 90 days viz., ₹ 2,87,200/- and hence, the amount deposited by the private complainant in escrow account is only an investment for the company, for which by way of security a cheque in issue has been issued by the accused and the said cheque does not represented any legal consideration or does not support by any legally enforceable debt and hence, presentation of cheque for encashment itself is under cloud and hence, similar findings rendered by the Lower Appellate Court is justified and the same is hereby confirmed. Appeal dismissed.

Summary

Issues Involved:
1. Nature of the amount deposited (investment vs. loan).
2. Legality of the cheque issued as security.
3. Presumption under Section 139 of the Negotiable Instruments Act.
4. Validity of the authorization to initiate criminal proceedings.
5. Rebuttal of presumption by the accused.

Detailed Analysis:

1. Nature of the Amount Deposited (Investment vs. Loan):
The core issue was whether the ?46,00,000/- provided by the complainant to the accused was an investment or a loan. The complainant contended it was a loan, while the accused argued it was an investment. The court examined the Memorandum of Understanding (Ex. P2) which stated that the complainant agreed to invest ?46,00,000/- towards executing sales orders, including the purchase of raw materials and other expenses. Clause (3) of Ex. P2 indicated the amount was for investment, and Clause (11) required the accused to issue a post-dated cheque for ?48,87,000/- to secure the complainant's interest. The court concluded that the amount was indeed an investment, not a loan.

2. Legality of the Cheque Issued as Security:
The complainant argued that the cheque for ?48,87,000/- was issued for a pre-existing legal liability. However, the accused maintained it was issued as security for the investment. The court noted that the cheque was issued before the 90-day period stipulated in the MOU had expired, indicating it was intended as security rather than for immediate encashment. The court referenced the Supreme Court's judgment in M.S. Narayana Menon @ Mani Vs. State of Kerala, which held that a cheque issued for security does not fall under Section 138 of the Negotiable Instruments Act.

3. Presumption under Section 139 of the Negotiable Instruments Act:
The court acknowledged that under Section 139 of the Negotiable Instruments Act, there is a presumption in favor of the holder of the cheque that it was issued for discharge of a debt or liability. However, this presumption is rebuttable. The accused successfully rebutted this presumption by providing evidence that the cheque was issued as security for the investment.

4. Validity of the Authorization to Initiate Criminal Proceedings:
The complainant argued that the authorization given to PW1 included the initiation of criminal proceedings under Section 138 of the Negotiable Instruments Act. The court, however, found that the authorization was not specific to the cheque case, weakening the complainant's position.

5. Rebuttal of Presumption by the Accused:
The accused presented evidence, including emails (Ex. D1, D2, D5, D10), and testimonies that supported their claim that the amount was an investment and the cheque was issued as security. The court found this evidence credible and sufficient to rebut the presumption under Section 139. The court emphasized that the cheque was issued before the 90-day period ended and was not intended for immediate encashment.

Conclusion:
The court dismissed the criminal appeal, confirming the order of the VI Additional Sessions Judge, Chennai. The court held that the ?46,00,000/- was an investment, the cheque was issued as security, and there was no legally enforceable debt at the time of the cheque's issuance. Therefore, the accused did not commit an offense under Section 138 of the Negotiable Instruments Act.