Karnataka High Court
M/S Shree Ganesh Steel Rolling Mills ... vs M/S Stcl Limited ( A Government Of India on 21 May, 2013
Equivalent citations: 2013 ACD 1036 (KAR), 2013 (4) AIR KANT HCR 70, (2013) 4 CURCRIR 116, (2013) 3 KCCR 2105, (2014) 1 ALLCRILR 801, (2014) 1 NIJ 593, (2013) 4 BANKCAS 391, (2014) 2 KANT LJ 142
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
®
IN THE HIGH COURT OF KARNATAKA AT
BANGALORE
DATED THIS THE 21st DAY OF MAY, 2013
BEFORE
THE HON'BLE MR. JUSTICE ANAND BYRAREDDY
CRIMINAL PETITION No.4104 OF 2009
CONNECTED WITH
CRIMINAL PETITION No.4369 of 2009
BETWEEN:
1. M/s. Shree Ganesh Steel Rolling Mills
Limited, represented by its
Director, Mr. Ashok Kumar Saraf,
14-A, Ennore High Road,
Thiruvottiyur,
Chennai - 600 019.
2. Mr. Ashok Kumar Saraf,
Son of D.D. Saraf,
Aged about 46 years,
Director,
M/s. Shree Ganesh Steel Rolling Mills
Limited, 14-A, Ennore High Road,
Thiruvottiyur,
Chennai - 600 019.
3. Mrs. Ruchira Saraf,
Wife of Mr. Ashok Kumar Saraf,
2
Aged about 38 years,
Director,
M/s. Shree Ganesh Steel Rolling Mills
Limited, 14-A, Ennore High Road,
Thiruvottiyur,
Chennai - 600 019. ...PETITIONERS
COMMON
(By Shri. G.L. Rawal, Senior Advocate for Shri. K. Sachindra
Karanth, Advocate)
AND:
M/s. STCL Limited
(A Government of India undertaking)
Having their office at No.166/2,
13th Main Road,
Vasanthanagar,
Bangalore - 560 052,
Represented by its Managing Director,
through its Authorised Officer,
Mr. Jagadeesh Kumar,
Manager - Marketing (in-charge). ...RESPONDENT
COMMON
(By Shri. Chandrashekara .K, Advocate for Shri. Kiran S Javali,
Advocate)
*****
IN CRL.P.No.4104 of 2009
This Criminal Petition is filed under Section 482 code of
Criminal Procedure, 1973, praying to set aside the order dated
20.07.2009 passed by the XV Additional Chief Metropolitan
Magistrate, Bangalore, in P.C.R.No.11982 of 2009 now
numbered as C.C.No.16289 of 2009 issuing summons to the
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petitioners and allow this petition by quashing the entire
proceedings in P.C.R.No.11982/2009 now numbered as
C.C.No. 16289 of 2009 on the file of XV Additional Chief
Metropolitan Magistrate, Bangalore.
IN CRL.P.No.4369 of 2009
This Criminal Petition is filed under Section 482 code of
Criminal Procedure, 1973, praying to set aside the order dated
17.06.2009 passed by the XV Additional Chief Metropolitan
Magistrate, Bangalore, in C.C.No.13784 of 2009 originally
numbered as P.C.R.No.7831/2009 and issuing summons to the
petitioners
These petitions having been heard and reserved on
19.04.2013 and coming on for pronouncement of orders this
day, the Court delivered the following:-
ORDER
These petitions are heard and disposed of together as identical facts and circumstances are involved and are in relation to transactions between the same parties.
2. Heard the learned Senior Advocate Shri G.L.Rawal appearing for the counsel for the petitioners and the learned counsel appearing for the respondent.
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3. In Criminal Petition no.4104 of 2009, the petitioners 1 to 3 are a company and its directors, respectively, arraigned as accused in a criminal case filed by the respondent, M/s STCL Limited, a Government of India undertaking, before the Court of XV Additional Chief Metropolitan Magistrate , Bangalore, in case no. C.C.16289 of 2009, alleging an offence punishable under Section 138 of the Negotiable Instruments Act, 1880.
