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TMI Blog2022 (5) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... dishonoured for insufficiency of funds, has been a topic of discussion in a number of cases. In Sampelly Satyanarayna Rao v. Indian Renewable Energy Development Agency Ltd. [ 2016 (9) TMI 867 - SUPREME COURT] , the Supreme Court has, while answering the issue as to what constitutes a legally enforceable debt and other liability as contained in section 138 of N.I. Act held that Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court. In the instant case, as per the agreement dated 5th March, 2013, it was clearly indicated therein that the petitioner owed a sum of Rs. 9.50 lacs to respondent. It was further agreed by the parties that the petitioner would liquidate the aforesaid amount and that he had issued the cheque in question as security to the respondent. The agreement also provides that the petitioner would be bound to deposit the sum in the savings bank account of the respondent maintained with J K Bank Aircargo Branch to liquidate the aforesaid liability. The agreement also provides that the petitioner would pay the amount of Rs. 9.50 lacs to respondent positively. Fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to undergo further simple imprisonment of five months. The Appellate Court, while upholding the finding of conviction passed by the learned Magistrate, has reduced the sentence of imprisonment awarded against the petitioner from one year to six months. The sentence of fine has been kept in-tact. 3. Before coming to the grounds of challenge, it would be apt to briefly state the allegations contained in the complaint filed by the respondent. 4. In the complaint it was alleged by the respondent that he had entered into a business transaction with the petitioner and an amount of Rs. 9.50 lacs was outstanding against him. It was further alleged that in discharge of aforesaid liability, the petitioner issued a cheque dated 05.03.2013 drawn on J K Bank, Rawalpora, Srinagar, which, when presented by respondent/complainant before his banker J K Bank Aircargo, Srinagar, on 03.04.2013, was dishonoured. It was further alleged that respondent demanded cash from the petitioner when the cheque was dishonoured but the petitioner assured him that the cheque would be honoured if he presents it again before the bank. Accordingly, respondent presented the cheque again before his bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Magistrate while passing the aforesaid judgment observed that as on date of issuance of the cheque, petitioner, admittedly, owed an amount of Rs. 9.50 lacs and, as such, it can safely be stated that the cheque in question was issued in discharge of legally enforceable debt and it was not a security cheque. 7. The learned Appellate Court upheld the judgment of the learned trial court and negatived the contention of the petitioner that cheque in question was only a security cheque which was not meant to be presented for encashment in terms of agreement dated 5th of March, 2013. 8. The petitioner has challenged both the aforesaid judgments on the grounds that the learned courts below have failed to appreciate the fact that there was an agreement between the petitioner and the respondent whereby it was agreed by the parties that the cheque which petitioner had issued in favour of the respondent, was not to be presented for encashment and that it was only a cheque for security. It is contended that when it was specifically agreed by the petitioner that the cheque in question would not be presented for encashment, the respondent could not have initiated criminal proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the observations of this Court in Indus Airways with reference to the explanation to Section 138 of the Act and the expression for discharge of any debt or other liability occurring in Section 138 of the Act. We are of the view that the question whether a postdated cheque is for discharge of debt or liability depends on the nature of the transaction. If on 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 3.1(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 28-2-2002 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. The judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given as a pledge of payment. It is given, deposited or pledged to make certain the fulfillment 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 timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow. 17. When a cheque is issued and is treated as 'security' towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as 'security' cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing of the cheque. Moreover, Parliament has used the expression 'debt or other liability'. The expression or other liability' must have a meaning of its own, the legislature having used two distinct phrases. The expression 'or other liability' has a content which is broader than 'a debt' and cannot be equated with the latter. In the present case, the cheque was issued in close proximity with the commencement of power supply. The issuance of the cheque in the context of a commercial transaction must be understood in the context of the business dealings. The issuance of the cheque was followed close on its heels by the supply of power. To hold that the cheque was not issued in the context of a liability which was being assumed by the company to pay for the dues towards power supplied would be to produce an outcome at odds with the business dealings. If the company were to fail to provide a satisfactory LC and yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues. 27. According to the complainant, the LCs' were not in a format agreed to by their bankers. The cheques which were initially tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a legally enforceable debt or liability due to the complainant from the accused. The nomenclature of the cheque, security etc. would pale into insignificance once the debt had become due to the complainant and even if the cheque was issued as a security, the provisions of Section 138 of the N.I. Act would get attracted. 17. Now coming to the facts of the instant case. As per the agreement dated 5th March, 2013, it was clearly indicated therein that the petitioner owed a sum of Rs. 9.50 lacs to respondent. It was further agreed by the parties that the petitioner would liquidate the aforesaid amount and that he had issued the cheque in question as security to the respondent. The agreement also provides that the petitioner would be bound to deposit the sum in the savings bank account of the respondent maintained with J K Bank Aircargo Branch to liquidate the aforesaid liability. The agreement also provides that the petitioner would pay the amount of Rs. 9.50 lacs to respondent positively. 18. From the foregoing covenants of the agreement, there is no manner of doubt about the fact that the petitioner owed a sum of Rs. 9.50 lacs to respondent at the time when he issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement. 21. In support of his argument that the agreement in question is void, the learned counsel for the petitioner has relied on the judgment of the Delhi High Court in the case of Virender Singh v. Laxmi Narain and another, (2007) Cri.L.J. 2262. The ratio laid down in the said judgment is not applicable to the facts of the instant case, inasmuch as in the said case, the consideration for which the cheque was issued was unlawful. It is in those circumstances that it was held that the agreement between complainant and the accused therein was void as the consideration was in the nature of an illegal gratification, which is unlawful. In the instant case, the consideration for which the cheque in question was issued is not unlawful nor the agreement between the petitioner and respondent is unlawful as the transaction between the petitioner and respondent, admittedly, was a commercial transaction of lawful nature. 22. A feeble attempt has been made by learned counsel for the petitioner to canvass that the cheque in question was issued by the petitioner in favour of the respondent in consideration of iron supplies to be made by the respondent to him, which he failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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