Negotiable Instruments Act, 1881 – ss.138, 141 – Code of Criminal Procedure, 1973 – ss. 202, 203 and 482 – Dishonour of cheque issued by way of security – A Power Supply Agreement (PSA) was entered into between the second respondent and the company – The PSA between the parties envisaged that the second respondent would supply power to the company of which the appellants are directors etc. – The agreement postulated that payment for the power supplied would be made by means of Letter of Credit (LCs) – A cheque post-dated 28.08.2017 in the amount of Rs.2,67,84,000/was issued by the company in favour of the respondent, with the following endorsement on its reverse, “to be deposited after confirmation only for security purpose” – The power supply had commenced on 01.07.2016 – Though, the LCs’ were provided, they were allegedly not in a form acceptable to the bankers of the second respondent – Bills were raised by the second respondent – The company terminated its agreement with the second respondent – Cheque issued by the company was deposited – Cheque was dishonoured with a reason ‘payment stopped by drawer’ – Appellants alleged offence u/s. 138 of the N.I. Act – A criminal complaint was filed by the second respondent – Magistrate issued summons to the appellants – Appellants filed petitions u/s.482 of Cr.P.C. – The High Court dismissed the petitions for quashing the complaint – Before the Supreme Court, the appellant contended that cheque was issued for the purpose of security and not for encashment – Held: The explanation to s.138 of the NI Act provides that ‘debt or any other liability’ means a legally enforceable debt or other liability – The term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation – A post-dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’ – However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred – Therefore, in the present case, a debt was incurred after the second respondent began supply of power for which payment was not made because of the non-acceptance of the LCs’ – The appellants do not dispute that prior to the termination of the agreement, power was supplied for a period of three months to the company – Once payments for electricity supply became due in terms of the PSA, and the company failed to discharge its dues, the second respondent was entitled in law to present the cheque for payment – Merely labelling the cheque as a security would not obviate its character as an instrument designed to meet a legally enforceable debt or liability, once the supply of power had been provided for which there were monies due and payable – There is no inflexible rule which precludes the drawee of a cheque issued as security from presenting it for payment in terms of the contract.
Negotiable Instruments Act, 1881 – ss.138, 141 – Code of Criminal Procedure, 1973 – ss. 202, 203 and 482 – Dishonour of cheque issued by way of security – A Power Supply Agreement (PSA) was entered into between the second respondent and the company – A cheque post-dated 28.08.2017 in the amount of Rs.2,67,84,000/- was issued by the company in favour of the respondent, with the following endorsement on its reverse, “to be deposited after confirmation only for security purpose” – The power supply had commenced – Bills were raised by the second respondent – The company terminated its agreement with the second respondent – Cheque issued by the company was deposited – Cheque was dishonoured with a reason ‘payment stopped by drawer’ – Appellants alleged offence u/s. 138 of the N.I. Act – A criminal complaint was filed by the second respondent – Magistrate issued summons to the appellants – The accused persons in the present case resided at Aurangabad while the complaint u/s. 138 was filed before the Magistrate in Mundra – The argument of the appellants is that in these circumstances, the Magistrate was duty bound to postpone the issuance of process and to either enquire into the case himself or to direct an investigation either by a police officer or by some other person – It was further contended that the summoning order showed non-application of mind – Held: Under Sub-Section (1) of s.202, a Magistrate upon the receipt of a complaint of an offence of which he/she is authorized to take cognizance is empowered to postpone the issuance of process against the accused and either (i) enquire into the case; or (ii) direct an investigation to be made by a police officer or by such other person as he thinks fit – If the Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses and in suitable cases the Magistrate can examine documents to be satisfied that there are sufficient grounds for proceeding u/s. 202 – In the present case, the Magistrate has adverted to: (i) The complaint; (ii) The affidavit filed by the complainant; (iii) The evidence as per evidence list and; and (iv) The submissions of the complainant – The order passed by the Magistrate cannot be held to be invalid as betraying a nonapplication of mind – As it is settled that in determining the question as to whether process is to be issued, the Magistrate has to be satisfied whether there is sufficient ground for proceeding and not whether there is sufficient ground for conviction. Dismissing the appeals, the Court
