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TMI Blog2021 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... debt payable to the appellant by the respondent No.2 and as to whether the cheques in question relating to which the complaint has been filed by the appellant is issued towards discharge of such legally recoverable debt. In that regard, what is necessary to be considered is also as to whether the cheques in question are still to be considered only as security for the said amount and whether it was not liable to be presented for recovery of the legally recoverable debt. It is evident that the learned Magistrate having referred to the complaint and sworn statement of the complainant and the witnesses has taken cognizance, issued summons and has consequently arrived at the conclusion that the discharge as sought by the respondent No.2 cannot be accepted. The conclusion reached by the High Court, insofar as the High Court arriving at the conclusion that no case punishable under Section 420 IPC can be made out in these facts, we are in agreement with such conclusion. This is due to the fact that even as per the case of the appellant the amount advanced by the appellant is towards the business transaction and a loan agreement had been entered into between the parties. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d payable is not sustainable. In any event, it was not a case for the Court to either refuse to take cognizance or to discharge the respondent No.2 in the manner it has been done by the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts and circumstances of the instant case, the complaint under section 138 of the N.I Act was maintainable and all contentions and the defence were to be considered during the course of the trial - the order passed by the Judicial Magistrate are restored. Appeal allowed. - CRIMINAL APPEAL NOS. 1269-1270 OF 2021 (Arising out of SLP(Criminal) No.252253/ 2020 - - - Dated:- 28-10-2021 - HON BLE MR. JUSTICE A.S. BOPANNA AND HON BLE MR. JUSTICE M.R. SHAH For Appellant(s) Mr. Gaurav Dhingra, AOR For Respondent(s) Mr. Raj Kishor Choudhary, AOR Nr. Rajiv Singh, Adv. Mr. Vishnu Sharma, Adv. Mr. Abhishek, AOR JUDGMENT A.S. Bopanna,J . 1. The appellant is before this Court assailing the order dated 17.12.2019 passed by the High Court of Jharkhand at Ranchi in Criminal M.P. No.2635 of 2017 and Criminal M.P. No.2655 of 2017. Through the said order, the High Court has allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of respondent No.2. The appellant therefore got issued a legal notice as contemplated under Section 138 of the Negotiable Instruments Act ( N.I. Act for short). Since the respondent No.2 had taken the money on the assurance that the same would be returned but had deceived the appellant, the appellant contended that the respondent No.2 had cheated him and accordingly the complaint was filed both under Section 420 of IPC as also Section 138 of N.I. Act. The appellant had submitted the sworn statement of himself and witnesses. The learned Judicial Magistrate through the order dated 04.07.2016 took cognizance and issued summons to the respondent No.2. 4. The respondent No.2 on appearance filed a miscellaneous petition seeking discharge from the criminal proceeding, which was rejected by the order dated 13.06.2019. It is in that background, the respondent No.2 claiming to be aggrieved by the order dated 04.07.2016 and 13.06.2019 approached the High Court in the said criminal miscellaneous petitions. The High Court, through the impugned order has allowed the petitions filed by the respondent No.2. The appellant therefore claiming to be aggrieved is before this Court in these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharge of legally recoverable debt. It is contended that the learned Judge has proceeded at a tangent and committed an error and as such the order passed by the High Court calls for interference. 7. To contend that the cheque issued towards discharge of the loan and presented for recovery of the same cannot be construed as issued for security has relied on the decision of this Court in the case of Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Ltd., (Criminal Appeal No.867 of 2016) and in M/s Womb Laboratory Pvt. Ltd. vs. Vijay Ahuja and Anr. (Criminal Appeal No.1382- 1383 of 2019). Hence, it is contended that the observation contained in the order of the High Court that a cheque issued towards security cannot attract the provision of Section 138 of N.I. Act is erroneous and the reference made by the High Court to the decision in Sudhir Kr. Bhalla vs. Jagdish Chand and Others 2008 7 SCC 137 is without basis. The learned counsel therefore contends that the order passed by the High Court is liable to be set aside and the criminal complaint be restored to file to be proceeded in accordance with law. 8. Mr. Keshav Murthy, learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness purpose. While taking note of the nature of the transaction and also the proceedings initiated, it is necessary for us to remain conscious of the fact that the proceedings between the parties is at the preliminary stage and any conclusive findings rendered in relation to the dispute between the parties would affect their case if ultimately the appellants were to succeed herein and the