Negotiable Instruments Act, 1882: s.138 – Respondent no.2 obtained financial assistance of Rs.2 crore from the appellant due to previous acquaintance and assured that the amount would be returned in June/July 2015 – Towards the same, cheques were handed over to appellant – Based on assurance of payment, appellant presented the cheques for realisation in October 2015, however same were dishonoured on account of insufficiency of funds – Appellant filed complaint under s.420 IPC and also under s.138 NI Act – Respondent no.2 on appearance filed discharge application before trial court which was rejected – High Court, however, set aside the order of trial court – Hence instant appeal – Held: Mere dishonourment of the cheque cannot be construed as an act on the part of the respondent No.2 of deliberate intention to cheat and the mens rea in that regard cannot be gathered from the point the amount was received – In the facts and circumstances of the instant case, there was no sufficient evidence to indicate that the offence under s.420 IPC was made out – However, on dishonour of cheques, the consequences contemplated under the Negotiable Instruments Act would befall on respondent No.2 – Respondent No.2 may have the defence in the proceedings which will be a matter for trial – In any event, the respondent No.2 in the fact situation cannot make a grievance with regard to the cognizance being taken by the Magistrate or the rejection of the petition seeking discharge at this stage – Penal Code, 1860 – s.420.
Negotiable Instruments Act, 1882: s.138 – Claim of respondent no.2-drawer that the cheque was towards towards “security” and the same could not have been treated a a cheque issued towards the discharge of legally recoverable debt and therefore, complaint under s.138 was not maintainable – Held: A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance – ‘Security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment – It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound – If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified time frame and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same – On such presentation, if the same is dishonoured, the consequences contemplated under s.138 and the other provisions of N.I. Act would flow.
Partly allowing the appeal, the Court
HELD: 1.1 There is no error in the conclusion reached by the High Court that no case punishable under Section 420 IPC can be made out in these facts. 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 the cheque had been issued to ensure repayment. It is no doubt true that the cheques when presented for realisation were dishonoured. The mere dishonourment of the cheque cannot be construed as an act on the part of the respondent No.2 with a deliberate intention to cheat and the mens rea in that regard cannot be gathered from the point the amount had been received. In the present facts and circumstances, there is no sufficient evidence to indicate the offence under Section 420 IPC is made out and therefore on that aspect, there is no reason to interfere with the conclusion reached by the High Court. [Para 11][125-H; 126-A-D]
1.2 The High Court has itself arrived at the conclusion that the instant case becomes a simpliciter case of non-refunding of loan which cannot be a basis for initiating criminal proceedings. The conclusion to the extent of holding that it would not constitute an offence of cheating, would be justified. However, when the High Court itself has accepted the fact that it is a case of nonrefunding of the loan amount, the first aspect that there is a legally recoverable debt from the respondent No.2 to the appellant is prima-facie established. [Para 12][126-D-E]
Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd. [2016] 6 SCR 531; M/s. Womb Laboratory Pvt. Ltd. v. Vijay Ahuja and Anr. (Criminal Appeal No.1382-1383 of 2019) – relied on.
Sudhir Kr. Bhalla v. Jagdish Chand and Others 2008 7 SCC 137 : [2008] 7 SCR 459 – held inapplicable Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd. (2014) 12 SCC 539: [2014] 5 SCR 56 – referred to.
2.1 When a cheque is issued even though as ‘security’, the consequence flowing therefrom is also known to the drawer of the cheque and if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation. [Para 17][130-D-E]
2.2 If the above principle is kept in view, under the loan agreement in question the respondent No.2 though had issued the cheques as security, he had also agreed to repay the amount during June/July 2015, the cheque which was held as security was presented for realization on 20.10.2015 which is after the period agreed for repayment of the loan amount and the loan advanced had already fallen due for payment. Therefore, prima facie the cheque which was taken as security had matured for payment and the appellant was entitled to present the same. On dishonour of such cheque the consequences contemplated under the Negotiable Instruments Act had befallen on respondent No.2. Respondent No.2 may have the defence in the proceedings which will be a matter for trial. In any event, respondent No.2 in the fact situation cannot make a grievance with regard to the cognizance being taken by the Magistrate or the rejection of the petition seeking discharge at this stage. [Para 18][130-F-H; 131-A]
3.1 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. In the said circumstance, the cheque though issued as security at the point when the loan was advanced, it was issued as an assurance to repay the amount after the debt becomes due for repayment. The loan was in subsistence when the cheque was issued and had become repayable during June/July 2015 and the cheque issued towards repayment was agreed to be presented thereafter. If the amount was not paid in any other mode before June/July 2015, it was incumbent on the respondent No.2 to arrange sufficient balance in the account to honour the cheque which was to be presented subsequent to June/July 2015. [Paras 20, 21][131-G-H; 132-A]
3.2 These aspects would prima-facie indicate that there was a transaction between the parties towards which a legally recoverable debt was claimed by the appellant and the cheque issued by the respondent No.2 was presented. On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting the criminal complaint under Section 138 of N.I. Act on the payment not being made. The further defence as to whether the loan had been discharged as agreed by respondent No.2 and in that circumstance the cheque which had been issued as security had not remained live for payment subsequent thereto etc. at best can be a defence for the respondent No.2 to be put forth and to be established in the trial. 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. [Para 22] [132-B-E]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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