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TMI Blog2013 (5) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... fence punishable under Section 138 of the Negotiable Instruments Act, 1880. Petitioner no. 1 had entered into a contract dated 9.7.2008 with the respondent for import purchase of 750 MT of MS Turnings and Borings for a value of Rs. 1,61,26000. In terms of the contract the petitioner was to furnish a PDC (sic) or a post dated cheque equivalent to 100% of the contract value as security for due payment and that the same would be returned on satisfactory performance of the contract. It was also required of Petitioner no. 2 as a Director of Petitioner no. 1 to ' execute a personal guarantee on 9.7.2008, for the contract value. Incidentally, an undated cheque bearing no. 917881 for the afore said amount, referred to in the personal guarantee, was furnished. Of the contracted quantity of 750 MT, it transpires that the actual quantity delivered, in four shipments, was 681 MT. The petitioner company has taken delivery of a quantity of 106 MT and made a total payment of Rs. 22.94 lakh towards the same, the balance quantity was said to be with the respondent. It is the case of the petitioners that when matters stood thus, the respondent had chosen to present the undated cheque, furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second contract was concerned, in an identical manner the undated cheque furnished along with the personal guarantee of petitioner no. 2, bearing no. 894164, for a value of Rs. 57,60,000, furnished as security was similarly sought to be utilized. In respect of the third contract, the undated cheque bearing no. 917858 was for the total contract value of Rs. 1,59,75000. The respondent had sought to draw the entire amount, while indicating the date of the cheque as 26.2.2009, when there was no such amount due to be paid to the respondent by the petitioners. The cheque furnished as security was thus sought to be misused. The same having been dishonoured, the aforesaid proceedings have been initiated on the basis of the same. It is in the above background that the present petitions are filed. 4. The learned Senior Advocate, Shri Rawal contends-that it is demonstrable on the face of it, and the respondent cannot also dispute the fact, that the cheques in question, which are the subject matter of the complaints, were furnished as security for the performance of the respective contracts and were not issued in discharge of any debt or other legal liability. Hence, in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, (2006) 6 SC C 39. 5. Per contra, the learned counsel for the respondent contends that the petitioners have not disputed the issuance of the cheques or the fact that the same have been issued in the course of a contractual relationship. The same having been presented for encashment had been returned with the banker's endorsement that the funds were insufficient. Therefore, the respondent having made a demand for payment in terms of the NI Act has initiated action which is in accordance with the law. The purported defence on the part of the petitioners that the cheques in question were furnished as security and not in discharge of any debt or other liability, would necessarily require the petitioners to establish the same at the trial. The presumption on the other hand, in terms of Section 139 of the NI Act, is in favour of the holder of a cheque, that the same has been issued in discharge of legal liability. Further, the several authorities relied upon by the petitioners are decisions rendered in proceedings that had been concluded and in which findings had been recorded by the competent court as to the rival contentions-whereas in the present case on hand, as there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en approached the High Court which in turn allowed the criminal appeal. The accused was before the apex court. The apex court had examined the findings of fact in some detail and found that the High Court had committed an error in overlooking the fact that the complainant had not been able to explain discrepancies found in his books of account, And further, that he had not brought on record any material to establish that the parties had any transactions other than the transactions held before the account between them was closed. The apex court then addressed the questions of law with regard to the scope and effect of Sections 118(a) and 139 of the NI Act. The court then concluded thus: 52. We, in the facts and circumstances of this case, need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be apart of the debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The appellant clearly said that nothing is due and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may or may not arise in future and in order to indemnify STC against possible losses on account of any default by MMT and therefore the complaint filed was not maintainable as the cheques were issued only as a security and not for any debt due. The Court has, while relying on Narayan Menon's case supra and noticing the fact that there was a dispute between the parties pending in arbitration as to the propriety of the cheques having been sought to be encashed and the veracity of documents relating to the contract, took note of the observation of the apex court in the case of State of Bihar v. P.P. Sharma, AIR 1991 SC 1260, to the following effect: The annexure to the writ petition challenging criminal proceedings against accused were neither part of the police-reports nor were relied upon by the investigating officer. These documents were produced by the accused before the High Court along with the writ petitioners. By treating the annexure and affidavits as evidence and by converting itself into a trial Court the High Court cannot declare the accused to be innocent and quashed the proceedings. The appreciation of evidence is the functions of the criminal Courts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were issued as earnest money deposit. It is also not in dispute that the earnest money was liable to be forfeited only if the first petitioner failed to exhaust the quota issued by the complainant for export of garments. 