HELD: 1. In the present case, the Power Supply Agreement (PSA) between the parties envisaged that the second respondent would supply power to the company of which the appellants are directors or as the case may be, managing director. The agreement postulated that payment for the power supplied would be made by means of Letter of Credits (LCs). Though, the LCs’ were provided, they were allegedly not in a form acceptable to the bankers of the second respondent. The appellants do not dispute that prior to the termination of the agreement, power was supplied for a period of three months to the company. In other words, the agreement for the supply of power was acted upon and power was supplied to by the second respondent and consumed by the company. [Para 23][1106-F-H]
2. The explanation to Section 138 of the NI Act provides that ‘debt or any other liability’ means a legally enforceable debt or other liability. The term debt also includes a sum of money promised to be paid on a future day by reason of a present obligation. A post-dated cheque issued after the debt has been incurred would be covered by the definition of ‘debt’. However, if the sum payable depends on a contingent event, then it takes the color of a debt only after the contingency has occurred. Therefore, in the present case, a debt was incurred after the second respondent began supply of power for which payment was not made because of the non-acceptance of the LCs’. The issue to be determined is whether Section 138 only covers a situation where there is an outstanding debt at the time of the drawing of the cheque or includes drawing of a cheque for a debt that is incurred before the cheque is encashed. [Para 25][1107-B-C; 1108-A-C]
3. The object of the NI Act is to enhance the acceptability of cheques and inculcate faith in the efficiency of negotiable instruments for transaction of business. The purpose of the provision would become otiose if the provision is interpreted to exclude cases where debt is incurred after the drawing of the cheque but before its encashment. The true purpose of Section
138 would not be fulfilled, if ‘debt or other liability’ is interpreted to include only a debt that exists as on the date of drawing of the cheque. Moreover, Parliament has used the expression ‘debt or other liability’. The expression “or other liability’ must have a meaning of its own, the legislature having used two distinct phrases. The expression ‘or other liability’ has a content which is broader than ‘a debt’ and cannot be equated with the latter. In the present case, the cheque was issued in close proximity with the commencement of power supply. The issuance of the cheque in the context of a commercial transaction must be understood in the context of the business dealings. The issuance of the cheque was followed close on its heels by the supply of power. To hold that the cheque was not issued in the context of a liability which was being assumed by the company to pay for the dues towards power supplied would be to produce an outcome at odds with the business dealings. If the company were to fail to provide a satisfactory LC and yet consume power, the cheques were capable of being presented for the purpose of meeting the outstanding dues. [Para 26][1108-D-H]
4. Once payments for electricity supply became due in terms of the PSA, and the company failed to discharge its dues, the second respondent was entitled in law to present the cheque for payment. Merely labelling the cheque as a security would not obviate its character as an instrument designed to meet a legally enforceable debt or liability, once the supply of power had been provided for which there were monies due and payable. There is no inflexible rule which precludes the drawee of a cheque issued as security from presenting it for payment in terms of the contract. It all depends on whether a legally enforceable debt or liability has arisen. [Para 27][1109-B-D]
5. Under Sub-Section (1) of Section 202, a Magistrate upon the receipt of a complaint of an offence of which he/she is authorized to take cognizance is empowered to postpone the issuance of process against the accused and either (i) enquire into the case; or (ii) direct an investigation to be made by a police officer or by such other person as he thinks fit. The purpose of postponing the issuance of process for the purposes of an enquiry or an investigation is to determine whether or not there is sufficient ground for proceeding. However, it is mandatory for the Magistrate to do so in a case where the accused is residing at a place beyond the area in which the Magistrate exercises jurisdiction. The accused persons in the present case reside at Aurangabad while the complaint under Section 138 was filed before the Magistrate in Mundra. The argument of the appellants is that in these circumstances, the Magistrate was duty bound to postpone the issuance of process and to either enquire into the case himself or to direct an investigation either by a police officer or by some other person. [Para 32][1111-E-H]
