Delhi District Court
Minions Ventures Pvt. Ltd. Through Ar, ... vs . Truxapp on 24 August, 2023
IN THE COURT OF SH. SAURABH GOYAL,
METROPOLITAN MAGISTRATE (SOUTH) NI ACT
(DIGITAL-01), SAKET COURTS: NEW DELHI
CT No. 5576/2021
Minions Ventures Pvt. Ltd. Through AR, Deepak Saini Vs. TruxApp
Pvt. Ltd.
1. Complaint case No. : 5576/2021
2. Name and address of the : Minions Ventures Pvt. Ltd.
complainant Wing A, Ground Floor, Office-1,
Block-A, Salarpuria, Softzone,
Bellandur Village, Varthur Hobli,
Bangalore-560103
Through AR Sh. Deepak Saini.
3. Name and address of the : (1) Trux APP Pvt. Ltd.
accused 316/274, Second Floor,
Front Portion, Saidullajab,
Western Marg, Garden of Five
Sense Road,
New Delhi-110030.
(2) Manmohan Agarwal
316/274, Second Floor,
Front Portion, Saidullajab,
Western Marg, Garden of Five
Sense Road,
New Delhi-110030.
4. Offence complained of : Under Section 138 of the
Negotiable Instruments Act, 1881.
5. Plea of the accused : Pleaded not guilty.
6. Final Order : Conviction
7. Date of Institute : 02.11.2021
8. Date on which reserved for : 28.06.2023
judgment
CT No. 5576/2021 Page No. 1 of 24
Digitally
signed by
SAURABH
SAURABH GOYAL
GOYAL Date:
2023.08.24
14:43:23
+0530
9. Date of Judgment : 24.08.2023
BRIEF FACTS OF THE CASE
1. Briefly, the case of the complainant is that the complainant is a private limited company, registered under the provisions of the Companies Act, 2013 and having CIN U74900KA2015PTC080305 and is being filed through its authorized representative Sh. Deepak Saini. Complainant owns and operates an online platform by the name of 'KREDX' ('Platform') which provides a market place for the sale of invoice, discounting of invoices and reverse invoice discounting transactions between seller (owners of the invoice), customers (on whom the invoice is raised) and financiers (people who purchase the invoice).
2. It is further stated that the complainant platform allows entrepreneurs with working capital needs to be funded by individuals and other organizations who have a cash surplus and are looking for investment opportunities. The invoice which is raised by the seller on the customers, for the sale or supply of goods and services, is listed on the platform. This invoice is thereafter purchased by a financier from the Seller and the receivable under the invoice is transferred to the financier.
3. It is further stated that accused no.1 is a private limited company registered under the provisions of the Companies Act, 2013 and having CIN No.U63033DL2015PTC327070. Accused no.2 is the signatory of the cheque and also the Managing Director/ Promoter CT No. 5576/2021 Page No. 2 of 24 SAURABH GOYAL Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:43:28 +0530 of accused no.1. Accused no.2 is responsible to the company for the day to day management of its affairs.
4. It is further stated that accused had approached the complainant requesting that it be onboarded on to the Platform of the complainant, and be permitted to list its invoices. Accordingly, believing the representation of the accused that they were credit worthy, the complainant by way of a Seller Services Agreement dated 28.05.2020, allowed the accused to the Platform. The seller Services Agreements contemplated that in exchange for a Service Fee, the Complainant would permit the listing of invoices of the accused on its Platform.
5. It is further stated that the Seller Services Agreement contemplated that upon the purchase of an invoice by a financier, two agreements would come to be executed. The first, being a binding irrevocable Transfer of Rights Agreement, whereby which the Seller would transfer its right in the receivable to the Purchaser. The second, being a tripartite agreement called the Bank Confirmation Agreement, between the Customer, on whom the Seller had raised the invoices, the Complainant and the Seller. Under the Bank Confirmation Agreement, the customer undertook to deposit the amounts owed under the discounted invoices, into an account designated by the Complainant, for onward transfer to the Purchaser. Accused No. 1 had undertaken 300 transactions on the Platform of the Complainant. The total value of these transactions was an amount of Rs. 22 crores.
