SAMPELLY SATYANARAYAN RAO Vs. INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED

Negotiable Instruments Act, 1881

Section 138 - Dishonour of cheque for insufficiency, etc., of funds in the account.

Tags Dishonour Of Cheque

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Crl.), 867 of 2016, Judgment Date: Sep 19, 2016

REPORTABLE

IN THE SUPREME COURT OF INDIA
criminal APPELLATE JURISDICTION

criminal APPEAL NO. 867 OF 2016
(ARISING OUT OF S.L.P. (CRL.) NO. 5410 OF 2014)

SAMPELLY SATYANARAYANA RAO …APPELLANT

VERSUS

INDIAN RENEWABLE ENERGY DEVELOPMENT
AGENCY LIMITED ...RESPONDENT

J U D G M E N T

ADARSH KUMAR GOEL, J.

This appeal has been preferred against the judgment and order dated 8th
May, 2014 passed by the High Court of Delhi at New Delhi in Writ Petition
(Criminal) No.1170 of 2011.
Question for consideration is whether in the facts of the present case, the
dishonour of a post-dated cheque given for repayment of loan installment
which is also described as “security” in the loan agreement is covered by
Section 138 of the Negotiable Instruments Act, 1881 (“the Act”).
The appellant is Director of the company whose cheques have been
dishonoured and who is also the co-accused. The company is engaged in the
field of power generation. The respondent is engaged in development of
renewable energy and is a Government of India enterprise. Vide the loan
agreement dated 15th March, 2001, the respondent agreed to advance loan of
Rs.11.50 crores for setting up of 4.00 MW Biomass based Power Project in
the State of Andhra Pradesh. The agreement recorded that post-dated
cheques towards payment of installment of loan (principal and interest)
were given by way of security. The text of this part of the agreement is
quoted in the later part of this order. The cheques carried different
dates depending on the dates when the installments were due and upon
dishonour thereof, complaints including the one dated 27th September, 2002
were filed by the respondent in the court of the concerned Magistrate at
New Delhi.
The appellant approached the High Court to seek quashing of the
complaints arising out of 18 cheques of the value of about Rs.10.3 crores.
Contention of the appellant in support of his case was that the cheques
were given by way of security as mentioned in the agreement and that on the
date the cheques were issued, no debt or liability was due. Thus,
dishonour of post-dated cheques given by way of security did not fall under
Section 138 of the Act. Reliance was placed on clause 3.1 (iii) of the
agreement to the effect that deposit of post-dated cheques toward repayment
of installments was by way of “security”. Even the first installment as
per the agreement became due subsequent to the handing over of the post-
dated cheque. Thus, contended the appellant, it was not towards discharge
of debt or liability in presenti but for the amount payable in future.
The High Court did not accept the above contention and held :-
“10. In the present case when the post-dated cheques were issued, the loan
had been sanctioned and hence the same fall in the first category that is
they were cheque issued for a debt in present but payable in future. Hence,
I find no reason to quash the complaints. However, these observations are
only prima facie in nature and it will be open for the party to prove to
the contrary during trial.”

We have heard learned counsel for the parties.
It will be appropriate to reproduce the statutory provision in question
which is as follows :
“138. Dishonour of cheque for insufficiency, etc., of funds in the account.
- Where any cheque drawn by a person on an account maintained by him with a
banker for payment of any amount of money to another person from out of
that account for the discharge, in whole or in part, of any debt or other
liability, is returned by the bank unpaid, either because of the amount of
money standing to the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to be paid from that account
by an agreement made with that bank, such person shall be deemed to have
committed an offence and shall, without prejudice to any other provisions
of this Act, be punished with imprisonment for a term which may be extended
to two years, or with fine which may extend to twice the amount of the
cheque, or with both:

Provided that nothing contained in this section shall apply unless –
(a) the cheque has been presented to the bank within a period of six months
from the date on which it is drawn or within the period of its validity,
whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may
be, makes a demand for the payment of the said amount of money by giving a
notice in writing, to the drawer of the cheque, within thirty days of the
receipt of information by him from the bank regarding the return of the
cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount
of money to the payee or, as the case may be, to the holder in due course
of the cheque, within fifteen days of the receipt of the said notice.
Explanation. - For the purposes of this section, "debt or other liability"
means a legally enforceable debt or other liability.”

Clause 3.1(iii) of the agreement may also be noted :-

“ 3.1 SECURITY FOR THE LOAN
The loan together with the interest, interest tax, liquidated
damages, commitment fee, up front fee prima on repayment or on redemption,
costs, expenses and other monies shall be secured by ;

xxxxx
xxxxx
Deposit of Post dated cheques towards repayment of installments of
principal of loan amount in accordance with agreed repayment schedule and
installments of interest payable thereon.”

