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TMI Blog2025 (4) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Limited & Ors., is engaged in the business of sale, purchase, export, import, and trade of iron and steel. The petitioner company, through its directors - Petitioner Nos. 2 and 3 had initially availed credit facilities from Yes Bank, with a sanctioned limit of Rs. 7.5 crore. 4. By way of sanction letter dated 20.06.2013, Respondent No. 2/HDFC Bank Ltd. agreed to take over the loan account from Yes Bank on more favourable terms and sanctioned an enhanced credit facility of Rs. 10 crore to the petitioner company to meet its working capital requirements. 5. In pursuance of the said arrangement, Respondent No. 2 transferred Rs. 7.5 crore to Yes Bank to square off the petitioner's outstanding dues. In exchange, HDFC Bank requested Yes Bank to release the security documents, including title deeds of immovable properties mortgaged by the petitioner company, upon due discharge. 6. In terms of the sanctioned facility, the petitioners pledged various assets and also issued a Cheque bearing no. 850489 ('subject cheque') drawn on Yes Bank for a sum of Rs. 7.5 crore as security towards the repayment of the financial assistance extended by Respondent No. 2. 7. The credit facility was ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not issued in discharge of a legally enforceable debt at the time of its presentation, no offence under Section 138 of the NI Act is made out. 17. The learned senior counsel contended that the sanction letter dated 20.06.2013 specifically required Petitioner No. 1 to close all accounts maintained with Yes Bank. In compliance with this condition, the petitioners had stopped using the said account. Despite this, Respondent No. 2 chose to present a cheque from an account that was not meant to be operational, knowing fully well that the cheque would not be honoured. The learned counsel submitted that there was no 'liability' or 'debt' as on the date when the cheque was deposited. 18. It was argued that Section 138 of the NI Act requires dishonest intent on the part of the drawer. In the present case, the petitioners had already provided sufficient security in the form of six immovable properties. The failure to honour the cheque was due to contractual obligations requiring the closure of the Yes Bank account, and not due to any intention to defraud. 19. The learned senior counsel submitted that since the petitioners have already deposited the titled documents of six properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be against the settled legal principles governing complaints under the NI Act. Analysis 25. At the outset, it is relevant to note that the inherent jurisdiction of the Court under Section 482 of the CrPC ought to be exercised sparingly especially when the matter is at the stage of issuance of summons as the same has the effect of scuttling the proceedings without the parties having an opportunity to adduce the relevant evidence. The Hon'ble Apex Court, in the case of Rathish Babu Unnikrishnan v. State (NCT of Delhi) : 2022 SCC OnLine SC 513, adverting to a catena of judgments, had underscored the parameters for exercising inherent jurisdiction to quash the proceedings at the stage of the summoning order. The relevant portion of the impugned order is reproduced hereunder: "14. The parameters for invoking the inherent jurisdiction of the Court to quash the criminal proceedings under S.482 CrPC, have been spelled out by Justice S. Ratnavel Pandian for the two judges' bench in State of Haryana v. Bhajan Lal [1992 Supp (1) SCC 335 : AIR 1992 SC 604], and the suggested precautionary principles serve as good law even today, for invocation of power under Section 482 of the Cr.P.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Court is ousted from weighing the material evidence. If this is allowed, the accused may be given an un-merited advantage in the criminal process. Also because of the legal presumption, when the cheque and the signature are not disputed by the appellant, the balance of convenience at this stage is in favour of the complainant/prosecution, as the accused will have due opportunity to adduce defence evidence during the trial, to rebut the presumption. 18. Situated thus, to non-suit the complainant, at the stage of the summoning order, when the factual controversy is yet to be canvassed and considered by the trial court will not in our opinion be judicious. Based upon a prima facie impression, an element of criminality cannot entirely be ruled out here subject to the determination by the trial Court. Therefore, when the proceedings are at a nascent stage, scuttling of the criminal process is not merited." (emphasis supplied) 26. In the present case, Respondent No. 2 had filed a complaint under Section 138 of the NI Act. The learned MM relying upon the complaint supported by the affidavit of the complainant, took cognizance under Section 138 of the NI Act, and passed the summo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve committed an offence. 7. Further, the offence will be complete only when the conditions in provisos (a), (b) and (c) are complied with. Hence, the question is, in a case where a cheque is returned by the bank unpaid on the ground that the "account is closed", would it mean that the cheque is returned as unpaid on the ground that "the amount of money standing to the credit of that account is insufficient to honour the cheque"? In our view, the answer would obviously be in the affirmative because the cheque is dishonoured as the amount of money standing to the credit of "that account" was "nil" at the relevant time apart from it being closed. Closure of the account would be an eventuality after the entire amount in the account is withdrawn. It means that there was no amount in the credit of "that account" on the relevant date when the cheque was presented for honouring the same. The expression "the amount of money standing to the credit of that account is insufficient to honour the cheque" is a genus of which the expression "that account being closed" is a specie. After issuing the cheque drawn on an account maintained, a person, if he closes "that account" apart from the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presented for encashment. It is further submitted that upon the successful transfer of those title deeds, the underlying purpose of the cheque stood extinguished, and as such, its dishonour cannot attract penal consequences under Section 138 of the NI Act. 36. The learned counsel for the petitioners further submitted that upon transfer of the said secured assets to Respondent No. 2, the cheque ceased to have any operative effect, as the liability it was meant to secure no longer subsisted. Thus, its dishonour-after the object had allegedly been served - ought to be treated as inconsequential. 37. However, it is well-established that the mere existence of alternative security does not, by itself, discharge the liability associated with a negotiable instrument. For a cheque to be rendered inoperative due to the furnishing of such security, there must be a clear and express agreement between the parties stating that the cheque shall not be presented or that its legal efficacy shall stand extinguished. In the absence of such express understanding, the cheque retains its character and enforceability under law. 38. In the present case, no material has been placed on record to prima f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. xxxx xxxx xxxx 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assurance, is a disputed question of fact, which cannot be conclusively determined while exercising power under Section 482 of the CrPC. Whether the simultaneous invocation of SARFAESI proceedings bar the criminal complaint under Section 138 of the NI Act 43. The learned counsel for the petitioners contended that since Respondent No. 2 has already initiated proceedings under the SARFAESI Act, 2002, the simultaneous prosecution under Section 138 of the NI Act amounts to an abuse of process. 44. This argument is equally untenable. The loan extended by financial institutions does not become the personal asset of the borrower; rather, it is disbursed in a fiduciary capacity, sourced from public funds contributed by taxpayers. Recognizing the need for a swift and effective mechanism to recover non-performing assets (NPAs), the legislature enacted the SARFAESI Act. This law empowers banks and financial institutions to recover dues without court intervention, ensuring financial stability. 45. Conversely, the NI Act is a codified statute governing promissory notes, bills of exchange, and cheques. It establishes criminal liability for dishonour of cheques to uphold the sanctity of ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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