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TMI Blog2021 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ate had rejected the petition filed by the respondent No.2 seeking discharge in the said criminal complaint. 2. The brief facts leading to the present case as pleaded is that the appellant and the respondent No.2 are known to each other inasmuch as the respondent No.2 and the daughter of the appellant were pursuing their education together in London. On their return to India, the respondent No.2 had settled in Bangalore and due to the earlier acquaintance, the cordial relationship amongst the families had continued. The respondent No.2 on learning that the appellant was involved in business, had approached him at Daltonganj and sought financial assistance to the tune of Rs. 1 crore so as to enable the respondent No.2 to invest the same in his business. Since the respondent No.2 had assured that the same would be returned, the appellant placed trust in him and the appellant claims to have advanced further sum and in all a total sum of Rs. 2 crores during the periods between January 2014 to July 2014. The said amount was paid to respondent No.2 by transferring from the account of appellant's daughter and also from the account of the appellant. Towards the said transaction, four agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was to be repaid and the cheque issued was towards discharge of the said amount. In the said circumstance, when the cheques issued was for discharge of the legally recoverable debt and it had been dishonoured, the provisions of Section 138 of N.I. Act would get attracted. Therefore, the complaint filed by the appellant is in accordance with law. It is his further contention that in the present case since respondent No.2 had gained the confidence of the appellant due to the acquaintance with his daughter and in that circumstance when the amounts which had been taken by him earlier had been repaid so as to gain the confidence and having received substantial amount had at that stage not made arrangement for sufficient funds in the bank despite having issued the cheques to assure payment, the same would amount to the respondent No.2 cheating the appellant by design and therefore would attract Section 420 IPC. It is contended that towards the amount received, the same had been acknowledged by subscribing the signature to the loan agreement. Further, when there was an undertaking to repay the same, the cheque was issued towards such discharge of legally recoverable debt and the cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both under Section 420 IPC and Section 138 of the N.I. Act has not been made out. It is contended that the claim for the sum of Rs. 2 crores as made in the complaint is without basis. It is his case that the respondent No.2 has issued a comprehensive reply disputing the claim put forth by the appellant. It is contended that from the very complaint and the statement of witnesses recorded by the learned Judicial Magistrate it is evident that no criminal offence is made out in the instant case. Even if the case as put forth in the complaint is taken note, at best the transaction can be considered as an advancement of loan for business purpose and even if it is assumed that the said amount was not repaid it would only give rise to civil liability and the appellants could have only filed a civil suit for recovery of the loan. The statement of the witnesses, more particularly the daughter of the complainant would indicate the longstanding relationship between the parties and also the monetary transaction which in any event does not constitute a criminal offence. It is contended that under any circumstance, the offence as alleged under Section 420 of IPC cannot be sustained. Insofar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharge as sought by the respondent No.2 cannot be accepted. The High Court on the other hand having referred to the rival contentions has concluded as follows: "20. From the aforesaid facts and from the documents of the complainant, this Court finds that long standing 'business transaction and inability of refunding a loan has been given a colour of criminal offence of cheating punishable under Section 420 of the Indian Penal Code. A breach of trust with mens rea gives rise to a criminal prosecution. In this case when I go through the evidence before charge of the complainant and the documents of the complainant, I find that there were long standing business transactions between the parties. Since 2011 money was advanced by the complainant and his family members to the accused and the complainant witness admits that money was also transferred from the account of the accused to the account of daughter of the complainant. From the evidence, I find that there is no material to suggest existence of any mens rea. Thus, this case becomes a case of simplicitor case of nonrefunding of loan, which cannot be a basis for initiating criminal proceeding. The Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence to indicate the offence under Section 420 IPC is made out and therefore on that aspect, we see no reason to interfere with the conclusion reached by the High Court. 12. Having arrived at the above conclusion and also having taken note of the conclusion reached by the High Court as extracted above, it is noted that the High Court has itself arrived at the conclusion that the instant case becomes a simpliciter case of nonrefunding of loan which cannot be a basis for initiating criminal proceedings. The conclusion to the extent of holding that it would not constitute an offence of cheating, as already indicated above would be justified. However, when the High Court itself has accepted the fact that it is a case of non-refunding of the loan amount, the first aspect that there is a legally recoverable debt from the respondent No.2 to the appellant is primafacie established. The only question that therefore needs consideration at our hands is as to whether the contention putforth on behalf of respondent No.2 that an offence under Section 138 of the N.I. Act is not made out as the dishonourment alleged is of the cheques which were issued by way of 'security' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise. 11. Reference to the facts of the present case clearly shows that though the word "security" is used in Clause 3.l (iii) of the agreement, the said expression refers to the cheques being towards repayment of instalments. The repayment becomes due under the agreement, the moment the loan is advanced and the instalment falls due. It is undisputed that the loan was duly disbursed on 28th February, 2002 which was prior to the date of the cheques. Once the loan was disbursed and instalments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act. The cheques undoubtedly represent the outstanding liability. 12. Judgment in Indus Airways (supra) is clearly distinguishable. As already noted, it was held therein that liability arising out of claim for breach of contract under Section 138, which arises on account of dishonour of cheque issued was not by itself at par with criminal liability towards discharge of acknowledged and admitted debt under a loan transaction. Dishonour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of defence. Further, it was not for the discharge of any debt or any liability is also a matter of defence. The relevant facts to countenance the defence will have to be proved that such security could not be treated as debt or other liability of the accused. That would be a triable issue. We say so because, handing over of the cheques by way of security per se would not extricate the accused from the discharge of liability arising from such cheques. 6. Suffice it to observe, the impugned judgment of the High Court cannot stand the test of judicial scrutiny. The same is, therefore, set aside." 16. A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. 'Security' in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified time-frame and issues a cheque as security to secure such repayment; if the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though had issued the cheques as security, he had also agreed to repay the amount during June/July 2015, the cheque which was held as security was presented for realization on 20.10.2015 which is after the period agreed for repayment of the loan amount and the loan advanced had already fallen due for payment. Therefore, prima facie the cheque which was taken as security had matured for payment and the appellant was entitled to present the same. On dishonour of such cheque the consequences contemplated under the Negotiable Instruments Act had befallen on respondent No.2. As indicated above, the respondent No.2 may have the defence in the proceedings which will be a matter for trial. In any event, the respondent No.2 in the fact situation cannot make a grievance with regard to the cognizance being taken by the learned Magistrate or the rejection of the petition seeking discharge at this stage. 19. In the background of the factual and legal position taken note supra, in the instant facts, the appellant cannot be nonsuited for proceeding with the complaint filed under Section 138 of N.I. Act merely due to the fact that the cheques presented and dishonoured are shown to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent No.2 to arrange sufficient balance in the account to honour the cheque which was to be presented subsequent to June/July 2015. 22. These aspects would primafacie indicate that there was a transaction between the parties towards which a legally recoverable debt was claimed by the appellant and the cheque issued by the respondent No.2 was presented. On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting the criminal complaint under Section 138 of N.I. Act on the payment not being made. The further defence as to whether the loan had been discharged as agreed by respondent No.2 and in that circumstance the cheque which had been issued as security had not remained live for payment subsequent thereto etc. at best can be a defence for the respondent No.2 to be put forth and to be established in the trial. In any event, it was not a case for the Court to either refuse to take cognizance or to discharge the respondent No.2 in the manner it has been done by the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts and circumstances of the instant case, the complaint under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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