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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.

1. 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.

2. 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”).

3. 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

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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.   

4. 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

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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.  

5. 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.”

6. We have heard learned counsel for the parties.

7. 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;  

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(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.”  

8. 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 ;  

(i) xxxxx (ii) xxxxx (iii) 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.”

9. 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.

1 (2014) 12 SCC 539

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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

Gujarat4 and Kerala High Court in Supply House versus Ullas5 was

held to be correct view as against the view of Delhi  High Court in

Magnum Aviation (P) Ltd. versus State6                        and Mojj

Engg.  Systems  Ltd.  versus  A.B.  Sugars  Ltd.7  which  was

disapproved.

10.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

2 (1997) Crl. LJ 1942 (AP) 3 (1999) 1 CTC 6 (Mad) 4 (2000) Crl LJ 1988 (Guj) 5 (2006) Crl. LJ 4330 (Ker) 6 (2010) 172 DLT 91: (2010) 118 DRJ 505 7 (2008) 154 DLT 579

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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.   

11.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.  

12.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

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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.  .

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

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principle as can be discerned from discussion of the said cases in the

judgment of this Court.

14.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.

15.In HMT Watches Ltd. versus M.A. Abida8, 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

8 (2015) 11 SCC 776

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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.”

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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.”

16. 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).   

17. 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.

18.In Rangappa versus Sri Mohan9, 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. 9 (2010) 11 SCC 441

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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 payment10.

19. 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.   

20. 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.

10 Goaplast (P) Ltd. versus Chico Ursula D’ Souza (2003) 3 SCC 232

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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.  

(VINOD KUMAR JHA) AR-CUM-PS

(MALA KUMARI SHARMA) COURT MASTER

    (Signed Reportable judgment is placed on the file)