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TMI Blog2015 (5) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... ing after accounting for the monies returned by the accused to the complainant. The accused - acting as the first party, entered into a Memorandum of Understanding (MOU) dated 26.06.2011 with the appellant - acting as the second party, for return of the said remaining investment of Rs. 3 lakhs to the complainant. The relevant extract of the MOU (Ex. CW-1/4), inter alia, reads as follows: "............. and whereas the second party Sh. Suresh Chandra Goyal has invested a sum of Rs. 3,00,000.00 (Rs. Three Lakhs only) in the month of June, 2010 and onwards by cash & various cheques by way of partnership on 50-50% basis. The Partnership was broken by way of mutual consent in first week of December, 2010. and whereas both the parties agreed that First party will return full amount of Rs. 3,00,000/- (Rs. Three Lakhs only) to Second Party Sh. Suresh Chandra Goyal in six instalment of Rs. 50,000.00 (Rs. Fifty thousand only) by way of six monthly cheque starting from December, 2011 and Second Party Suresh Chandra Goyal will return all security cheque drawn in favour of second party, if any. It is also agreed upon by all the parties that interest @ 1.5% per month will be charged if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .50 lakhs, the exercise undertaken by the learned Magistrate to ascertain whether the accused was indebted to the appellant, and the doubt entertained by the learned Magistrate with regard to the said debt, itself was misdirected, and it was not open to Magistrate to go behind the MOU (Ex. CW-1/4) to make an inquiry as to whether, or not, the debt existed. 9. The further submission of learned counsel for the appellant is that the MOU (Ex. CW-1/4) itself recorded that the repayment had to be made in six monthly installments. He submits that the learned Magistrate has placed reliance on the cross-examination of the appellant, who was examined as CW-1, as also the language used in MOU (Ex. CW-1/4) - to the effect that the complainant/appellant shall return the security cheques drawn in his favour, upon the installments being paid- to hold that the cheques in question were "security cheques;" and were not meant for payment of a legally recoverable debt. Learned counsel has referred to the cross-examination of the appellant's/complainant's witness to submit that the accused never challenged the genuineness, or authenticity of the MOU (Ex. CW-1/4). In fact, the suggestion was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate court would have "very substantial and compelling reasons" to discard the trial court's decision. "Very substantial and compelling reasons" exist when: i) The trial court's conclusion with regard to the facts is palpably wrong; ii) The trial court's decision was based on an erroneous view of law; iii) The trial court's judgment is likely to result in "grave miscarriage of justice"; iv) The entire approach of the trial court in dealing with the evidence was patently illegal; v) The trial court's judgment was manifestly unjust and unreasonable; vi) The trial court has ignored the evidence or misread the material evidence or has ignored material documents like dying declarations/report of the Ballistic expert, etc. vii) This list is intended to be illustrative, not exhaustive." 12. Therefore, the impugned judgment has to be tested in the aforesaid light. 13. The MOU (Ex. CW-1/4) has been duly proved by the appellant/complainant. The accused has not challenged the genuineness and authenticity of the MOU (Ex. CW-1/4) executed between him (as the first party), and the appellant/complainant (as the second party). This MOU acknowledges the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertinently, the accused did not set up a defence in terms of provisos 1 to 6 to Section 92 of the Evidence Act. 18. Thus, in my view, the approach of the learned Magistrate was completely misdirected in law, in proceeding to examine the issue whether the debt in question was owed by the accused to the appellant/complainant. The finding returned by the learned Magistrate on the said issue is clearly contrary to the terms of the MOU (Ex. CW-1/4), and certainly cannot be sustained. It is even contrary to the statement/stand of the accused that he was indebted to the complainant, though to the extent of Rs. 60,000/- and not to the extent of Rs. 1.50 lakhs. The finding returned by the learned Magistrate on the aforesaid aspect cannot even be termed as one of the plausible views. It is a finding, which the learned Magistrate could not have returned in the face of the terms contained in the MOU (Ex. CW-1/4), and the stand of the accused. 19. The defence set up by the accused that his outstanding liability was Rs. 60,000/-, and not Rs. 1.5 lakhs is merely an ipse dixit of the accused. Neither on a reading of the complaint, nor from the evidence led by the complainant and the cross examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere issued against liability or debt is sufficient proof of the debt or liability and the onus shifts to the respondent/accused to show the circumstances under which the cheques came to be issued and this could be proved by the respondent only by way of evidence and not by leading no evidence." 