Petitioner no.1 had entered into a contract dated 9.7.2008 with the respondent for import purchase of 750 MT of MS Turnings and Borings for a value of Rs. 1,61,26000. In terms of the contract the petitioner was to furnish a "PDC" (sic) or a post dated cheque equivalent to 100% of the contract value as security for due payment and that the same would be returned on satisfactory performance of the contract. It was also required of Petitioner no.2 as a Director of Petitioner no.1 to execute a personal guarantee on 9.7.2008, for the contract value. Incidentally, an undated cheque bearing no.917881 for the afore said amount, referred to in the personal guarantee, was 5 furnished. Of the contracted quantity of 750 MT, it transpires that the actual quantity delivered, in four shipments, was 681 MT. The petitioner company has taken delivery of a quantity of 106 MT and made a total payment of Rs.22.94 lakh towards the same, the balance quantity was said to be with the respondent. It is the case of the petitioners that when matters stood thus, the respondent had chosen to present the undated cheque, furnished by the petitioners as security for the total contract price of Rs.1,61,26000, for encashment - while supplying the date on the cheque as "11.3.2009", as if the cheque had been issued in discharge of a debt or other legal liability. It transpires that the banker of the petitioners had dishonoured the cheque as there were insufficient funds in the account of the petitioners. It is in this background that the criminal proceedings had been initiated after exchange of legal notices.
4. In Criminal Petition No. 4369 of 2009 arising out of case no. C.C.13784 of 2009, before the Court of the XV 6 Additional Chief Metropolitan Magistrate, Bangalore, the facts are almost identical. The first petitioner had entered into 3 contracts with the respondent - one for import purchase of 1000 MT of M.S Turnings and Borings for a value of Rs.2,15,25,000, dated 11.5.2008. Another for import purchase of 217 MT of waste and scrap of Iron and steel, also dated 11.5.2008 . And yet another for the purchase of 735.640 MT of shredded steel scrap, dated 14.6.2008. In terms of the respective contracts, personal guarantees were obtained from petitioner no.2 , as a Director of the petitioner no.1 company, two of them dated 20.5.2008 in respect of the aforesaid contracts dated 11.5.2008, respectively, and one dated 14.6.2008 in respect of the contract of the same date. These guarantees along with undated cheques, as security for due payment of the entire value of the aforesaid three contracts were furnished to the respondent.
In respect of the first contract mentioned above, where the contract was for purchase of 1000 MT, valued at Rs. 2.15 crore, the quantity delivered in six shipments was about 861 7 MT. The petitioners had lifted about 261 MT against payment of a total amount of Rs.68.54 lakh . The balance quantity of the material was said to be in the custody of the respondent. The amount payable in respect of the same was about Rs.1.17 crore. However, the respondent is said to have inexplicably supplied a date as, "5.3.2009" to the undated cheque bearing no.894163, issued for a value of Rs.1,85,42000 , furnished as security for the due payment of the contract value, and had presented the same for encashment, when there was no due outstanding or other liability. The same having been dishonoured, the petitioners are sought to be proceeded against as aforesaid.
In so far as the second contract was concerned, in an identical manner, the undated cheque furnished along with the personal guarantee of petitioner no.2, bearing no. 894164, for a value of Rs.57,60,000 , furnished as security was similarly sought to be utilized.
In respect of the third contract, the undated cheque bearing no.917858 was for the total contract value of 8 Rs.1,59,75000. The respondent had sought to draw the entire amount,while indicating the date of the cheque as 26.2.2009, when there was no such amount due to be paid to the respondent by the petitioners. The cheque furnished as security was thus sought to be misused. The same having been dishonoured, the aforesaid proceedings have been initiated on the basis of the same.
It is in the above background that the present petitions are filed.
5. The learned Senior Advocate, Shri Rawal contends - that it is demonstrable on the face of it, and the respondent cannot also dispute the fact, that the cheques in question , which are the subject matter of the complaints, were furnished as security for the performance of the respective contracts and were not issued in discharge of any debt or other legal liability. Hence, in the light of the decision of the apex court in the case of Narayana Menon vs. State of Kerala(2006) 6 SCC 39, the 9 complaint was not maintainable and ought to have been dismissed as not maintainable.
