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2013 (2) TMI 36 - HC - Companies LawCheque issued by the Client (the borrower) in a Factoring Agreement - Whether is towards liability or security? - Petitioner Company approached Respondent No.2 IFCI Factors Limited to grant it domestic factoring facilities who by an Agreement dated 18.02.2010 allowed it to the maximum pre-payment amount of Rs.5 crores. M/s. Koutons Retails India Limited (Koutons) was approved as debtor in terms of Clause 4 (i) of the Agreement & cheques for this sum of Rs. 3 crores issued by the debtors (Koutons) were dishonoured - Held that:- The tanner of the Agreement was that the amount was advanced by Respondent No.2 to the Petitioners, thus, the amount was borrowed by the Petitioners and it was at Petitioners’ behest and on their undertaking that cheques issued by the Petitioners’ debtor i.e. Koutons were accepted on the condition that it will be honoured on presentation. It was the term of the factoring agreement that in case the Petitioners’ debtor was unable to pay, the Petitioners would pay the amount (which obviously had been received by Petitioner No.1 from Respondent No.2). A personal guarantee for payment of all the amounts payable by the obligatee in respect of purchase of receivables was also given by Petitioner No.2 (Alok Aggarwal). Petitioner No.2 on behalf of Petitioner No.1 also undertook the payment of the outstanding pre-payments or for values of reassigned. He, further, undertook to keep sufficient balance in the account and to honour the cheques on presentation. Thus, factoring agreement along with undertaking and the Bond of guarantee clearly indicates that the cheques had not been given by the Petitioners as security but towards the liability which was co-extensive with that of the debtor. See Shree Bhagwati Apparels India Limited & Ors. v. M/s. Bibby Financial Services India Pvt. Ltd. [2013 (2) TMI 28 - PUNJAB AND HARYANA HIGH COURT] Thus a cheque issued towards debt which is due but whose only payment is postponed would attract Section 138 of the N.I. Act.
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