6. It is further stated that present complaint is concerned with one of SAURABH CT No. 5576/2021 GOYAL Page No. 3 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:43:32 +0530 transactions, where Accused No. 1 had raised invoices on one Zomato Internet Private Limited for services rendered by Accused No. 1 to Zomato Internet Private Limited. The details of the invoices are as follows:
Sr. No. Invoice Number Date of Invoice Invoice Amount
1. 21-22/HR10000 01.04.2021 13,82,329
2. 21-22/HR10001 01.04.2021 86,582
3. 21-22/HR10002 01.04.2021 31.010 Total 14,99,921 In furtherance of this, a Bank Confirmation Agreement was also executed between Zomato Internet Private Limited, Accused No. 1 and the Complainant dated 15.02.2021.
7. The aforementioned invoices, were offered by Accused No.1 on the Platform of Complainant, for the purposes of discounting. These invoices were purchased by 4 different purchasers and separate Transfer of Rights agreements were executed between the Seller, the Purchasers and the Complainant with the following details:
Sr. No. Purchaser Date Consideration
1. Ms. Seema Agarwal 05.04.2021 5,00,000
2. Mr. Anirudh 05.04.2021 3,00,000
Kataruka
3. Ms. Nidhi Puri 05.04.2021 65,445
4. Mr. Sathappan 05.04.2021 3,00,000
Visvanathan
Total 11,65,445
SAURABH
CT No. 5576/2021 Page No. 4 of 24
GOYAL
Digitally signed by
SAURABH GOYAL
Date: 2023.08.24
14:43:36 +0530
8. It is further stated that the amount of Rs.11,65,445/- was disbursed by the Purchasers through the Platform to the Accused No. 1 on 06.04.2021. In terms of the Transfer of Rights Agreement, after the loan period of 90 days, since the customer viz Zomato Internet Private Limited, did not the pay the consideration along with the interest, an amount of Rs. 11,99,939/- became due and payable by and against Accused No.1. Since the Accused No. 1 had not paid the aforesaid debt, the penal interest began to tick on the amount of the debt due. Adjusting an amount of Rs. 3,00,314,88/- which had been paid by the Accused No. 1 an amount of Rs. 9,51,913,35/- was still due and payable by Accused No. 1 as on 21.08.2021.
9. That in terms of Clause 6.3 of the Transfer of Right Agreements, the Accused No. 1 had deposited with the Complainant a cheque bearing number 001492, dated 21.08.2021 for an amount of Rs. 9,51,913.35. The Transfer of Right Agreements specifically entitled the Complainant to deposit the cheque, upon a default, in the following manner:
"6.3. In order to effect the restitution in terms hereof ("Restitution"), the Seller has deposited with KredX, Cheques ("Cheques") drawable on the Seller's bank account in favour of the Settlement Escrow/Nodal Account, for the Consideration plus the Late Payment Fee (together, the "Restitution Amount"). It is hereby expressly clarified that the Cheque shall be deposited by the Seller to KredX, for the benefit of the Purchaser as the acknowledgment of CT No. 5576/2021 SAURABH Page No. 5 of 24 GOYAL Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:43:40 +0530 debt/ liability. The obligation of the Seller under the Cheque shall be independent and exclusive of the obligation of the Seller to ensure Restitution of the Purchaser. In the event the Cheques is unable to be encashed / exercised by KredX, the obligation of the Seller to undertake the Restitution shall survive. 6.5. In the event KredX is unable to encash / exercise the Cheque due to lack of sufficient funds in the Seller's account or for any other reason, the Parties agree that KredX shall have the right to promptly initiate proceedings against the Seller under Section 138 of the Negotiable Instruments Act, 1881, for the benefit of the Purchaser within the timelines and as per provisions prescribed under the Negotiable Instruments Act, 1881 and all costs resulting from default, recovery and restitution will be borne by the Seller. This right shall be without prejudice to any other right that the Purchaser may have against the Seller in law or equity."