Reference may now be made to the decision of this Court in Indus
Airways Private Limited versus Magnum Aviation Private Limited [1], on
which strong reliance has been placed by learned counsel for the appellant.
The question therein was whether post-dated cheque issued by way of
advance payment for a purchase order could be considered for discharge of
legally enforceable debt. The cheque was issued by way of advance payment
for the purchase order but the purchase order was cancelled and payment of
the cheque was stopped. This Court held that while the purchaser may be
liable for breach of the contract, when a contract provides that the
purchaser has to pay in advance and cheque towards advance payment is
dishonoured, it will not give rise to criminal liability under Section 138
of the Act. Issuance of cheque towards advance payment could not be
considered as discharge of any subsisting liability. View to this effect
of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. versus Deepak
Bros.[2], Madras High Court in Balaji Seafoods Exports (India) Ltd. versus
Mac Industries Ltd.[3], Gujarat High Court in Shanku Concretes (P) Ltd.
versus State of Gujarat[4] and Kerala High Court in Supply House versus
Ullas[5] was held to be correct view as against the view of Delhi High
Court in Magnum Aviation (P) Ltd. versus State[6]
and Mojj Engg. Systems Ltd. versus A.B. Sugars Ltd.[7] which was
disapproved.
We have given due consideration to the submission advanced on behalf of the
appellant as well as the observations of this Court
in Indus Airways (supra) 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 post-dated 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.
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 installments.
The repayment becomes due under the agreement, the moment the loan is
advanced and the installment falls due. It is undisputed that the loan was
duly disbursed on 28th February, 2002 which was prior to the date of the
cheques. Once the loan was disbursed and installments 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.
Judgment in Indus Airways (supra) is clearly distinguishable. As already
noted, it was held therein that liability arising out of claim for breach
of contract under Section 138, which arises on account of dishonour of
cheque issued was not by itself at par with criminal liability towards
discharge of acknowledged and admitted debt under a loan transaction.
Dishonour of cheque issued for discharge of later liability is clearly
covered by the statute in question. Admittedly, on the date of the cheque
there was a debt/liability in presenti in terms of the loan agreement, as
against the case of Indus Airways (supra) where the purchase order had been
cancelled and cheque issued towards advance payment for the purchase order
was dishonoured. In that case, it was found that the cheque had not been
issued for discharge of liability but as advance for the purchase order
which was cancelled. Keeping in mind this fine but real distinction, the
said judgment cannot be applied to a case of present nature where the
cheque was for repayment of loan installment which had fallen due though
such deposit of cheques towards repayment of installments was also
described as “security” in the loan agreement. In applying the judgment in
Indus Airways (supra), one cannot lose sight of the difference between a
transaction of purchase order which is cancelled and that of a loan
transaction where loan has actually been advanced and its repayment is due
on the date of the cheque. .
Crucial question to determine applicability of Section 138 of the Act is
whether the cheque represents discharge of existing enforceable debt or
liability or whether it represents advance payment without there being
subsisting debt or liability. While approving the views of different High
Courts noted earlier, this is the underlying principle as can be discerned
from discussion of the said cases in the judgment of this Court.
In Balaji Seafoods (supra), the High Court noted that the cheque was not
handed over with the intention of discharging the subsisting liability or
debt. There is, thus, no similarity in the facts of that case simply
because in that case also loan was advanced. It was noticed specifically
therein – as was the admitted case of the parties – that the cheque was
issued as “security” for the advance and was not intended to be in
discharge of the liability, as in the present case.
In HMT Watches Ltd. versus M.A. Abida[8], relied upon on behalf of the
respondent, this Court dealt with the contention that the proceedings under
Section 138 were liable to be quashed as the cheques were given as
“security” as per defence of the accused. Negativing the contention, this
Court held :-

“10. Having heard the learned counsel for the parties, we are of the view
that the accused (Respondent 1) challenged the proceedings of criminal
complaint cases before the High Court, taking factual defences. Whether the
cheques were given as security or not, or whether there was outstanding
liability or not is a question of fact which could have been determined
only by the trial court after recording evidence of the parties. In our
opinion, the High Court should not have expressed its view on the disputed
questions of fact in a petition under Section 482 of the Code of Criminal
Procedure, to come to a conclusion that the offence is not made out. The
High Court has erred in law in going into the factual aspects of the matter
which were not admitted between the parties. The High Court further erred
in observing that Section 138(b) of the NI Act stood uncomplied with, even
though Respondent 1 (accused) had admitted that he replied to the notice
issued by the complainant. Also, the fact, as to whether the signatory of
demand notice was authorised by the complainant company or not, could not
have been examined by the High Court in its jurisdiction under Section 482
of the Code of Criminal Procedure when such plea was controverted by the
complainant before it.