20. A post dated cheque may be issued under 2 circumstances. Under circumstance one, it may be issued for a debt in present 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 wo 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. Xxx 24. It would be relevant to note that the statute does not-refer to the debt being payable, meaning thereby, a post dated cheque for a debt due but payment postponed at a future date would attract Section 138 of the Negotiable Instruments 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addressing the circumstance whether the accused had discharged the burden of establishing that a cheque in question was not issued in the discharge of a debt or legal liability, found from the evidence on record that there were clear admissions by the complainant that at the time that the cheque in question was issued there was no such liability. f) In Balaji Sea foods Exports (India) Ltd.-it was found that on the date when the cheque in question was handed over, there was no legally enforceable debt or other liability. An undated cheque for Rs. 35 lakh was handed over as security for me purpose of the contract it was not handed over with the intention of making it as an instrument of immediate negotiation to discharge a subsisting liability or debt. Thus it was a case where one of the parties to the contract had obtained a signed post dated cheque as security for the due performance of the contract. As a dispute had arisen between them the cheque was sought to be utilized by resort to section 138 of the Act. The court held that the complaint could not be maintained. g) Reliance is placed on the decisions in the case KK Ahuja, supra and National small Industries Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a subsisting liability and an enforceable debt and to discharge the same, the cheques were issued. But we do not find any such allegation at all. The absence of such vital allegation, considerably impairs the maintainability. xxx 16. There is therefore no requirement that the Complainant must specifically allege in the complaint that there was a subsisting liability. The burden of proving that there was no. existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on basis of averments in the Petitions filed by them the High Court could not have concluded that there was no existing debt or liability. b) In M/s. Klen Marshalls, supra, this court was dealing with an appeal against acquittal of the accused for an offence punishable under Section 138 of the NI Act. It was a case where Accused no. 6 had issued a hundi in favour of Accused no. 1 towards supply of goods. The contract for supply was between Accused no. 1 and the complainant. The complainant discounted the hundi and paid Rs. 50 lakh to Accused no. 1 in terms of the contract. Accused no. 1 had, in addition to the hundi, issued a cheque as security to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions of FEMA. Therefore, cheques were not issued for discharge of legally recoverable debt or liability The averments of complaints accepted at their face value would indicate that the contract entered into between the parties is void-ab-initio and cannot be enforced under Section 23 of the Indian Contract Act. The respondent had contended thus: These petitions are filed against order of issuance of process for an offence punishable under Section 138 of the Negotiable Instruments Act. The petitioners at this stage cannot dispute that the cheques were drawn by the petitioners. Therefore, presumptions under Section 118(a) and 139 of too Negotiable Instruments Act are available to respondent. This court in exercise of power under Section, 482 Cr. P.C. cannot interfere with the order of trial court unless the averments of complaints accepted on their face value do not constitute an offence punishable under Section 138 of the negotiable Instruments Act. This court after discussing the legal position in extenso has held that the presumption available in favour of the complainant under Section 118(a) and 139 of the NI Act would have to be rebutted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract, was not actually shipped by the foreign seller to the respondent. And it is admitted that the petitioners had paid for and taken delivery of part only of the goods so available. The complaint itself does not indicate that the cheques in question were issued as security for due performance of the contract. The tenor of the complaint is limited to claiming that there was a dishonour of the cheques issued by the petitioners in the course of business and that the respondent has complied with the prerequisite procedure of making a demand for payment before presenting the complaint. It may be that the very documents accompanying the complaint if perused closely would enable the discovery of the circumstance that the cheques in question were handed over as security for due performance of the contract. And that the same were however, undated. Assuming that the undated cheques had been issued only as security and not in discharge of a debt or legal liability-the question whether such a liability had accrued by virtue of a failure on the part of the petitioners to perform the contract and whether the respondent was in law entitled to supply the date on the instrument in seeking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment, as stated hereinabove. This legal position would especially be so if the cheque offered as security has subsequently become enforceable on account of default or failure of performance of the contract, in respect of which such security is furnished. In the light of the above opinion of this court the first question framed for consideration cannot be answered with any degree of finality. In that, even if it is possible to prima facie find that the cheques have indeed been issued at a time when there was no debt or legal liability outstanding, the intention of the parties being that the cheques could be utilized if a liability did accrue on account of failure of the contract is a question that is not capable of being answered be a mere perusal of the material made available and such an exercise is not contemplated in proceedings under Section 482 Cr. P.C. The law mandates that presumptions available in favour of the complainant under Section 118(a) and 139 of the NI Act shall be drawn. The accused may rebut such presumption by raising their probable defence or even relying on the evidence adduced by the complainant itself. In so far as the second question for considera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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