The cheques in question had been handed over along with personal guarantees of the second petitioner, wherein the respective undated cheques find mention, on which relevant date there was no outstanding debt or other legal liability- which the petitioners were required to meet. This circumstance is also consistent with the corresponding contract which envisaged the provision of such security. Therefore, the respondent having unauthorisedly supplied a date to the respective cheques and having sought to encash the same , could not be brought within the purview of Section 138 of the NI Act.
It is contended that the magistrate in taking cognizance of the complaint ought to have noticed that, from the very documents filed along with the complaint, it was a glaring circumstance that the cheques in question were obviously furnished as security and therefore there is a cardinal error 10 committed by the court in having failed in its duty to have scrutinized the case with the necessary attention and application of mind. It is hence contended that the proceedings before the court below are liable to be quashed as the complaints cannot be sustained in the light of the above circumstances.
The learned Senior Advocate places reliance on the following authorities in support of the petitions.
1. Judgment dated 19.2.2009 in Crl. M.C.No.2/2008
2. Judgment dated 11.10.2007 in Crl. M.C.No.3011/2007
3. Laxminivas Aggarwal Vs. Andhra Semi, 2006, Crl. L.J.2643,
4. New Tech Pesticides Ltd. Vs. Pavan Commercial Corporation and another, 2006 (IV) BC 80,
5. Taher N Khambati Vs. M/s.Vinayak Enterprises Secunderabad and others, 1995 (1) BC 473,
6. M/s.Balaji Sea Foods Exports (India) Limited and another Vs. Mac Industries Limited, 1999 (1) BC 298, 11
7. M/s. Pepsi Food Limited and another Vs. Special Judicial Magistrate and others, 1998 SC 128,
8. V.Y. Jose and another Vs. State of Gujarat and another, 2009(1) AD(SC) 500,
9. National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and another, (2010) 3 SCC 330,
10. K.K.Ahuja Vs. V.K.Vora and another, (2009) 10 SCC 48,
11. M.S. Narayana Menon @ Mani Vs. State of Kerala and another , (2006) 6 SCC 39.
6. Per contra, the learned counsel for the respondent contends that the petitioners have not disputed the issuance of the cheques or the fact that the same have been issued in the course of a contractual relationship. The same having been presented for encashment had been returned with the banker's endorsement that the funds were insufficient . Therefore, the respondent having made a demand for payment in terms of the 12 NI Act , has initiated action which is in accordance with the law. The purported defence on the part of the petitioners that the cheques in question were furnished as security and not in discharge of any debt or other liability, would necessarily require the petitioners to establish the same at the trial. The presumption on the other hand, in terms of Section 139 of the NI Act , is in favour of the holder of a cheque, that the same has been issued in discharge of legal liability.
Further, the several authorities relied upon by the petitioners are decisions rendered in proceedings that had been concluded and in which findings had been recorded by the competent court as to the rival contentions - whereas in the present case on hand , as there is a dispute on the question whether the cheques in question, even if issued as security for due performance of the contract, were indeed presented after the liability had arisen, it would be premature to arrive at any conclusion on that aspect in the present proceedings and hence 13 seeks dismissal of the petitions. Reliance is placed on the following authorities:
a) Sri Krishna Agencies vs. State of Andhra Pradesh and another, (2009)1 SCC (Cri) 241,
b) Trisuns Chemical Industry vs. Rajesh Agarwal and others, 2000 SCC (Cri)47,
c) M/s MMTC Limited and another vs. M/s Medchl Chemicals and Pharma Private Limited and another, AIR 2002 SC 182.
d) M/s Klen & Marshalls vs. Shri Ishar Alloy Steels Limited, Crl.A.1610/2001 dated 26.7.2006
7. The case law relied upon by the parties is briefly reviewed hereunder :
a) Strong reliance is placed by the petitioners on the decision in the case of Narayana Menon, supra, it is hence necessary to note the facts of that case. The appellant was the accused in a complaint brought by the second respondent for an offence punishable under Section 138 of the NI Act. The 14 appellant was said to be carrying on transactions in shares. The second respondent was a share broker. The appellant had transactions with the second respondent. The account however, was closed. The appellant had issued a cheque, dated 31.7.1992, in favour of the second respondent after the account was closed. It had been returned when presented for encashment, with the remark - "account closed".
