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TMI Blog2013 (2) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... t No.2 (the factor). A copy of the Factoring Agreement dated 18.02.2010 has been placed on the paper book by the Petitioners as well as by Respondent No.2. 3. The Petitioner was granted pre-payment (after deducting the commission) to the extent of Rs. 3 crores. The cheques for this sum of Rs. 3 crores issued by the debtors (Koutons) were dishonoured. The Respondent No.2 presented the cheques bearing Nos.541554, 541555, 541556, 541557, 541558 and 541559, dated 15.12.2010, all drawn on Punjab National Bank, New Rajendra Nagar, New Delhi of amount Rs.50 lacs each, which got dishonoured on presentation. A legal notice under Section 138 of the Negotiable Instruments Act, 1881 (the Act) dated 17.01.2011 was served upon the Petitioners calling upon them to make the payment of the cheque amounts along with interest failing which a complaint under the Act was to be filed against the Petitioners. 4. On failure to pay the amount, Respondent No.2 filed two separate Complaints under Section 138 of the Act (in respect of three cheques each). 5. By order dated 09.03.2011, the learned Metropolitan Magistrate ('MM') took cognizance and ordered issuance of the summons against the Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw as laid down in M/s. Collage Culture that a cheque issued not for an existing due but issued by way of security would not attract the provisions of Section 138 of the Act. In M/s. Collage Culture the learned Single Judge of this Court (Pradeep Nandrajog, J.) drew distinction between a cheque issued for a debt in present but payable in future and second for a debt which may become payable in future upon the occurrence of a contingent event. Paras 20 to 24 of the report in M/s. Collage Culture are extracted hereunder:- "20. A postdated cheque may be issued under 2 circumstances. Under circumstance one, it may be issued for a debt in presenti but payable in future. Under second circumstance it may be issued for a debt which may become payable in future upon the occurrence of a contingent event. 21. The difference in the two kinds of post-dated cheques would be that the cheque issued under first circumstance would be for a debt due, only payment being postponed. The latter cheque would be by way of a security. 22. The word 'due' means 'outstanding at the relevant date'. The debt has to be in existence as a crystallized demand akin to a liquidated damages and not a demand w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act 1881. But the cheque issued not for an existing due, but issued by way of a security, would not attract Section 138 of the Negotiable Instruments Act 1881, for it has not been issued for a debt which has come into in existence." 10. Similarly in Exports India & Anr. A.K. Sikri, J. (as his Lordship then was) while relying on M/s. Balaji Sea Foods Exports (India) Limited v. Mac Industries Ltd. (Madras), 1999 (1) RCR (Criminal) 683 held that where a cheque was given as a security against the agency agreement its dishonour would not entail the criminal consequences under Section 138 of the N.I. Act. 11. Thus, there is no dispute about the proposition which is well settled that wherever a cheque is given purely as a security, its dishonour would not make the drawer of the cheque criminally liable for an offence under Section 138 of the Act. 12. Before adverting to the facts whether the cheque in the instant case was given as a security or it was towards liability to the Petitioners, I would refer to the contention raised by the Petitioner about misrepresenting the Court of learned 'MM' or playing fraud by Respondent No.2. In Para 3 of the Complaint it was clearly stated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency of the debtor whichever was earlier. As per Para 14 of the Schedule "Recourse to the Client will be automatic on the expiry of 30 days from the due date of payment by the Debtor, or earlier, as advised by IFCI Factors Limited for each Debtor from time to time." 16. Thus, recourse to the Client was automatic on the expiry of 30 days from the due date of payment by the debtors, that is, Koutons or earlier as advised by IFCI Factors, i.e. Respondent No.2 for each debtor from time to time. 17. The Petitioners have placed on record a copy of the complaint under Section 138 of the Act filed by Respondent No.2 against Koutons and its Managing Director, etc. The due dates of payment were ranging between May to September, 2010. Thus, the period of 30 days had already expired from the due date of payment by the debtors, i.e. Koutons and, therefore, recourse to the Client, i.e. the Petitioners was automatic after the expiry of 30 days. In the instant case, the cheques issued by the Petitioners were presented only in the month of December, 2010. Moreover, as per the Clause 14 of the Schedule to the Agreement, the expiry period of 30 days from the due date of payment by the debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account and to honour the cheques on presentation. Thus, factoring agreement along with undertaking and the Bond of guarantee clearly indicates that the cheques had not been given by the Petitioners as security but towards the liability which was co-extensive with that of the debtor. 20. A reference may be made to a report of the Supreme Court in ICDS Ltd. v. Beena Shabeer & Anr. (2002) 6 SCC 426 wherein the Supreme Court interpreted the words where any cheque" and "other liability" as used in Section 138 of the N.I. Act and held that the cheque issued by a guarantor would be deemed to be issued against any other liability. Paras 10 and 11 of the report are extracted hereunder:- 10. The language, however, has been rather specific as regards the intent of the legislature. The commencement of the section stands with the words "Where any cheque". The abvoenoted three words are of extreme significance, in particular, by reason of the user of the word "any" - the first three words suggest that in fact for whatever reason if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided on 25.04.2011. Facts in Shree Bhagwati Apparels India Limited are extracted from Paras 4 and 5 of the judgment hereunder:- 4. The petitioners were granted domestic factoring facilities on 18.03.2011 by the respondent to the tune of Rs. 2,00,00,000/- with the condition of maximum pre-payment of 80%. The petitioner gave the cheques of security amounting to Rs. 2,00,00,000/- without date towards guarantee as guarantee of Liverpool Retail India Limited. On 09.06.2009, M/s Liverpool Retail India Limited was supplied goods and their invoices were discounted and M/s Liverpool Retail India Limited too issued the cheques for the said amount. The cheques were of different dates i.e. 14.09.2009 to 16.12.2009. On 05.11.2009, the said cheques were dishonoured for insufficient funds. Thereafter, the respondent had no choice but to deposit the cheques given by the petitioners as guarantee. Their cheques were dishonoured. Hence, on 20.04.2010, the respondent filed the complaint against M/s Liverpool Retail India Limited and its Directors. Thereafter the complainant deposited the cheques issued by the petitioner as guarantor of the said amount. The cheques issued by the petitioner were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with postdated/security cheques, details whereof are mentioned in Schedule 1 attached hereto for a total amount of Rs. 2,00,00,000/- only, favouring yourself. In case the Borrower fails to make payment of the amount outstanding under the Facility within a period of seven days after a demand is made by you for the said amount you shall have a right to present the cheques issued by the Executant for the said amount." 9. No doubt, the cheques are stated to be mentioned as given towards security as per the under taking and there is also no dispute that the cheques that were deposited were the same as mentioned in the said Schedule. However, at the same time, we cannot loose sight of the fact that they were submitted in pursuance to the liability, which is apparent from perusal of the same Undertaking given by the Managing Director of the petitioner's firm, which reads as under:- "3. That neither the Executant nor any other authorized representative/official of the Borrower shall issue stop payment instructions to the banker in respect of the cheque/s issued to you, and affirm that the Executant or anybody else authorized by the Borrower shall not intimate the bankers to stop the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X
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