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TMI Blog2006 (2) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... an offence under Section 138 of Negotiable Instruments Act, 1881 (for short 'the Act'). 4. Aggrieved by the same, the accused preferred an appeal before the III Metropolitan Sessions Judge, Hyderabad the learned Judge acquitted the accused by reason of the impugned judgment. 5. The facts leading to the case are that the appellant is a financial company and provided finances to the accused to an extent of ₹ 31,50,000/- and the accused-company has issued three post-dated cheques for a total amount of ₹ 34,65,000/- which includes interest on ₹ 31,50,000/-. 6. The contents of the complaint also disclose that the accused-company has issued 3,15,000 equity shares worth ₹ 10/- each to the appellant-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between both the parties is a loan transaction and the shares were given as security for the loan and the cheques were also issued for recovering the loan in case of default. Hence, the first appellate Court ought not to have gone into the details of shares and legalities of the transaction. The learned Counsel for the respondent-accused contended that there is no legally enforceable debt and in the non-existence of such requirement the appellant cannot invoke the provisions of Section 138 of the Act. 10. The point before me is whether the accused has committed an offence under Section 138 of the Act? POINT Section 138 of the Act is as follows :- Dishonour of cheque for insufficiency etc., of funds in the account : Where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days of the receipt of the said notice. Explanation : For the purposes of this section, 'debt or other liability' means a legally enforceable debt or other liability. 11. To invoke the provisions of Section 138 of the Act, the complainant must establish that the debt or other liability is a legally enforceable debt or other legally enforceable liability. 12. The scope of Section 138 of the Act deals with the dishonour of cheques for insufficiency of funds in the account by virtue of Negotiable Instruments Amendment and Miscellaneous Provisions Act, 2002 Section 138 of the Act is amended. Where the allegations in the complaint shows that the provisions of Sections 138 and 142 of the Act have been complied with, the Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuance of post-dated cheques to the extent of 34,70,500/- in case the transferable shares allotted to the accused become locked in SEBI. The evidence of P.W.-1 discloses that their shares have not been locked in by SEBI but still the cheques have been presented. Therefore, I have no hesitation to hold that the postdated cheques cannot make any enforceable debt and there is no liability between the appellant and the accused by the relevant date. 19. After verifying the evidence of P.W. 1 and the contents of Ex.P-1, I do not find any reason to disagree with the conclusion of the learned III Additional Metropolitan Sessions Judge. 20. Further, the legality of the agreement Ex. P-10 which is the basis for entire transaction is attracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be encashed. This understanding popularly known as buy back shares in the transaction is against the provisions of Clause (2) of the Regulation No. 20 of SEBI (Merchant Bankers) Regulations, 1992, because the admitted fact as per the evidence of P.Ws. 1 and 2 is that the agreement to buy back shares is in respect of non-transferable shares, whereas the shares purchased by the complainant-company from the accused-company are transferable shares. 24. The purchase of shares of the accused-company by the complainant-company is in contravention of the above regulations and, therefore, they are hit by the provisions of Section 23 of the Indian Contract Act and, therefore, the entire transaction is void and the debt is unenforceable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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