It was alleged that a sum of Rs.3 lakh was due to the complainant from the appellant. The appellant is said to have paid Rs.5000 in cash and issued another cheque dated 17.8.1992, for a sum of Rs.2.95 lakh. The said cheque was dishonoured for want of sufficient funds. A notice of demand having been issued, pursuant to the dishonour of the cheque. It was the defence of the appellant that the first cheque was a blank cheque issued by way of security . The second cheque was not issued in discharge of a debt or liability but was given for discounting.
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The appellant stood trial on the complaint in the above background. The trial court held that the accused had failed to discharge the onus placed on him in terms of Section 139 of the NI Act. He was sentenced to undergo rigorous imprisonment for one year. That judgment was set aside in appeal . The complainant had then approached the High Court which in turn allowed the criminal appeal. The accused was before the apex court.
The apex court had examined the findings of fact in some detail and found that the High Court had committed an error in overlooking the fact that the complainant had not been able to explain discrepancies found in his books of account. And further, that he had not brought on record any material to establish that the parties had any transactions other than the transactions held before the account between them was closed. The apex court then addressed the questions of law with regard to the scope and effect of Sections 118 (a) and 139 of the NI Act. The court then concluded thus :
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"52. We, in the facts and circumstances of this case, need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be a part of the debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The appellant clearly said that nothing is due and the cheque was issued by way of security. The said offence has been accepted as probable. If the defence is acceptable as probable the cheque therefor cannot be held to have been issued in discharge of the debt, as for example, if a cheque is issued for security or for any to her purpose the same would not come within the purview of Section 138 of the Act."
It was also found that the High Court entertained an appeal treating it to be an appeal against acquittal , when in fact it was exercising revisional jurisdiction. It was observed that even while exercising an appellate power against a judgment of acquittal, the High Court should have borne in mind the well settled principles of law that where two views are possible the 17 appellate court should not interfere with a finding of acquittal recorded by the court below.
Consequently the judgment of the High Court was reversed.
b) In the decision of the High Court of Delhi in Bishanswarup Ram Krishan v. STC of India Ltd. ( CRL M.C. 3940/2007 dated 19-2-2009 ) and a connected case - the facts were as follows :
The petitions were filed under Section 482 of the Code of Criminal Procedure, 1973 seeking the quashing of proceedings initiated under Section 138 of the NI Act.
An E-auction was floated by M/s MSTC Ltd. Bangalore, offering the sale of a Fertilizer plant and machinery of M/s Neyveli Lignite corporation Ltd.. At the auction, one M/s MMT Machinery Traders was the highest bidder. In order to dispose of the entire ferrous and non-ferrous scrap of the above referred plant and machinery, MMT proposed to enter into a 18 contract with M/s State Trading Corporation of India Ltd.
Accordingly a MOU was signed, dated 28-4-2005. In terms of the same, MMT was to provide two corporate guarantees for the due refund of Rs 150 crore claimed by STC. In this regard M/s Bishan Swarup Ram Kishan Agro Pvt. Ltd., through its Managing Director and Director executed a guarantee in favour of the respondent undertaking to reimburse STC in the event of a failure on the part of MMT to meet its commitment. The said guarantees were secured by two post dated cheques, for Rs.75 crore, each.
The proceedings initiated under Section 138 of the NI Act, on dishonour of such cheques was in challenge primarily on the ground , that as referred to in the Deed of Guarantee itself, the cheques were issued in lieu of a liability which may or may not arise in future and in order to indemnify STC against possible losses on account of any default by MMT and therefore the complaint filed was not maintainable as the cheques were issued only as a security and not for any debt due.19
The Court has, while relying on Narayan Menon's case supra and noticing the fact that there was a dispute between the parties pending in arbitration as to the propriety of the cheques having been sought to be encashed and the veracity of documents relating to the contract, took note of the observation of the apex court in the case of State of Bihar v. P.P. Sharma , AIR 1991 SC 1260, to the following effect:
"The annexure to the writ petition challenging criminal proceedings against accused were neither part of the police-reports nor were relied upon by the investigating officer. These documents were produced by the accused before the High Court along with the writ petitioners. By treating the annexure and affidavits as evidence and by converting itself into a trial Court the High Court cannot declare the accused to be innocent and quashed the proceedings. The appreciation of evidence is the functions of the criminal Courts. The High Court, under the circumstances, could not have assumed jurisdiction and put an end to the process of investigation and trial provided under the law."20
However, the court has proceeded to examine the documents pertaining to the case at length and has concluded thus :
"24. A bare reading of the documents relied upon and relevant portion of which has been reproduced above (statutory notice issued by the respondent to the petitioners, the complaint and the affidavit by way of evidence. Deed of Corporate Guarantee and the Memorandum of Understanding of Understanding dated 28th April, 2005), leave no scope for any doubt that the cheques in question were not issued against a debt which was in existence at the time of issuance of cheque. The cheques were issued not for an existing debt due, but issued by way of security.