21. The Court further observed: "7. ... ... ... Mere pleading not guilty and stating that the cheques were issued as security, would not give amount to rebutting the presumption raised under Section 139 of N.I. Act. If mere statement under Section 313 Cr.P.C. or under Section 281 Cr.P.C. of accused of pleading not guilty was sufficient to rebut the entire evidence produced by the complainant/prosecution, then every accused has to be acquitted. But, it is not the law. In order to rebut the presumption under Section 139 of N.I. Act, the accused, by cogent evidence, has to prove the circumstance under which cheques were issued. It was for the accused to prove if no loan was taken why he did not write a letter to the complainant for return of the cheque. Unless the accused had proved that he acted like a normal businessman/prudent person entering into a contract he could not have rebutted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on were presented for payment. 24. The next issue that needs examination is whether the complaint of the appellant was maintainable under Section 138 of the NI Act since the cheques in question were "security cheques". The MOU (Ex. CW-1/4) itself provides that the first party/accused will return the amount of Rs. 3 Lakhs to the second party/appellant in six installments of Rs. 50,000/- each by way of six monthly cheques starting from December, 2011 and second party/Suresh Chandra Goyal will return all security cheques drawn in favour of the second party, if any. Thus, the MOU (Ex. CW-1/4) provided that the amount of Rs. 3 Lakhs shall be returned by way of six monthly cheques. The complainant (CW-1) in his cross-examination accepted that he had in his possession some security cheques issued by the accused. He further stated that he had received Rs. 1.50 Lakhs in cash from the accused. He volunteered that the same was received by him in three monthly installments of Rs. 50,000/- each and that whenever the accused had given a sum of Rs. 50,000/- to him, he had taken back a cheque, and had also got the voucher signed from the complainant. He stated that he did not have the said securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n @ Mani Vs. State of Kerala & Another, (2006) 6 SCC 39; of this Court in Ravi Kumar D. Vs. State of Delhi & Another, MANU/DE/1538/2011, and; of the Supreme Court in Vijay (supra). 28. There is no magic in the word "security cheque", such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a "security cheque", the Magistrate would acquit the accused. The expression "security cheque" is not a statutorily defined expression in the NI Act. The NI Act does not per se carve out an exception in respect of a 'security cheque' to say that a complaint in respect of such a cheque would not be maintainable. There can be mirade situations in which the cheque issued by the accused may be called as security cheque, or may have been issued by way of a security, i.e. to provide an assurance or comfort to the drawee, that in case of failure of the primary consideration on the due date, or on the happening (or not happening) of a contingency, the security may be enforced. While in some situations, the dishonor of such a cheque may attract the penal provisions contained in Section 138 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 138 NI Act cannot be avoided. The Supreme Court also emphasized that the legislature had been careful enough to use not only the expression "discharge, in whole or in part, of any debt", but has also included the expression 'other liability' in the language of Section 138 NI Act. The Supreme Court held that the issue regarding the liability of a guarantor and the principal debtor being co-extensive, was out of purview of Section 138 of the NI Act and did not call for any discussion. The Supreme Court held: "11..........The language of the Statute 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 Statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis supplied) 34. The aforesaid observations made by the Supreme Court in Narayana Menon (supra) have been relied to urge that in respect of a cheque issued by way of security, a complaint under Section 138 NI Act is not maintainable. 