2022 (5) TMI 198 - HC - Indian Laws

Dishonor of Cheque - cheque has been issued as a security - funds insufficient - legally enforceable debt or other liability or not - rebuttal of presumption - Section 138 of NI Act - HELD THAT - A perusal of Section 138 of the Act, 1881 goes to show that the expression debt or liability means a legally enforceable debt or other liability. If the cheque has been issued in discharge of any debt or liability, presumption under Section 139 of the Act, 1881 would come into operation. In other words, when once a cheque has been issued, the presumption has to be drawn to the effect that the cheque has been issued to discharge a legally enforceable debt or other liability - It is evident from the record that there is a contract between 2nd respondent/complainant and the petitioner/ accused. In terms of the said contract, the subject cheque has been issued. By any stretch of imagination, it is too premature for this court to come to a conclusion that the subject cheque was issued for the purpose of security. Whether the subject cheque was issued as a security or not would constitute a defence and the same has to be established in the course of trial. When a cheque has been issued, there cannot be any hard and fast rule that the cheque which is issued as a security, can never be presented by the drawee of the cheque. If such is the understanding, a cheque would also be reduced to an on demand promissory note and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. Therefore, when a cheque has been issued as a security, the consequences flowing therefrom is also known to the drawer of the cheque, and in the circumstances, if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option to initiate civil proceedings for recovery or criminal proceedings for punishment in a fact situation. But, in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation. The defences that are raised by the learned counsel for the petitioner are all questions of fact that have to be decided in the course of trial - Petition dismissed.

Summary

Issues:
1. Whether the complaint under Section 138 of the Negotiable Instruments Act, 1881 should be quashed due to lack of legally enforceable debt or liability.
2. Whether a post-dated cheque issued as security constitutes a legally enforceable debt or liability.

Analysis:
Issue 1: The petitioner was accused of offenses under Section 138 of the Act based on a complaint filed by the complainant for dishonor of a post-dated cheque issued as part of a contract. The petitioner argued that the complaint should be quashed as there was no legally enforceable debt, citing a decision in Indus Airways Private Limited v. Magnum Aviation Private Limited. The court referred to the above case, emphasizing the distinction between civil and criminal liability under Section 138. It held that for criminal liability, there must be a legally enforceable debt or liability at the time of issuing the cheque. The court rejected the petitioner's argument that the cheque was issued as security, stating that such defenses should be addressed during trial.

Issue 2: The court examined whether a post-dated cheque issued as security constitutes a legally enforceable debt or liability. Referring to the case of Sunil Todi v. State of Gujarat, the court reiterated that a cheque must be drawn for an existing debt or liability to attract Section 138. The court highlighted that the purpose of Section 138 is to address dishonored cheques related to enforceable debts. It clarified that the nature of the cheque, whether for security or payment, should be determined during trial and not at the initial stage. The court emphasized that the presentation and dishonor of a cheque could lead to civil or criminal proceedings, and the drawer cannot dictate the nature of litigation.

Conclusion:
The court dismissed the Criminal Petition, stating that the defenses raised by the petitioner are factual issues to be resolved during trial. It emphasized that the legality of the debt or liability concerning the post-dated cheque should be determined in the course of proceedings. The judgment underscores the importance of establishing a legally enforceable debt or liability at the time of issuing a cheque to invoke criminal liability under Section 138 of the Act.