10. It is further stated that since a debt was owed to the Complainant and in terms of the Transfer of Rights Agreement, the Complainant was forced to present the cheque bearing no.001492 dated 21.08.2021 HDFC Bank for a sum of Rs.9,51,913.35 on 24.08.2021 to its bankers i.e. Yes Bank Limited, Malviya Nagar Branch. The cheque was dishonored on the same day viz. 24.08.2021 and was returned along with a return memo with an endorsement "Funds Insufficient".
11. It is further stated that the above cheque was issued by the SAURABH CT No. 5576/2021 GOYAL Page No. 6 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:43:45 +0530 Accused for discharge of an admitted, existing debt/liability. The signature on the said cheques is affixed by the Accused No. 2 and the Accused No. 2 is also the signatory to the Transfer Agreement as well as the Seller Services Agreement.
12. It is further stated that the Complainant was forced to thereafter, issue a demand notice to the Accused in terms of Section 138(b) on 16.09.2021, which notice was delivered to Accused on 20.09.2021. Despite the passing of 15 days since the issue of demand notice, the Accused made no efforts to make the payment of the debt due in the amount of Rs. Rs. 9,51,913.35. The said acts, omissions and commissions of the Accused Persons of not honoring the abovementioned cheque, which was issued by the Accused No. 2 under his signature towards discharge of the legal liability of the Accused No. 1 to the Complainant for legally recoverable dues, is in contravention of and an offence under Section 138 of the Negotiable Instruments Act, 1881.
13. In the pre-summoning evidence, the complainant examined AR Sh. Deepak Saini as CW-1 and produced affidavit Ex.CW-1/A and has relied on Ex CW-1/1 to Ex CW-1/13. On finding a prima facie case against the accused, the accused was ordered to be summoned to face the trial u/s 138 NI Act.
14. After hearing the arguments, notice u/s 251 Cr.P.C. was framed against the accused persons to which the accused persons pleaded NOT GUILTY and claimed trial. The accused taken the defence that he did not receive the legal demand notice. The cheque in question bears his signatures, however the details were not filled CT No. 5576/2021 Digitally signed by Page No. 7 of 24 SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:43:49 +0530 by him. It was issued as a security around 5 years ago at the time of availaing of short term credit facility from the complainant in the year 2017. Neither my company nor me owe anything to the complainant.
15. In order to prove his case, AR of complainant Sh. Deepak Saini i.e. CW-1 adopted his pre-summoning evidence as post- summoning evidence and cross-examined by the accused.
16. Thereafter, statement of accused u/s 313 Cr.P.C. was recorded wherein the accused denied all the incriminating circumstances put to him. Accused did not opt to lead defence evidence. Thereafter, the matter was listed for final arguments.
17. Arguments were heard for both the parties and the record of the case has been perused.
18. Briefly stated, the complainant owns and operates online platform under the name of KREDX platform which provides market place for the sale, discounting of invoices, and reverse discounting transactions between sellers (owners of the invoice), customers (on whom invoice has been raised) and financiers (who purchase the invoice). The platform also provides opportunities to the entrepreneurs who have surplus funds for investment. The invoice raised by the seller to its customers is listed on the platform of the complainant and thereafter the same is purchased by the financier/ investor from the Seller and the money/receivables are transferred to the financier once the same are received from the entity on whom the invoice is raised.
19. Whereas, the accused no 1 is a Pvt. Ltd. company registered under CT No. 5576/2021 Digitally Page No. 8 of 24 signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:43:55 +0530 the Companies Act, 2013 and accused no 2 is Managing Director and signatory to the cheque in question.