35. The aforesaid observations have to be read in the context in which they were made. It is well settled that a judgment cannot be read like a Statute. Construction of a judgment should be made in the light of the factual matrix involved therein. What is more important is to see the issues involved in a given case, and the context wherein the observations were made by the Court while deciding the case. Observation made in a judgment, it is trite, should not be read in isolation and out of context. [See Goan Real Estate & Construction Ltd. v. Union of India, (2010) 5 SCC 388]. It is the ratio of the judgment, and not every observation made in the context of the facts of a particular case under consideration of the court, which constitutes a binding precedent. The Supreme Court in P.S. Sathappan v. Andhra Bank Ltd., AIR 2004 SC 5152 has held as follows: "138. While analyzing different decisions rendered by this Court, an attempt has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made by the apex court in Narayana Menon's case that "....................if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act.......". This was a passing observation in that case with reference to the facts found therein. It cannot be construed as an axiomatic statement of law to be mechanically applied, in all circumstances". 38. I may also observe that in Narayana Menon (supra), the earlier decision of the Supreme Court in Beena Shabeer (supra) was not cited or brought to the notice of the Court, and has not been considered by the Court. In fact, on a reading of Narayana Menon (supra), it is clear that the said decision was rendered in the specific facts of that case, and upon examination of the evidence led before the Court by holding that the accused had been able to discharge his initial burden of raising a probable defence, and that the complainant had failed to establish that the cheques in question have been issued in discharge of a legal debt or other liability. 39. Thus, the decision in Narayana Menon (supra) is of no avail, as it cannot be said to have laid down any general propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Court (in a petition under Section 482 Cr.P.C. seeking quashing of the summoning order issued by the Magistrate), and another company who was termed as the confirming party. Clause 5 of the agreement stipulated that, as a security for due performance of the agreement (whereunder the immovable property of the complainant had to be developed by ABC), a defined sum was to be deposited by ABC with the complainant and other owners. ABC issued 30 cheques in favour of the complainant. Six of these cheques were dishonoured upon presentation with the remarks, 'exceeds arrangement'. After issuance of the statutory notice of demand, a complaint was preferred wherein, apart from a company ABC, its directors-which included the petitioner before the High Court, were named as accused. The submission of the petitioners before the High Court was that the sine qua non for an action under Section 138 of the NI Act is that the dishonored cheque has been issued towards discharge of "a debt or other liability". The expression, 'other liability' envisaged under Section 138 of the NI Act was akin to a debt or money owed. It was argued that the cheques in question could not be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of money, or money in lieu of goods, or services. Any benefit or detriment of some value can be a consideration. The Court held that the complainant and the other owners of the property blocked their asset till the period of completion of the construction as per the collaboration agreement. The same was the consideration within the meaning of Section 2(d) of the Indian Contract Act. Thus, the reciprocal obligations of the builder, namely to create a security deposit was also a consideration for the contract. Consequently, the court dismissed the quashing petition. 44. In Sai Auto Agencies through its partner Dnyandeo Ramdas Rane v. Sheikh Yusuf Sheikh Umar, 2011 (1) Crimes 180, the defence of the respondent/accused was that, in relation to purchase of a tractor and equipments from the appellant, five blank cheques were given only as security. The respondent claimed that the complainant had already received the entire purchase consideration, and that the cheque in question was without consideration. The Court rejected the defence of the accused that the entire consideration stood paid to the appellant supplier. Relying upon Beena Shabeer (supra), the High Court observed: "7.... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 138 read with Section 141 NI Act. Respondent no. 2 also presented the three cheques of Rs. 25 lacs each for encashment, which too were dishonoured with the remarks "account closed". Another notice under Section 138 of the NI Act was issued in respect of the said three cheques upon the petitioner and his company. Since the payment was not made, three separate complaints were filed in respect of the said three dishonoured cheques of Rs. 25 lacs each. 47. The submission of the petitioner before the High Court was that the said 3 cheques in question were issued from his personal account only as a security with the assurance that the cheque of Rs. 70 lacs issued by the petitioner's company would be encashed upon presentation. Therefore, it was claimed that the three cheques of Rs. 25 lacs each could not be stated to have been issued in discharge of an existing liability and, therefore, it was contended that Section 138 of the NI Act was not attracted. It was also argued that the complainant had preferred multiple complaints - both in respect of the cheque of Rs. 70 lacs and also three different complaints in respect of three cheques of Rs. 25 lacs each. 48. The Court, by placi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to be made, as it had to procure the parts from abroad. The cheques were dishonoured upon presentation on the ground that the purchasers had stopped payment. Thereafter, the purchasers cancelled the purchase orders and requested for return of the cheques. The respondent/seller insisted on collecting payment and initiated a complaint under Section 138 of NI Act after sending a demand notice. 