25. For the reasons afore stated, the trial judge patently failed to read the complaint and the documents annexed along with it, carefully and further failed to see the error apparent on the fact of it, and issued summons without proper application of mind; In my considered opinion, in view of the principles affirmed in the case of V.Y. Jose (supra), the present petitions must succeed. Accordingly, Criminal Complaint Nos. 837/06 and 838/06 under section 138 read with section 141 of the Negotiable Instruments Act, 1881, pending before the learned Metropolitan magistrate, are quashed and the summoning 21 order dated 9.06.2006 in CC No.837/06 and order dated 9.06.2006 in CC No.838/06, are set aside."
c) In the case of Collage culture and others, supra, the issuance of process in proceedings under Section 138 of the NI Act was under challenge. The primary contention was that the cheque given as collateral security or as security for payment of an amount which may become payable at a future date upon the happening or the non-happening of an event , could not be the foundation of an action under Section 138 of the NI Act.
On examining the material documents pertaining to the case the High Court has arrived at a finding thus :
"19. It is not in dispute that the cheques which have formed the subject matter of the complaint were post dated cheques. It is also not in dispute that the cheques were towards replacement of the cheques issued on 1.6.2002 which cheques were also post dated cheques. It is also not in dispute that the cheques were issued as earnest money deposit. It is also not in dispute that the earnest money was liable to be forfeited only if the first petitioner failed to exhaust the quota issued by the complainant for export of garments.22
20. A post dated cheque may be issued under 2 circumstances. Under circumstance one, it may be issued for a debt in presenti but payable in future. Under second circumstance it may be issued for a debt which may become payable in future upon the occurrence of a contingent event.
21. The difference in the two kinds of post-dated cheques would be that the cheque issued under first circumstance would be for a debt due, only payment being postponed. The latter cheuqe would be by way of a security.
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24. It would be relevant to note that the statute does not refer to the debt being payable, meaning thereby, a post dated cheque for a debt due but payment postponed at a future date would attract Section 138 of the Negotiable Instruments Act 1881. But the cheque issued not for an existing due, but issued by way of a security, would not attract Section 138 of the Negotiable Instruments Act 1881, for it has not been issued for a debt which has come into in existence."
The High Court has allowed the petition placing reliance on the observations in Narayana Menon's case. 23
d) In Laxminivas Agarwal's case the High Court of Andhra Pradesh was dealing with an appeal filed against acquittal of the accused in a case for an offence punishable under Section 138 of the NI Act.
The points that the court framed for its consideration were as under:
"(1) Whether Exs: P-1 and P-2 cheques were taken from the accused on 17.9.1998 without putting the date as security for the amount of Rs.3,00,000/- lent on that date and not on the dates 9.6.2000 and 10.6.2000 as contended by the accused?
(2) Whether the cheque Ex: P-3 for Rs.1,30,000/-
was taken on 15.4.1999 from the accused as security for the amount lent by the complainant to the accused on that day and it was not issued on the date 9.6.2000 contained therein, as contended by the accused?
(3) If so, whether the drawer cannot be prosecuted for the offence punishable under Section 138 of the Negotiable Instruments Act, in case of dishonour of such cheques?
(4) Whether A-3 and A-4 who are not signatories to the cheques issued are not liable to be prosecuted for the offences punishable under Section 138 of the Act? 24
(5) Whether the order of acquittal passed by the trial Court is not sustainable in law?