20. It has come in evidence that on the request of accused, the complainant allowed the accused to list the invoices on the platform of the complainant and for the said purpose a Seller Service Agreement dated 28.05.2020 Ex CW1/2 was executed between the complainant and the accused and in consideration thereof, the accused agreed to pay service charges. As per the agreement, the seller lists its invoices raised upon the customer and the investor/ financier purchases the invoices of the seller after going through the credentials of the seller (accused) and of the customer through the platform of the complainant and the amount/receivables are transferred back to the account of the investor/financier in view of the execution of two following agreements:-
1) A binding irrevocable Transfer of Rights Agreement where by the Seller (accused) would transfer it's right in the receivables to the Purchaser (Financier).
2) A Tripartite Agreement called the Bank Confirmation Agreement between the customer upon whom the Seller has raised invoice, the Seller and the Complainant. Under the Bank Confirmation Agreement, the customer undertakes to deposit the amount owed under the discounted invoice raised by the seller in to the designated account as per the instructions of the complainant for onward transfer to the Purchaser/investor. As per the affirmation made by CW1 in his affidavit ExCW1/A, SAURABH CT No. 5576/2021 GOYAL Page No. 9 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:02 +0530 accused had undertaken 300+ transactions on the platform of the complainant but the present complaint pertains to three transactions pertaining to raising of invoices dated 01.04.2021 in the sum of Rs 13,82,329/-, Rs. 86,582/- and Rs.31,010/-
total amounting to Rs 14,99,921/- which has been raised by the accused on its customer Zomato Internet Pvt Ltd respectively and has been produced in evidence as ExCW1/3, CW1/4 and CW1/5. The complainant has also produced Tripartite Bank confirmation Agreement dated 15.02.2021 executed between the complainant, Zomato Internet Pvt Ltd and the accused as Ex CW1/6.
21. From the contents of affidavit ExCW1/A, it emerges that when the invoices were offered by accused for sale / discounting on the platform of the complainant then the invoices were purchased by four different investor/ financiers on 05.04.2021 in the total sum of Rs 11,65,445/- and separate agreements regarding Transfer of Rights were executed between the Seller, the Purchaser/financier and the complainant and the said agreements have been produced in evidence as Ex CW1/7 to Ex. CW1/10. The said amount of Rs 11,65,445/- was disbursed to the accused on 06.04.2021 by the purchasers/investors through the platform of complainant. Since the customer i.e. Zomato Internet Pvt Ltd has not cleared the invoices as per the terms and conditions of the agreement and thus a sum of Rs 11,99,939/- has become due payable by the accused along with interest.
22. It has also been mentioned that after adjusting the amount of Rs SAURABH CT No. 5576/2021 GOYAL Page No. 10 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:07 +0530 3,00,314.88/- paid by the accused still a sum of Rs, 9,51,913.35/- remains to be paid by the accused along with interest up to 21.08.2021. There is no dispute regarding the execution of the various aforesaid agreements between the seller, purchaser, customer and complainant in order to facilitate the sale of invoices raised by the seller upon its customers through the listing on the platform of the complainant to the financiers/investors/ purchasers.
23. After going through the various agreements between the parties, it is evident that the parties had agreed that the status of the complainant shall be financial settler/facilitator administrator to secure the rights of the parties to the agreements.
24. It is pertinent to mention here that as per the condition No. 6 of Transfer of Rights Agreement Ex. CW1/10 which was executed between Seller (accused), Purchaser/Financier and facilitator i.e. the complainant, there is obligation on the part of the seller to deposit cheque which reads as under :
6. DEFAULT AND RESTITUTION 6.1. In the event the Invoice Receivables is not remitted into the Settlement Escrow/Nodal Account by Customer in accordance with the terms of the Invoice within 10 (ten) Business Days from the Due Date, such default shall be deemed to be a material breach of this Agreement by the Seller and the Agreement shall stand terminated ("Termination") and the provisions of this Clause 6 shall survive.