51. This Court, following its decision in Moji Engineering Systems Ltd. & Ors. v. A.B. Sugars Ltd., 154 (2008) DLT 579, held that the issuance of a cheque at the time of signing such a contract has to be considered against a liability, as the amount written in the cheque is payable by the person on the date mentioned in the cheque. 52. The Supreme Court did not agree, and held that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of drawal of the cheque. In other words, drawal of the cheque in discharge of existing or past adjudicated liability is a sine qua non for bringing an offence under Section 138 of the NI Act. It was held that if the cheque is issued as an advance payment for purchase of goods and, for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed since the goods were not delivered... 15. The Gujarat High Court in Shanku Concretes Pvt. Ltd. and Ors. v. State of Gujarat and Anr., 2000 Cri.L.J. 1988 (Guj.) dealing with Section 138 of the N.I. Act held that to attract Section 138 of the N.I. Act, there must be subsisting liability or debt on the date when the cheque was delivered. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques would take the case out of the purview of Section 138 of the N.I. Act. While holding so, Gujarat High Court followed a decision of the Madras High Court in Balaji Seafoods Exports (India) Ltd. and Anr. v. Mac Industries Ltd. 1999 (1) CTC 6". (emphasis supplied) 54. Reference was also made to the decision of the Kerala High Court in Supply House, represented by Managing Partner v. Ullas, Proprietor Bright Agencies & Anr., 2006 Cri. LJ 4330 (Kerala). In this case, the post dated cheque had been issued by the accused while placing the order for supply of goods. However, the supply of goods was not made by the complainant. Consequently, the accused first instructed the bank to stop payment of the cheque, and then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50,000/- each from the respondent/accused by cheque. The only difference is that in Haryana Petrochemicals Ltd. (supra), the Court found that as a matter of the inter se dealings between the parties, whenever the payment was not made at the end of the credit period, the security cheques were banked for realization of the amount due. However, in the present case, there is no express agreement of the parties to this effect, and there is no established practice of this nature between the parties. Pertinently, the MOU (Ex. CW-1/4) does not expressly prohibit the appellant/complainant from banking the security cheques, in case the installments are not paid on the due dates. 57. At this stage, I consider it appropriate to analyse as to what is the meaning of the word "security". What does the issuance of a security cheque entail, and if there is no specific agreement touching upon this aspect, what would be the rights and obligations of the parties qua a security cheque, in case the primary obligation - to secure which the security cheque was given, is not discharged. The Black's Law Dictionary (6th edition), inter alia, defines "security" to mean: "Protection; assurance; Inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... que from the debtor. A security cheque is issued by the debtor so that the same may be presented for payment. Otherwise, it would not be a security cheque. As observed above, the MOU (Ex. CW-1/4) does not expressly, or even impliedly states that the security cheques are not to be used to recover the installments, even in case of failure to pay the same by the respondent/debtor. 62. Section 138 of NI Act does not distinguish between a cheque issued by the debtor in discharge of an existing debt or other liability, or a cheque issued as a security cheque on the premise that on the due future date the debt which shall have crystallized by then, shall be paid. So long as there is a debt existing, in respect whereof the cheque in question is issued, in my view, the same would attract Section 138 of NI Act in case of its dishonour. 63. Thus, the defence that the cheques in question Ex. CW-1/1, CW-1/2 and CW-1/3 were issued as "security" cheques has no force in the facts and circumstances of this case, as, on the date when the said cheques were issued simultaneously with the execution of the MOU (Ex. CW-1/4), the debt of Rs. 1.5 lacs was outstanding. The appellant was well within his ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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