(6) To what relief? "
The High Court has dismissed the appeal after an elaborate consideration of the material on record and the case law especially with reference to an earlier decision of the very High Court in Taher N. Khambati v. Vinayak Enterprises , 1995 Crl.LJ 560 - to the following effect :
"xxx xxx xxx in the event of creditor advancing certain sum to debtor and obtaining a signed blank cheque with a view to make use of it, for realization of amount, such cheque cannot be said to have been issued voluntarily for discharge of any debt and therefore, the provisions of Section 138 of the Negotiable Instruments Act does not attract for such cheques obtained by the creditor from the debtor without putting the date for the same amount. On the said finding the learned magistrate found all the accused not guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and acquitted all of them."
e) In New Tech Pesticides Ltd., the question for consideration by the High Court, was whether the magistrate in 25 addressing the circumstance whether the accused had discharged the burden of establishing that a cheque in question was not issued in the discharge of a debt or legal liability, found from the evidence on record that there were clear admissions by the complainant that at the time that the cheque in question was issued there was no such liability.
f) In Balaji Sea foods Exports ( India ) Ltd. - it was found that on the date when the cheque in question was handed over, there was no legally enforceable debt or other liability. An undated cheque for Rs.35 lakh was handed over as security for the purpose of the contract it was not handed over with the intention of making it as an instrument of immediate negotiation to discharge a subsisting liability or debt. Thus it was a case where one of the parties to the contract had obtained a signed post dated cheque as security for the due performance of the contract. As a dispute had arisen between them the 26 cheque was sought to be utilized by resort to section 138 of the Act. The court held that the complaint could not be maintained.
g) Reliance is placed on the decisions in the case KK Ahuja, supra and National small Industries Corporation Limited, supra, to support the contention that in so far as the third petitioner is concerned no liability could be fastened on her on the basis of the complaint as the apex court has held that Section 141 of the NI Act would require that the person who is sought to be made vicariously liable for a criminal offence under the said provision should be, at the time the offence is committed, in charge of, and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. If a Director of a company who was not in charge of and was not responsible for the conduct of the business at the relevant point of time, will not be liable for a criminal offence under the provisions. The liability could not 27 be found on the basis of a person merely holding a designation or office in a company.
8. On the other hand, the authorities relied upon by the learned counsel for the respondent are to the following effect :
a) In the case of M.M.T.C., supra, the apex court while addressing the question whether the High Court, before which the accused had sought to quash the proceedings in which process had been issued on a complaint for an offence under Section 138 of the NI Act , could have arrived at a conclusion that certain cheques in question were issued as security and not for any debt or liability, held thus :
"13. The learned Judge has next gone into facts and arrived at a conclusion that the cheques were issued as security and not for any debt or liability existing on the date they were issued. In so doing the learned Judge has ignored well settled law that the power of quashing criminal proceedings should be exercised very stringently and with circumspection. It is settled law that at this stage the Court is not justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the complaint. The inherent powers do 28 not confer an arbitrary jurisdiction on the Court to act according to it s whim or caprice. At this stage the Court could not have gone into merits and / or come to a conclusion that there was no existing debt or liability.
It is next held as follows:-
"This is a special provision incorporated in the Negotiable Instruments Act. It is Necessary to allege specifically in the complaint that there was a subsisting liability and an enforceable debt and to discharge the same, the cheques were issued. But we do not find any such allegation at all. The absence of such vital allegation, considerably impairs the maintainability."
xxx
16. There is therefore no requirement that the Complainant must specifically allege in the complaint that there was a subsisting liability. The burden of proving that there was no existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on basis of averments in the Petitions filed by them the High Court could not have concluded that there was no existing debt or liability."
b) In M/s Klen & Marshalls, supra, this court was dealing with an appeal against acquittal of the accused for an offence punishable under Section 138 of the NI Act. It was a case where Accused no.6 had issued a hundi in favour of Accused no. 1 29 towards supply of goods. The contract for supply was between Accused no.1 and the complainant. The complainant discounted the hundi and paid Rs.50lakh to Accused no.1 in terms of the contract. Accused no.1 had, in addition to the hundi, issued a cheque as security to bind himself, if Accused no.6 should default in payment of the hundi amount. There was indeed a default. The cheque in question was presented for encashment. As it was dishonoured, a complaint was filed after issuance of a notice under Section 138 of the NI Act.
The trial court had acquitted the accused on the ground that the basic document, the hundi, was not stamped. That the complainant had not produced the necessary evidence to prove the payment of money to Accused no.1 ,by discounting the hundi and held that the complainant had failed to prove the existence of the debt or legal liability.