6.2. Pursuant to the Termination, the Seller shall be liable to refund the Consideration to the Purchaser. The Parties agree that such payment SAURABH CT No. 5576/2021 GOYAL Page No. 11 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:11 +0530 is fair compensation to the Purchaser for the benefit derived by the Seller from concluding the Sale of Invoice Receivables at a discount and raising working capital prior to the due date under the Invoice. The Seller shall also be liable to pay an interest at the rate of 2% (two percent) per month on the outstanding Consideration Amount, which will be divided equally between Purchaser and KredX and interest will be charged over and above the discount rate agreed with the Seller ("Late Payment Fee"). There fund of the Consideration, compensation for the benefit and payment of Late Payment Fee shall together conclude the restitution of the Purchaser, and the Seller shall pay such amounts into the Settlement Escrow/Nodal Account. 6.3. In order to effect the restitution in terms hereof ("Restitution"), the Seller has deposited with KredX, Cheques ("Cheques") drawable on the Seller's bank account in favour of the Settlement Escrow/Nodal Account, for the Consideration plus the Late Payment Fee (together Escrow/Nodal Account, for the Consideration plus the Late Payment Fee (together, the Restitution Amount"). It is hereby expressly clarified that the Cheque shall be deposited by Seller to KredX, for the benefit of the Purchaser as the acknowledgment of debt/liability. The obligation of the Seller under the Cheque shall be independent and exclusive of the obligation of the Seller to ensure Restitution of the Purchaser. In the event the Cheques is unable to be encashed / exercised by KredX, the obligation of the Seller to undertake the Restitution shall survive.
6.4. In the event the Invoice Receivables and the Late Payment Fee is not remitted into the Settlement Escrow/ Nodal Account within 10 (ten) Business Days from the Due Date, KredX CT No. 5576/2021 Digitally Page No. 12 of 24 signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:44:15 +0530 shall, for the benefit of the Purchaser, (i) encash / exercise the Cheques to extent of Restitution Amount, (il) notify the Purchaser of the encashment and, (li) issue instructions to the Escrow Agent/Nodal Bank to transfer the Restitution Amount to Purchaser Account, after deduction of Purchaser Service Fee. 6.5. In the event KredX is unable to encash / exercise the Cheque due to lack of sufficient funds in the Seller's account or for any other reason, the Parties agree that KredX shall have the right to promptly initiate proceedings against the Seller under Section 138 of the Negotiable Instruments Act, 1881, for the benefit of the Purchaser within the timelines and as per provisions prescribed under the Negotiable Instruments Act, 1881 and all costs resulting from default, recovery and restitution will be borne by the Seller. This right shall be without prejudice to any other right that the Purchaser may have against the Seller in law or equity. 6.6. KredX shall initiate proceedings, with Purchaser's consent, under any provisions of Law, at the sole responsibility, risk, cost and consequences of the Seller including with respect to all legal costs and fees borne by the Party that will adjudged to be in default.
25. Therefore, from the terms and conditions of the agreement between the parties there is obligation on the part of Complainant to ensure the payment to the purchaser/financier who has invested in the invoices raised by the seller/accused and in the event of failure of payment by the Customer (Zomato, in this case) to remit the amount in the Settlement Escrow /Nodal Account then the same would be material breach of conditions by the Seller and the SAURABH GOYAL CT No. 5576/2021 Page No. 13 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:20 +0530 Agreement shall stand terminated and Seller shall refund the consideration / receivable to the purchaser. The complainant is under an obligation to act for the benefit of the purchaser and thus would encash the cheque to the "extent" of restitution amount and inform the purchaser/ investor and wound issue instructions to Escrow/Nodal Bank to transfer the funds/receivables regarding which consent has been obtained by the Complaint from the accused vide consent letters dated 28.05.2020 with regard to ICICI BANK as well as YES BANK and inform the purchaser of the encashment.
