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TMI Blog2015 (6) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... enforceable debt or other liability. Neither the main provision of Section 138, nor the explanation suggest that the debt or other liability should be in existence on the date of issuance of the cheque, i.e. on the date of its delivery to the drawee or someone on his behalf or, on the date that the cheque bears. The only reference to time in the Section, is the point of time when the cheque is returned unpaid by the drawers bank. The scope of Section 138 NI Act would cover cases where the ascertained and crystallised debt or other liability exists on the date that the cheque is presented, and not only to case where the debt or other liability exists on the date on which it was delivered to the seller as a post-dated cheque, or as a current cheque with credit period. The liability, though, should be in relation to the transaction in respect whereof the cheque is given, and cannot relate to some other independent liability - It would have to be examined on a case to case basis, whether an ascertained or crystallised debt or other liability exists, which could be enforced by resort to Section 138 NI Act, or not. There is no merit in the legal submission of the respondent accused that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accused through the complainant. The accused conducted several transactions of shares with the complainant as per the detailed bills and statement of Accounts placed on record, and more than Rs. 14 Lacs were found payable and outstanding against the accused. Hence as per the request of the Accused, the complainant presented the said cheque for encashment to its bank, i.e. the Bank of India, Rajouri Garden, New Delhi (J-2/1, B.K. Dutta Market), New Delhi - 27 on 25.7.96 and the said cheque was dishonoured and returned unpaid due to "Insufficient Fund‟ by the Accused's Banker Oriental Bank of Commerce, Tagore Garden Branch, New Delhi - 110 027. An intimation in this regard vide Bank advice dated 27.7.96 along with cheque Return memo and said cheque were received by the complainant through its Bank on 27.7.96. 6. On their failure to pay the outstanding amount, a statutory notice dated 08.08.1996 was served upon the accused. The accused failed to pay the amount of the cheque within the prescribed statutory period. Accordingly, the complainant preferred the complaint under Section 138 NI Act through Sh. Dilip Kumar Agarwal, a Director duly authorised by its Board of Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Trial Court has wrongly placed reliance on Indus Airways (supra), as the facts of that case were very different and the observations of the Supreme Court have to be viewed in the light of the background facts of the case. In that case, the purchase order had been cancelled by the drawer of the cheque given as advance, who was also the purchaser. The supply of goods had not been effected by the seller/ holder of the cheque. Therefore, there was no existing ascertained liability or debt against the accused on the date the cheque was presented for encashment to the Bank. Learned counsel submits that, in contrast, in the present case, on the date of presentation of the aforesaid cheque, there was an ascertained legal liability existing against the accused no. 1/ HUF. The liability was for an amount which was more than Rs. 14 Lakhs. Since the said liability was existing, the complainant was entitled to enforce the security furnished by the accused, on the strength of which the accused were permitted to transact the share purchase/ sale business by the complainant. 11. Ld. Counsel for Petitioner relies on I.C.D.S. Ltd. vs. Beena Shabeer, 2002 (2) SCC 426. He submits that in Beena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing amount in 6 monthly instalments of Rs. 50,000/- each. The accused issued six security cheques of Rs. 50,000/-, which were to be returned upon payment of the corresponding instalment. While three instalments were admittedly received by the complainant, he claimed that the remaining three were not paid. The corresponding security cheques were banked; dishonoured upon presentation, and; after issuance of statutory notice, the complaint under Section 138 NI Act filed due to non- payment. This Court, inter alia, observed as follows: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities for money. (See Chetumal Bulchand v. Noorbhoy Jafeerji, AIR 1928 Sind 89). It is a word of general import signifying an assurance". 61. Thus, in my view, it makes no difference whether, or not, there is an express understanding between the parties that the security may be enforced in the event of failure of the debtor to pay the debt or discharge other liability on the due date. Even if there is no such express agreement, the mere fact that the debtor has given a security in the form of a post dated cheque or a current cheque with the agreement that it is a security for fulfillment of an obligation to be discharged on a future date itself, is sufficient to read into the arrangement, an agreement that in case of failure of the debtor to make payment on the due date, the security cheque may be presented for payment, i.e. for recovery of the due debt. If that were not so, there would be no purpose of obtaining a security cheque 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." 