It was held, (while disagreeing with the view taken in Sreenivasan v. State of Kerala, 1 (2000) BC 323 , Lalan Prasad v. State of Jharkand , 2005(1) DCR 79 and while distinguishing 30 Nagisetty Nagaiah v. State of A.P., 2004 Crl.LJ 4107 and Antony v. KG Raghavan Nair, AIR 2003 SC 182 -) that a cheque issued either for discharge of a debt or as a security makes little distinction in law. Dishonour of a cheque in both the situations attracts valid prosecution under Section 138 of the NI Act.
The above decision which was challenged in appeal before the apex court in Criminal Appeal No.1842 of 2008, was dismissed by an order dated 17.8.2010, affirming the view of this court.
c) In the case of Future Metals Pvt. Ltd . and connected cases, supra, the petitioners had sought quashing of proceedings initiated under Section 138 of the NI Act - It was urged that the transactions referred to in the complaint would indicate that there had been violation of the Foreign Exchange Management Act. As the financial transactions were contrary to the provisions of FEMA , the cheques upon which the complaint 31 was initiated could not be considered as having been issued in discharge of a legally enforceable debt or liability.
It was contended on behalf of the petitioners as follows :
"The averments of complaints and contents of documents annexed to complaints at their face value would establish that cheque were not issued for discharging the existing debt or liability. Therefore, Section 138 of the Negotiable Instruments Act is not attracted.
As per averments of complaints, Letters of credit were opened by respondent and cheques were issued by petitioners in relation to financial transactions. The averments of complaint would indicate that there has been contravention of provisions of FEMA. Therefore, cheques were not issued for discharge of legally recoverable debt or liability.
The averments of complaints accepted at their face value would indicate that the contract entered into between the parties is void-ab-initio and cannot be enforced under Section 23 of the Indian Contract Act."
The respondent had contended thus :
"These petitions are filed against order of issuance of process for an offence punishable under 32 Section 138 of the Negotiable Instruments Act. The petitioners at this stage cannot dispute that the cheques were drawn by the petitioners. Therefore, presumptions under Section 118 (a) and 139 of the Negotiable Instruments Act are available to respondent.
This court in exercise of power under Section 482 Cr.P.C., cannot interfere with the order of trial court unless the averments of complaints accepted on their face value do not constitute an offence punishable under Section 138 of the negotiable Instruments Act."
This court after discussing the legal position in extenso has held that the presumption available in favour of the complainant under Section 118(a) and 139 of the NI Act would have to be rebutted by the petitioners as provided under Section 4 of the Evidence Act. The petitioners seeking to rely upon certain documents could not contend that they have rebutted the presumptions available in favour of the respondent. It was held that the said presumptions in favour of the complainant could not be rebutted by the petitioners without going to trial. It was also held that in petitions filed under Section 482 CrPC, this 33 court could not record a finding of fact when the trial was yet to take place before the court below. And accordingly dismissed the petitions.
9. In the light of the above, the points for consideration by this court are :
a) Whether the cheques in question were issued in discharge of any debt or other liability or whether the same were issued as collateral security for a debt or liability which was to accrue on a future date?
b) Whether the proceedings could have been initiated against the third petitioner, merely in the circumstance that she was designated as a director of the petitioner company, when she was otherwise not answerable for the transaction?
Keeping in view the settled legal position that the trial court while passing an order under Section 204 CrPC need not pass a detailed order, but nevertheless the order should indicate that the court has satisfied itself, prima-facie, that the allegations in the complaint would constitute an offence alleged 34 in the complaint. And when such an order is challenged before this court, invoking Section 482 Cr.P.C., this court would examine the order of the trial court and the contentions raised by the parties in the light of settled principles of law regarding exercise of power and the scope of examination under Section 482 Cr.P.C. In this regard the guidelines, spelt out in State of Haryana v. Bhajan lal AIR 1992 SC 604, which was followed and reiterated in Union of India v. Ramesh Gandhi (2012)1 SCC 476, have remained consistent.