26. It is again pertinent to mention if the complainant is unable to encash the Cheque regarding which the complainant has been authorised, for want of funds in the Seller accounts, then the complainant shall have the right to initiate proceedings against the Seller who has issued the cheque for the benefit of financier u/s 138 of NI Act. Therefore, in view of the TRANSFER OF RIGHTS AGREEMENTS EX. CW1/7 TO EX. CW1/10, the complainant is empowered to initiate proceedings against the accused/Seller for the recovery of amount for the benefit of purchaser. The contention of the accused that the amount in cheque was not filled in by him and thus there was no liability to be discharged against the accused is devoid of merit because as per the agreements and arrangements between the parties the amount to the EXTENT OF LIABILITY was to be mentioned in the cheque in the event of failure of the Seller to settle the Escrow account for the benefit of purchaser. Therefore, the accused was SAURABH CT No. 5576/2021 GOYAL Page No. 14 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:24 +0530 under obligation to satisfy the cheque liability and cannot escape the consequences of Sec 138 NI ACT particularly when the accused has admitted his sign on the cheque in question Ex CW1/11 u/s 251 Cr.PC and also admission u/s 313 CrPC regarding execution of Seller Service Agreement dated 28.05.2020 as well execution of Transfer of Rights Agreement and Tripartite Agreement called Bank confirmation Agreement. It has come in evidence that the invoice amount has been shown in the statement of account Ex CW 1/3 and accused has remitted a sum of Rs.3,00,314.88/- and the liability remains to the extent of cheque amount regarding which legal demand notice Ex. CW1/13 was served upon the accused within the statutory period as per law u/s 138 NI Act.
27. It is further argued by counsel for the accused that the cheque in question Ex. CW1/11 was issued only as a security cheque and was given at the time of availing the services of the complainant but was never meant to discharge the legal liability in terms of Ex. CW1/7 to Ex. CW1/10. However, the said arguments of the counsel for the accused is not sustainable because the Seller Services Agreement Ex. CW1/2 along with annexure B to it provides a list of documents including the list of Pre-Disbursal Documents/condition which categorically states that the cheque given is valid for the requisite sanctioned limit. Further, the Terms and Condition Before Listing of Invoices attached to the said agreement, in point 5 provides that the seller shall provide undated cheque/NACH mandate for legally recoverable debt for the Page No. 15 of 24 Digitally CT No. 5576/2021 signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:44:28 +0530 sanctioned amount. It further provides that in case the cheque amount is inadequate to cover the limit of the sanction amount, the seller is under an obligation to furnish additional cheques to the complainant to cover such deficiency. It is also admitted by the accused that no other cheque except for the cheque in question was given by him as security for more than 300 transactions done on the platform of the complainant for which separate invoices have been raised and separate Bank Confirmation Agreement and Transfer of Rights Agreements have been executed. Thus, it can be inferred that the parties had intention to use the cheque given as part of Seller Services Agreement to discharge any future liability arising between the parties.
28. It is further argued on behalf of the accused that the cheque in question was issued as security cheque and that to in the year 2017-2018.
29. In this regard, it is crucial that we refer to the law laid down on the issuance of post-dated cheques and cheques issued for the purpose of security. In Indus Airways Private Limited v. Magnum Aviation Private Limited, the issue before a two-Judge Bench of Hon'ble Supreme Court was whether dishonour of post-dated cheques which were issued by the purchasers towards 'advance payment' would be covered by Section 138 of the Act if the purchase order was cancelled subsequently. It was held that Section 138 would only be applicable where there is a legally enforceable debt subsisting on the date when the cheque is drawn. In Sampelly Satyanarayana Rao v. Indian Renewable Energy Digitally Page No. 16 of 24 signed by CT No. 5576/2021 SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:44:32 +0530 Development Agency Limited, the respondent advanced a loan for setting up a power project and post-dated cheques were given for security. The cheques were dishonoured and a complaint was instituted under Section 138. Distinguishing Indus Airways, it was held that the test for the application of Section 138 is whether there was a legally enforceable debt on the date mentioned in the cheque. It was held that if the answer is in the affirmative, then the provisions of Section 138 would be attracted. In Sripati Singh v. State of Jharkand, it was observed that if a cheque is issued as security and if the debt is not repaid in any other form before the due date or if there is no understanding or agreement between the parties to defer the repayment, the cheque would mature for presentation:
30. "17. 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 timeframe 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 Section 138 and the other provisions of N.I. Act CT No. 5576/2021 Digitally signed by Page No. 17 of 24 SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:44:40 +0530 would flow". "When a cheque is issued and is treated as 'security' towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as 'security' cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an 'on demand promissory note' and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. When a cheque is issued even though as 'security' the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above 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."
