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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 ..... uarantee for payment of all the amounts payable by the obligatee in respect of purchase of receivables was also given by Petitioner No.2 (Alok Aggarwal). Petitioner No.2 on behalf of Petitioner No.1 also undertook the payment of the outstanding pre-payments or for values of reassigned. He, further, undertook to keep sufficient balance in 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. See Shree Bhagwati Apparels India Limited & Ors. v. M/s. Bibby Financial Services India Pvt. Ltd. [2013 (2) TMI 28 - PUNJAB AND HARYANA HIGH COURT] Thus a cheque issued towards debt which is due but whose only payment is postponed would attract Section 138 of the N.I. Act. - Crl MC 905/2012 & 906/2012 - - - Dated:- 30-1-2013 - MR. G.P. MITTAL J. Petitioners Through: Mr. Vikas Gupta Advocate with Mr. Nakul Ahuja Advocate Respondents Through: Ms. Rajdipa Behura, APP for State Mr. M.S. Vinaik Adv. Mr. Deepak Bashta, Adv. for R-2 JUDGMENT G. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2 in the criminal complaint filed against the Petitioners and thus, the Court of learned MM was mislead in issuance of summons. (ii) The Petitioners were wrongly described as borrowers in the Complaint when in fact they were not the borrowers. (iii) The cheques given by the Petitioners were by way of security and thus in case of dishonour of cheque, the Petitioners were not criminally liable under Section 138 of the Act. The learned counsel for the Petitioners places reliance on M/s. Collage Culture Ors. v. Apparel Export Promotion Council Anr. 2007 (4) JCC (NI) 388; Exports India Anr. v. State Anr. 2007 (3) JCC (NI) 252; and MCD v. State of Delhi Anr. 2005SCC (Cri.) 1322. 7. On the other hand, learned counsel for the Respondent contends that there was no misrepresentation by Respondent No.2. The Petitioners were rightly described as borrowers as the amount was paid by Respondent No.2 to Petitioner No.1. 8. As per the terms of the Agreement dated 18.02.2010 entered into between the parties, the Petitioners were liable to make the payment in case of non-performance of the obligation by Koutons. A personal undertaking dated 18.02.2010 was also given by Alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e factoring agreement. The learned counsel for the Petitioners urged that recourse and set off is provided under Clause 11 of the Agreement. If the cheques issued by Koutons were dishonoured, Respondent No.2 was at liberty to have recourse as mentioned in the Agreement. Para 11 of the Agreement as relied upon by the learned counsel for the Petitioners is extracted hereunder:- 11. RECOURSE AND SET-OFF (1) As regards each receivable which the Debtor is or claims to be unable to pay whether by reasons of legal constraints or acts or orders of government or for any other reason whatsoever and each receivable in respect of which the Debtor or his legal representative has disputed liability. The Factor shall have recourse to the Client as follows:- (a) On the expiry of notice to the Client of the length specified in paragraph 14 of the Schedule or (b) on the insolvency of the debtor whichever is the earlier. After the exercise of recourse by the Factor in respect of any such receivable the Factor will credit the Client with all sums subsequently recovered by the Factor in respect of it as the result of enforcement or realization of any associated rights. The said receivable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the N.I. Act. The Supreme Court observed that any drawer (of cheque) who claims that he did not receive the notice sent by post, can within 15 days on receipt of summons from the Court in respect of complaint under Section 138 of the N.I. Act, may make payment of the cheque amount and submit to the Court that he had made payment within 15 days on receipt of the summons and, therefore, the complaint is liable to be rejected. Thus, applying the analogy of C.C. Alavi Haji when the Petitioners became aware of the presentation of the cheques issued on behalf of Petitioner No.1 on receipt of notice dated 17.01.2011; it could have made the payment within a period of 30 days and similarly informed the learned MM for dismissal of the complaint. 19. It is very strenuously canvassed by the learned counsel for the Petitioners that the cheques issued by the Petitioners were only by way of security. I have earlier referred to the terms of the Agreement including clause 11 recording recourse as relied on by the learned counsel for the Petitioners. The tanner of the Agreement was that the amount was advanced by Respondent No.2 to the Petitioners, thus, the amount was borrowed by the Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en appreciated by the High Court, neither been dealt with or even referred to in the impugned judgment. 11. The issue as regards the coextensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the statue depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act. "Any cheque" and "other liability" are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the statue. Any contra-interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of guarantee and guarantor s liability and thus has overlooked the true intent and purport of Section 138 of the Act. The judgments recorded in the order of the High Court do not have any relevance in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 138 of the Negotiable Instruments Act is maintainable. Reliance was placed on the judgments of Hon'ble the Apex Court rendered in the case titled as M.S. Narayana Menon @ Mai v. State of Kerala passed in Criminal Appeal No. 1012 of 1999, 2006 (3) R.C.R. (Criminal) 504 (SC). And the judgment of Delhi High Court rendered in the case titled as Collage Culturev. Apparel Export Promotion Council passed in Crl M.C. No. 3011/2004. (ii) The respondent has already preferred a complaint under Section 138 of the Negotiable Instruments Act against M/s Liverpool Retail India Limited whose invoices were financed by the respondent and who duly acknowledged the domestic factoring facilities and in response thereto issued the cheques for the whole amount of the invoices. Therefore, the respondent cannot maintain two complaints for same liabilities. (iii) that no notice as per the terms and conditions of the settlement was issued to the petitioners and, therefore, the complaint was not maintainable. 23. The Punjab and Haryana High Court in Shree Bhagwati Apparels India Limited held as under:- 7. After hearing learned counsel for the petitioners, the first issue that requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing any of the cheque/s, the respondent, herein, shall be at liberty to initiate proceedings under the relevant provisions of the Negotiable Instruments Act, the Indian Penal Code, and/or any other enactment/s. 11. Thus, the entire undertaking has to be read a whole to arrive at the conclusion that the cheque is towards security or liability. 12. Further, an agreement had been executed between the parties i.e the petitioner No. 1 as Borrower and the respondent as Factor. Clause 9.1(xviii) of the Agreement reads as under: "9.1 The Borrower hereby warrants, agrees and undertakes as under: (xviii) that the Borrower shall at all times ensure that sufficient funds are made available in his bank account, on which the postdated/security cheques issued by the Borrower to Bibby have been drawn. Bibby shall not be required to give any notice to the Borrower before presenting the postdated/security cheques. In the event Bibby presents the postdated/security cheques furnished to it and the same are dishonoured for any reason whatsoever Bibby shall inter alia, have a right to proceed against the Borrower under the Negotiable Instrument Act, 1881;" 13. Thus, the cheques were issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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