criminal proceedings are to be restored for further progress. Therefore, what is necessary to be examined herein is, as to whether the appellant has prima facie established a transaction under which there is a legally recoverable debt payable to the appellant by the respondent No.2 and as to whether the cheques in question relating to which the complaint has been filed by the appellant is issued towards discharge of such legally recoverable debt. In that regard, what is necessary to be considered is also as to whether the cheques in question are still to be considered only as security for the said amount and whether it was not liable to be presented for recovery of the legally recoverable debt. The question which would also arise for consideration is as to whether the complaint filed by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the cheques were given by way of security. Even if I do not believe the statement of the accused, the documents of the complainant cannot be brushed aside. As held earlier, supported by the decision of the Hon'ble Supreme Court in the case of Sudhir Kumar Bhalla (supra) a cheque given by way of security cannot attract Section 138 of the Negotiable Instruments Act. Since the cheques were given by way of security, which is evident from the complainant's documents (though this fact has also been suppressed in the complaint petition), I find that Section 138 of the Negotiable Instruments Act is also not attracted in this case. 11. In the background of what has been taken note by us and the conclusion reached by the High Court, insofar as the High Court arriving at the conclusion that no case punishable under Section 420 IPC can be made out in these facts, we are in agreement with such conclusion. This is due to the fact that even as per the case of the appellant the amount advanced by the appellant is towards the business transaction and a loan agreement had been entered into between the parties. Under the loan agreement, the period for repayment was agreed and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and the complainant has also stated this fact in the complaint. Though the High Court has taken note of the decision in the case of Sudhir Kumar Bhalla (supra) to hold that the cheque issued as security cannot constitute an offence, the same in our opinion does not come to the aid of the respondent No.2. There is no categorical declaration by this Court in the said case that the cheque issued as security cannot be presented for realisation under all circumstances. The facts in the said case relate to the cheques being issued and there being alterations made in the cheques towards which there was also a counter complaint filed by the drawer of the cheque. Hence, the said decision cannot be a precedent to answer the position in this case and the High Court was not justified in placing reliance on the same. 14. In fact, it would be apposite to take note of the decision of this Court in the case of Sampelly Satyanarayana Rao (supra) wherein this Court while answering the issue as to what constitutes a legally enforceable debt or other liability as contained in the Explanation 2 to Section 138 of N.I. Act has held as hereunder: 10. We have given due consideration to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' of instalments 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. 13. 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. (emphasis supplied) The said conclusion was reached by this Court while distinguishing the decision of this Court in the case of Indus Airways Pvt. Ltd. Vs. Magnum Aviation Pvt. Ltd. (2014) 12 SCC 539 which was a case wherein the issue was of dishonour of post dated cheque issued by way of advance payment against a purchase order that had arisen for consideration. In that circumstance, it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an on demand promissory note and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. When a cheque is issued even though as security the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity even after the amount had become due and payable is not sustainable. Further, on the cheques being dishonoured the appellant had got issued a legal notice dated 21.11.2015 wherein inter alia it has been stated as follows: You request to my client for loan and after accepting your word my client give you loan and advanced loan and against that you issue different cheque all together valued Rs. One crore and my client was also assured by you will clear the loan within June/July 2015 and after that on 26.10.2015 my client produce the cheque for encashment in H.D.F.C. Bank all cheque bearing No.402771 valued ₹ 25 Lakh, 402770 valued ₹ 25 lakh, 402769 valued ₹ 50 lakh, (total rupees one crore) and above numbered cheques was returned with endorsement In sufficient fund . Then my client feel that you have not fulfil the assurance. 20. The notice as issued indicates that the appellant has at the very outset after the cheque was dishonoured, intimated the respondent no.2 that he had agreed to clear the loan by June/July 2015 after which the appellant had presented the cheque for encashment on 26.10.2015 and the assurance to repay has not been kept up. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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