31. Based on the above analysis of precedent, the following principles emerge:
A. Where the borrower agrees to repay the loan SAURABH CT No. 5576/2021 GOYAL Page No. 18 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:45 +0530 within a specified timeline and issues a cheque for security but defaults in repaying the loan within the timeline, the cheque matures for presentation. When the cheque is sought to be encashed by the debtor and is dishonoured, Section 138 of the Act will be attracted;
B. However, the cardinal rule when a cheque is issued for security is that between the date on which the cheque is drawn to the date on which the cheque matures, the loan could be repaid through any other mode. It is only where the loan is not repaid through any other mode within the due date that the cheque would mature for presentation; and C. If the loan has been discharged before the due date or if there is an 'altered situation', then the cheque shall not be presented for encashment.
32. In Sunil Todi v. State of Gujarat, a two judge Bench of Hon'ble Supreme Court expounded the meaning of the phrase 'debt or other liability'. It was observed that the phrase takes within its meaning a 'sum of money promised to be paid on a future day by reason of a present obligation'. The court observed that a post- dated cheque issued after the debt was incurred would be covered within the meaning of 'debt'. The court held that Section 138 would also include cases where the debt is incurred after the cheque is drawn but before it is presented for encashment. In this context, it was observed:
SAURABH CT No. 5576/2021 GOYAL Page No. 19 of 24 Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:49 +0530 "26. 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. In Indus Airways, advance payments were made but since the purchase agreement was cancelled, there was no occasion of incurring any debt. 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."
33. The judgments from Indus Airways (supra) to Sunil Todi (supra) indicate that much of the analysis on whether post-dated cheques issued as security would fall within the purview of Section 138 of the Act hinges on the relevance of time. In Indus Airways (supra), Hon'ble Supreme Court held that for the commission of the offence under Section 138, there must have been a debt on the date of issuance of the cheque. However, later judgments adopt a more nuanced position while discussing the validity of proceedings under Section 138 on the dishonour of post-dated CT No. 5576/2021 SAURABH Page No. 20 of 24 GOYAL Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:53 +0530 cheques. Hon'ble Supreme Court since Sampelly Satyanarayana Rao (supra) has consistently held that there must be a legally enforceable debt on the date mentioned in the cheque, which is the date of maturity.
34. Hon'ble Supreme Court in NEPC Micon Ltd. v. Magna Leasing Ltd. held that the Courts must interpret Section 138 with reference to the legislative intent to supress the mischief and advance the remedy. The objective of the Act in general and Section 138 specifically is to enhance the acceptability of cheques and to inculcate faith in the efficacy of negotiable instruments for the transaction of business. Section 138 criminalises the dishonour of cheques. This is in addition to the civil remedy that is available. Through the criminalisation of the dishonour of cheques, the legislature intended to prevent dishonesty on the part of the drawer of a negotiable instrument. The interpretation of Section 138 must not permit dishonesty of the drawee of the cheque as well. A cheque is issued as security to provide the drawee of the cheque with a leverage of using the cheque in case the drawer fails to pay the debt in the future. Therefore, cheques are issued and received as security with the contemplation that a part or the full sum that is addressed in the cheque may be paid before the cheque is encashed.