In the instant case on hand, the contractual relationship between the parties is not denied. It is also not in dispute that the cheques in question had been issued in the course of the transactions. It would also appear from the allegations and counter allegations that the contracts in question are not completed contracts and have not been performed to the letter. In that , the petitioners allege that the contracted quantity of the goods , in each given contract, was not actually shipped by the foreign seller to the respondent. And it is admitted that the 35 petitioners had paid for and taken delivery of part only of the goods so available.
The complaint itself does not indicate that the cheques in question were issued as security for due performance of the contract. The tenor of the complaint is limited to claiming that there was a dishonour of the cheques issued by the petitioners in the course of business and that the respondent has complied with the pre-requisite procedure of making a demand for payment before presenting the complaint.
It may be that the very documents accompanying the complaint if perused closely would enable the discovery of the circumstance that the cheques in question were handed over as security for due performance of the contract. And that the same were however, undated. Assuming that the undated cheques had been issued only as security and not in discharge of a debt or legal liability - the question whether such a liability had accrued by virtue of a failure on the part of the petitioners to perform the contract and whether the respondent was in law 36 entitled to supply the date on the instrument in seeking to encash the same, would yet remain circumstances to be examined at the trial.
It is to be noticed that the observation made by the apex court in Narayana Menon's case that " ................if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act...." This was a passing observation in that case with reference to the facts found therein. It cannot be construed as an axiomatic statement of law to be mechanically applied, in all circumstances. It is also to be noticed that in Naryana Menon's case, the accused had stood trial and was found guilty and was convicted by the trial court. On an appeal preferred the judgment of conviction was set aside. The same was challenged further before the High court which allowed the appeal. The apex court was thus the fourth court in the hierarchy, that was examining the record with reference to findings of fact. It was on finding that there were admissions as 37 to the cheque in question was at best issued as security , which could not be encashed, as there was no liability that was present when it had been issued nor had any liability accrued thereafter. It is in that light that the apex court has made the said observation.
No doubt, apart from Narayan Memon's case, reliance has been placed on some decisions referred to hereinabove of the High Court of Delhi and the High Court of Madras, where the challenge to proceedings under Section 138 of the NI Act, even at the stage of issuance of process, have been upheld and the courts have even arrived at findings of fact - on examination of the material made available, without the parties having gone to trial.
That there is a civil dispute between the parties in the case on hand and that arbitration proceedings are afoot in respect of the same is also a material circumstance in considering this petition. In that, the breach or otherwise of the 38 contractual obligations and the fastening of liability if any, are details that cannot be addressed in these proceedings at all.
The view taken by this court in Klen & Marshalls to the effect that a cheque issued either for discharge of a debt or as security makes little distinction in law. And that dishonour in both situations attracts valid prosecution under Section 138 of the NI Act, has been affirmed by the apex court in an appeal against the said judgment, as stated hereinabove. This legal position would especially be so if the cheque offered as security has subsequently become enforceable on account of default or failure of performance of the contract , in respect of which such security is furnished.
10. In the light of the above opinion of this court the first question framed for consideration cannot be answered with any degree of finality. In that, even if it is possible to prima facie find that the cheques have indeed been issued at a time when there was no debt or legal liability outstanding, the intention of 39 the parties being that the cheques could be utilized if a liability did accrue on account of failure of the contract is a question that is not capable of being answered be a mere perusal of the material made available and such an exercise is not contemplated in proceedings under Section 482 Cr.P.C.
The law mandates that presumptions available in favour of the complainant under Section 118(a) and 139 of the NI Act shall be drawn. The accused may rebut such presumption by raising their probable defence or even relying on the evidence adduced by the complainant itself.
In so far as the second question for consideration is concerned. From a close examination of the record - it is evident that the third petitioner apart from being a designated Director of the company , is not shown to have been involved in the affairs of the company and more particularly in the course of the transactions that are the subject matter of the complaints. 40
In that light of the matter, the petitions are partly allowed. The proceedings as brought against the third petitioner in case in CC 16289/2009 and in case in CC No.13784/2009, before the XV Additional Chief Metropolitan Magistrate Court, Bangalore, respectively stand quashed. There is however, no warrant for interference in so far as the proceedings brought against petitioner no.1 and 2 in these respective petitions. The petitions are hereby dismissed in so far as those petitioners are concerned. The order of stay granted earlier stands vacated.
Sd/-
JUDGE nv*