6. Section 145 of the NI Act provides that evidence of the complainant may be given by him on affidavit, which shall be read in evidence in an inquiry, trial or other proceeding notwithstanding anything contained in the CrPC. The Constitution Bench held that Section 145 has been inserted in the Act, with effect from 2003 with the laudable object of speeding up trials in complaints filed under Section 138. Hence, the Court noted that if the evidence of the complainant may be given by him on affidavit, there is no reason for insisting on the evidence of the witnesses to be taken on oath. Consequently, it was held that Section 202(2) CrPC is inapplicable to complaints under Section 138 in respect of the examination of witnesses on oath. The Court held that the evidence of witnesses on behalf of the complainant shall be permitted on affidavit. If the Magistrate holds an inquiry himself, it is not compulsory that he should examine witnesses and in suitable cases the Magistrate can examine documents to be satisfied that there are sufficient grounds for proceeding under Section 202. [Para 38][1118-A-D]
7. In the present case, the Magistrate has adverted to: (i) The complaint; (ii) The affidavit filed by the complainant; (iii) The evidence as per evidence list and; and (iv) The submissions of the complainant. [Para 39][1118-E]
8. The order passed by the Magistrate cannot be held to be invalid as betraying a non-application of mind. In Dy. Chief Controller of Imports & Exports v. Roshanlal Agarwal, this Court has held that in determining the question as to whether process is to be issued, the Magistrate has to be satisfied whether there is sufficient ground for proceeding and not whether there is sufficient ground for conviction. Whether the evidence is adequate for supporting the conviction can only be determined at the trial. [Para 40][1118-F-G]
9. The High Court did not quash the complaint against the appellants since it was prima facie established that they were triable for dishonour of cheque. Section 141 of the NI Act stipulates that if a company is alleged to have committed an offence under Section 138, then every person who ‘was in charge of, and responsible to, the company for the conduct of the business of the company’ shall also be deemed guilty of the offence. The proviso provides an exception if she proves that the offence was committed without her knowledge or that she had exercised due diligence. [Paras 41-42][1119-G-H; 1120-A]
10. The test to determine if the Managing Director or a Director must be charged for the offence committed by the Company is to determine if the conditions in Section 141 of the NI Act have been fulfilled i.e., whether the individual was incharge of and responsible for the affairs of the company during the commission of the offence. However, the determination of whether the conditions stipulated in Section 141 of the Act have been fulfilled is a matter of trial. There are sufficient averments in the complaint to raise a prima facie case against them. It is only at the trial that they could take recourse to the proviso to Section 141 and not at the stage of issuance of process. [Para 44][1122-D-E]
11. In the present case, it is evident that the principal grounds of challenge which have been set up on behalf of the appellants are all matters of defence at the trial. The Magistrate having exercised his discretion, it was not open to the High Court to substitute its discretion. The High Court has in a carefully considered judgment, analysed the submissions of the appellants and for justifiable reasons has come to the conclusion that they are lacking in substance. [Para 45][1122-F]
HMT Watches v. MA Habida (2015) 11 SCC
776 : [2015] 3 SCR 719; Mehmood UI Rehman v. Khazir Mohammad Tunda (2015) 12 SCC 420 : [2015] 4 SCR 841; Birla Corporation Ltd. v. Adventz Investments and Holdings (2019) 16 SCC 610 : [2019] 7 SCR 655; Krishna Lal Chawla v. State of U.P (2021) 5 SCC 435 : 2021 AIR 1381; Re: Expeditious Trial of Cases under Section 138 of N.I. Act 1881 Suo Motu Writ Petition (Crl) No. 2 of 2020, decided on 16 April 2021; SMS Pharmaceuticals v. Neeta Bhalla (2005) 8 SCC
89 : [2005] 3 Suppl. SCR 371; Mainuddin Abdul Sattar Shaikh v. Vijay D Salvi (2015) 9 SCC 622 : [2015] 6 SCR 1033 – relied on.
Indus Airways Private Limited v. Magnum Aviation Private Limited (2014) 12 SCC 539 : [2014] 5 SCR 56; Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited (2016) 10 SCC
458 : [2016] 6 SCR 531; Sripati Singh v. State of Jharkhand 2021 SCC OnLine SC 1002; Keshoram
Industries v. CWT AIR 1966 SC 1370; M/s Womb
Laboratories Pvt Ltd v. Vijay Ahuja Criminal Appeal Nos 1382-1383 of 2019, decided on 11 September 2019; Vijay Dhanuka v. Najima Mamtaj (2014) 14 SCC 638 : [2014] 4 SCR 171; Pepsi Foods Ltd. v. Special Judicial Magistrate (1998) 5 SCC 749 : [1997] 5 Suppl. SCR 12; Abhijit Pawar v. Hemant Madhukar Nimbalkar (2017) 3 SCC 528 : [2016] 9 SCR 475; Dy. Chief Controller of Imports & Exports v. Roshanlal Agarwal (2003) 4 SCC 139 : [2003] 2 SCR 621; Bhushan Kumar v. State (NCT of Delhi (2012) 5 SCC 424 : [2012] 2 SCR 696; Sunil Bharati Mittal v. CBI (2015) 4 SCC
609 : [2015] 1 SCR 377 – referred to.
Banchharam Majumdar v. Adyanath Bhattacharjee (1909) ILR 36 Cal 936 – referred to.
Lindey L.J in Webb v. Strention 1888 QBD 518; People v. Arguello 1869 37 Calif 524 – referred to.
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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