17. This Court also analysed several decisions of the Supreme Court, of this Court, and of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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, got carried away by the issue of grantee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. … … … Necessarily, the cheque given as a security, if bounced, shall be the subject-matter of a prosecution under Section 138 of the Act. So, the contention of the accused that cheque (exhibit 28) was given only as a security will not enable him to escape from the clutches of law". (emphasis supplied) 45. The High Court further held as follows: "9. Even if blank cheque has been given towards liability or even as security, when the liability is assessed and quantified, if the cheque is filled up and presented to the bank, the person who had drawn the cheque cannot avoid the criminal liability arising out of Section 138 of the Negotiable Instruments Act". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), incidentally, was also a case involving issuance of a security cheque for undertaking share transactions. The analysis of M.S. Narayana Menon (supra) undertaken by this Court reads as follows: "32. The accused has placed reliance on M.S. Narayana Menon (supra). In this case, the cheque had been issued by the appellant - who was transacting shares with the share broker/second respondent/complainant. The appellant/accused disputed the statement of account relied upon by the complainant, on the basis whereof it was claimed that the cheque amount was due and outstanding. The Supreme Court examined the nature of the transactions undertaken between the parties in the light of the evidence before it. The Supreme Court held that the complainant had not been able to explain the discrepancies in his books of accounts. The complainant did not bring on record any material to show that the parties had transactions, other than those which had been entered into through the Cochin Stock Exchange. The Supreme Court held that the so called acknowledgement, as correct, of some of the statements of account was not enough since, admittedly, there was no acknowledgement in respect of five state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the ratio, the court may not pick out a word or a sentence from the judgment divorced from the context in which the said question arose for consideration. A judgment as is well-known, must be read in its entirety and the observations made therein should receive consideration in the light of the questions raised before it. (See Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and Anr., [2002]1SCR621 , Union of India and Ors. v. Dhanwanti Devi and Ors. , (1996) 6 SCC 44 , Dr. Nalini Mahajan v. Director of Income Tax (Investigation) and Ors., [2002] 257 ITR 123(Delhi) , State of UP and Anr. v. Synthetics and Chemicals Ltd. and Anr. , 1991 (4) SCC 139 , A- One Granites v. State of U.P. and Ors., AIR 2001 SCW 848 and Bhavnagar University v. Palitana Sugar Mill (P) Ltd. and Ors., (2003) 2 SCC 111. 140. Although, decisions are galore on this point, we may refer to a recent one in State of Gujarat and Ors. v. Akhil Gujarat Pravasi V.S. Mahamandal and Ors., AIR2004SC3894 wherein this Court held: "... It is trite that any observation made during the course of reasoning in a judgment should not be read divorced from the context in which they were used."" 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity cheque or a cheque given as a security to assure the performance of another obligation." 19. The decision in Indus Airways (supra), relied upon by the respondent in the present case, was also taken note of and discussed as follows: "50. In Indus Airways Pvt. Ltd. & Ors. v. Magnum Aviation Pvt. Ltd., IV (2014) SLT 321, the question that arose for consideration before the Supreme Court was, whether the post dated cheques issued by the appellants (purchasers) as an advance payment in respect of purchase orders could be considered in discharge of a legally enforceable debt or other liability and, if so, whether the dishonour of such cheques amount to an offence under Section 138 of NI Act. The appellants before the Supreme Court were the purchasers who had placed purchase orders and issued post dated cheques in favour of the respondent towards advance payment. One of the terms and conditions of the contract was that the entire payment would be made to the supplier in advance. The supplier claimed that the advance payment had 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 payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellip; In what we have discussed above, if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or liability. (emphasis supplied) 53. The Supreme Court referred to the decisions of the Andhra Pradesh High Court and Gujarat High Court as follows: "14. In Swastik Coaters Pvt. Ltd v. Deepak Brothers and Ors., 1997 Cri.L.J. 1942 (AP), the single Judge of the Andhra Pradesh High Court while considering the explanation to Section 138 held: "... Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relateable to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered.... 15. The Gujarat High Court in Shanku Concretes Pvt. Ltd. and Ors. v. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase orders (which was not in dispute), and requested the complainant to return the cheques. The cheque was presented and dishonoured. As a result, a complaint was preferred. The Supreme Court dismissed the complaint on the ground that there was no existing liability between the parties since the contract had been terminated. Thus, on the date of presentation of the cheques for encashment, there was no existing ascertained and liquidated liability or debt. The cheques had been given in advance towards the sale consideration, and not for realisation of unascertained damages that may arise on account of wrongful termination of the purchase order by the purchaser. It was held that there was no debt or other liability existing relatable to the cheque, since the contracts stood terminated on the date of presentation of the cheque. At best, only a civil liability existed in damages. 22. However, in the present case, the liability or debt is claimed to have arisen under the contract in respect of which the dishonoured cheque was issued. The cheque was issued precisely to secure the debt/ liability that may arise under the contract on account of the accused undertaking the share sale/ purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irways (supra) does not appear to take out from the scope of Section 138 NI Act cases of this nature, as what fell for examination was a fact situation where the advance cheque had been issued along with the purchase order, and the supply of goods was not made for whatever reason. 26. The Explanation to Section 138 NI Act reads: "Explanation -For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability." 27. Thus, the "debt or other liability" has to be a legally enforceable debt or other liability. Neither the main provision of Section 138, nor the explanation suggest that the debt or other liability should be in existence on the date of issuance of the cheque, i.e. on the date of its delivery to the drawee or someone on his behalf or, on the date that the cheque bears. The only reference to time in the Section, is the point of time when the cheque is returned unpaid by the drawers bank. 28. In my view, therefore, the scope of Section 138 NI Act would cover cases where the ascertained and crystallised debt or other liability exists on the date that the cheque is presented, and not only to case where the debt or other liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accused, as it casts on the complainant, who has to prove beyond reasonable doubt the guilt of the accused. 31. Therefore, I now turn to the facts of the present case to examine as to whether, or not, the accused has been able to raise a probable defence to cast a doubt on the claim made by the complainant with regard to the existence of an ascertained and crystallised debt or other liability in relation to the transactions in respect whereof the cheque in question had been issued as security. 32. The complainant has produced the daily sauda confirmation (Ex. CW1/10 to 15) and the cash difference bills (Ex. CW-1/16) in respect of the share transactions recorded in Ex.CW-1/10 to Ex.CW-1/15, on record to substantiate its claim. The cash difference bills (Ex. CW-1/16) are for the period of 02.07.1996 to 16.07.1996. CW-1, Dilip Kumar Aggarwal in his examination-in-chief stated that "He allowed the transaction on line and detail of the transaction are Exhibited Ex CW1/10 to Ex CW1/15 and the difference bills are collectly Exhibited Ex CW1/16 (Page 17 to 37)". 33. CW-1 Dilip Kumar Agarwal also exhibited the letter dated 24.07.1996 of the accused as Ex. CW-1/17 along with which the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money for the purpose of becoming a sub-broker with the member of NSE. Margin money is kept by the member of NSE to secure himself from the fluctuation in the share prices. I did not pay any margin money to complainant company when I did formalities regarding the sub-brokership with the complainant company". 35. The defence set up by the respondent/accused that accused no.2 had given blank signed papers to the appellant/complainant is unbelievable. Firstly, there is no contemporaneous record produced by the accused to show that the accused had delivered blank signed papers to the complainant for any purpose, much less for the purpose of becoming a sub-broker of the complainant. Secondly, a perusal of Ex. CW-1/10, 1/11, 1/13, 1/15 and 1/17 shows that the signatures of accused no.2 on the said documents are so positioned and placed as to rule out the possibility of the said documents being filled in later. Ex. CW-1/10, 1/11, 1/12, 1/13 and 1/15 are the daily sauda confirmation on a printed format. The signatures appear outside the printed area and are so placed as to suggest that they have been consciously engrossed on these documents close to the printed area. Ex. CW-1/17 is a h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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