11. In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [(2008) 13
SCC 678], this Court has made the following observations explaining the
parameters of jurisdiction of the High Court in exercising its jurisdiction
under Section 482 of the Code of Criminal Procedure: (SCC pp. 685-87, paras
17 & 22)
“17. The parameters of jurisdiction of the High Court in exercising its
jurisdiction under Section 482 of the Code of Criminal Procedure is now
well settled. Although it is of wide amplitude, a great deal of caution is
also required in its exercise. What is required is application of the well-
known legal principles involved in the matter.
***
22. Ordinarily, a defence of an accused although appears to be plausible
should not be taken into consideration for exercise of the said
jurisdiction. Yet again, the High Court at that stage would not ordinarily
enter into a disputed question of fact. It, however, does not mean that
documents of unimpeachable character should not be taken into consideration
at any cost for the purpose of finding out as to whether continuance of the
criminal proceedings would amount to an abuse of process of court or that
the complaint petition is filed for causing mere harassment to the accused.
While we are not oblivious of the fact that although a large number of
disputes should ordinarily be determined only by the civil courts, but
criminal cases are filed only for achieving the ultimate goal, namely, to
force the accused to pay the amount due to the complainant immediately. The
courts on the one hand should not encourage such a practice; but, on the
other, cannot also travel beyond its jurisdiction to interfere with the
proceeding which is otherwise genuine. The courts cannot also lose sight of
the fact that in certain matters, both civil proceedings and criminal
proceedings would be maintainable.”

12. In Rallis India Ltd. v. Poduru Vidya Bhushan [(2011) 13 SCC 88], this
Court expressed its views on this point as under: (SCC p. 93, para 12)
“12. At the threshold, the High Court should not have interfered with the
cognizance of the complaints having been taken by the trial court. The High
Court could not have discharged the respondents of the said liability at
the threshold. Unless the parties are given opportunity to lead evidence,
it is not possible to come to a definite conclusion as to what was the date
when the earlier partnership was dissolved and since what date the
respondents ceased to be the partners of the firm.”

We are in respectful agreement with the above observations. In the
present case, reference to the complaint (a copy of which is Annexures P-7)
shows that as per the case of the complainant, the cheques which were
subject matter of the said complaint were towards the partial repayment of
the dues under the loan agreement (para 5 of the complaint).
As is clear from the above observations of this Court, it is well settled
that while dealing with a quashing petition, the Court has ordinarily to
proceed on the basis of averments in the complaint. The defence of the
accused cannot be considered at this stage. The court considering the
prayer for quashing does not adjudicate upon a disputed question of fact.
In Rangappa versus Sri Mohan[9], this Court held that once issuance of a
cheque and signature thereon are admitted, presumption of a legally
enforceable debt in favour of the holder of the cheque arises. It is for
the accused to rebut the said presumption, though accused need not adduce
his own evidence and can rely upon the material submitted by the
complainant. However, mere statement of the accused may not be sufficient
to rebut the said presumption. A post dated cheque is a well recognized
mode of payment[10].
Thus, the question has to be answered in favour of the respondent and
against the appellant. 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.
Accordingly, we do not find any merit in this appeal and the same is
dismissed. Since we have only gone into the question whether on admitted
facts, case for quashing has not been made out, the appellant will be at
liberty to contest the matter in trial court in accordance with law.

………………………………………………J.
( DIPAK MISRA )

………………………………………………J.
( ADARSH KUMAR GOEL )

New Delhi;
september 19, 2016.

ITEM NO.1A-For JUDGMENT COURT NO.8 SECTION II

S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS

Criminal Appeal No(s). 867/2016

SAMPELLY SATYANARAYANA RAO Appellant(s)

VERSUS

INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED Respondent(s)

Date : 19/09/2016 This appeal was called on for pronouncement of JUDGMENT
today.

For Appellant(s)
Mr. Lakshmi Raman Singh,Adv.

For Respondent(s)
Mr. Annam D. N. Rao,Adv.

Hon'ble Mr. Justice Adarsh Kumar Goel pronounced the judgment of the
Bench comprising Hon'ble Mr. Justice Dipak Misra and His Lordship.
The appeal is dismissed in terms of the signed judgment.
Pending application(s), if any, stand(s) disposed of.

(Signed Reportable judgment is placed on the file)

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[1] [2] (2014) 12 SCC 539
[3] [4] (1997) Crl. LJ 1942 (AP)
[5] [6] (1999) 1 CTC 6 (Mad)
[7] [8] (2000) Crl LJ 1988 (Guj)
[9] [10] (2006) Crl. LJ 4330 (Ker)
[11] [12] (2010) 172 DLT 91: (2010) 118 DRJ 505
[13] [14] (2008) 154 DLT 579
[15] [16] (2015) 11 SCC 776
[17] [18] (2010) 11 SCC 441
[19] [20] Goaplast (P) Ltd. versus Chico Ursula D’ Souza (2003) 3 SCC 232

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