35. The judgments of Hon'ble Supreme Court on post-dated cheques when read with the purpose of Section 138 indicate that an offence under the provision arises if the cheque represents a legally enforceable debt on the date of maturity. The offence SAURABH CT No. 5576/2021 Page No. 21 of 24 GOYAL Digitally signed by SAURABH GOYAL Date: 2023.08.24 14:44:57 +0530 under Section 138 is tipped by the dishonour of the cheque when it is sought to be encashed. Though a post- dated cheque might be drawn to represent a legally enforceable debt at the time of its drawing, for the offence to be attracted, the cheque must represent a legally enforceable debt at the time of encashment. If there has been a material change in the circumstance such that the sum in the cheque does not represent a legally enforceable debt at the time of maturity or encashment, then the offence under Section 138 is not made out.
36. Therefore, in view of the above said discussion, the argument of the Counsel of the accused is not sustainable.
37. Considering the observations made in the above said paragraphs, all the indispensable ingredients constituting the offence have been proved by the complainant.
38. Further, section 139 NI Act read with Section 118, NI Act creates a rebuttable presumption in favour of the complainant. According to Section 118 NI Act, until the contrary is proved, it shall be presumed inter alia that every negotiable instrument was made, drawn, accepted or endorsed for consideration. It is also presumed that, negotiable instrument was issued for a consideration until the contrary is proved.
39. There is no gainsaying that once the issuance of cheque is admitted by the accused/drawer, the presumption under Section 139 of the NI Act comes into play. As per the said Section 139 NI Act, it shall be presumed that the issuance of cheque was for the discharge, in whole or in part, of debt or other liability. The effect CT No. 5576/2021 Page No. 22 of 24 Digitally signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:45:01 +0530 of the presumption has been explained in a catena of judgments, including the judgments of the Hon'ble Supreme Court passed in Rangappa vs. Sri Mohan reported in (2010) 11 SCC 441 and Bharat Barrel & Drum Mfg. Co. vs. Amin Chand Pyarelal reported in 1999 (3) SCC 35. It has been held time and again that the said presumption is a rebuttable and the onus shifts on the accused to rebut the same. It is also well settled that in order to rebut the presumption and shift back the burden of proof on the complainant, the accused is only required to raise a probable defence and he cannot be expected to discharge an unduly high standard of proof i.e. standard of proof for rebutting the presumption raised under Section 139 NI Act is "preponderance of probabilities". It is also well settled that the accused can rebut the said presumption either directly or by bringing on record preponderance of probabilities by reference to the circumstances upon which he relies. The accused, for this purpose, is also entitled under law to rely upon all the evidence led in the case including that of the complainant as well. It is also trite that Section 139 NI Act is an example of reverse onus clause and the accused cannot be expected to disprove the existence of legally recoverable debt or liability by direct evidence. Infact, it is also conceivable that in some cases, the accused may not need to adduce evidence of his/her own. However, at the same time it is also to be remembered that bare denial of the existence of legally enforceable debt or other liability cannot be said to be sufficient to rebut the presumption and something which is probable has to be CT No. 5576/2021 Page No. 23 of 24 Digitally signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:45:05 +0530 brought on record to shift the onus back to the complainant.
40. Thus, it stands proved that the cheque bearing no. 001492 dt.
21.08.2021 was issued by the accused as a security to discharge the legally enforceable liability. The said cheque was dishonored for insufficiency of funds in his account as proved by the return memo. The service of legal demand notice also stands proved by way of postal receipt. The fact that the accused did not pay the cheque amount within 15 days of service of notice and even after 15 days of service of summons stands proved.
41. In view of the above observations, it has to be held that the complainant has duly proved his case under section 138 NI Act while the accused failed to rebut the mandatory presumption under section 118 (a) and under section 139 NI Act.
42. Accordingly, the accused Manmohan Agarwal is held guilty and convicted for the commission of the offence punishable u/s 138 NI Act. Digitally signed by SAURABH SAURABH GOYAL GOYAL Date:
2023.08.24 14:45:10 +0530 (SAURABH GOYAL) MM (NI Act) Digital Court-01, District South, Saket Courts, New Delhi 24.08.2023 Pronounced in the open court on 24.08.2023.CT No. 5576/2021 Page No. 24 of 24