1999 (11) TMI 859 - HC - Companies Law

Post-dated loan repayment cheques given as collateral security, not existing debt, led to s.138 case quashed as civil dispute

Criminal liability under s. 138 NI Act was examined where post-dated cheques were issued under a loan agreement to ensure repayment at a future date. On ... Extent of criminal liability, which arises under Section 138 of the Negotiable Instruments Act, 1881 - Quashing of the complaint i.e. criminal case pending before the learned Judicial Magistrate - issuing notices to petitioners No. 2 and 3 to implead them as accused in the criminal case - Powers of the High Court under Section 482 - Whether the cheques which were bounced were issued to discharge such existing liability? - HELD THAT:-Section 138 of the Act is enacted by the Legislatures as a punitive measure for the due discharge of civil liability and a penal action is prescribed for inculcating the faith of the people in the Banking system. A transaction, which would otherwise be an exclusively civil transaction attracts criminal liability by virtue of Section 138 of Negotiable Instruments Act. Therefore, while Courts of Law are called upon to decide and fasten criminal liability in such circumstances, then a close judicial scrutiny of the facts and circumstances of the case is absolutely necessary. It is an admitted case that the company i.e. the original accused No. 2 wanted to promote its production and, therefore, borrowed ₹ 15 lacs from the original complainant i.e. the present respondent No. 2. The Managing Director, at present absconding, original accused No. 2 on behalf of the company original accused No. 1, entered into an agreement, clearly binding himself and the company, to repay the amount within six months from the date of the execution of the agreement. It clearly appears that to ensure the due performance of the terms further accused No. 2 issued seven cheques of due dates to the complainant and necessary averments were also made in the agreement that for the due performance of the agreement i.e. repayment of the advances after the six months from the date of the agreement cheques are delivered. Some of the such cheques were bounced, for which the complaint is filed. The intention of the parties is clear from this averments that the cheques were issued as the collateral security for the due performance of the contract, by which the Company and the Director i.e. accused No. 2 bound themselves to repay the said amount. It is, therefore, clear that cheques were not issued to discharge any existing debt. In this case, it is clear from the agreement entered into between the parties that after borrowing the money, making a statement to repay the same at some future date, the cheques were issued for due performance. Therefore, the transaction from its very nature or from the intention of the parties, as reflected in the agreement executed between the parties, is purely of a civil nature, for which a civil suit has already been filed. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques, will take the case out of the purview of the Section 138 of the Negotiable Instruments Act. Powers of the High Court under Section 482 - Mere fact that this petition is filed by petitioners No. 2 and 3 who were not the accused in the complaint, could not be a ground to reject the petition. The accused has right to approach the High Court at any stage for quashing with the allegations that complaint prima facie does not disclose any offence. In such circumstances, when it appears to the High Court under Section 482 of the Code that complaint does not disclose any offence, it has ample powers to quash the proceedings and the complaint and accused need not in all cases be relegated to the learned Magistrate directing the accused to file proper application for discharge or dropping of the proceedings. As discussed above, the complaint filed under Section 138 of the Negotiable Instruments Act in this case discloses no criminal liability as envisaged under Section 138 of the Act and, therefore, the complaint is required to be quashed. In the result, the petition succeeds. Issues Involved:1. Quashing of the criminal complaint u/s 138 of the Negotiable Instruments Act.2. Quashing of the proceedings to implead petitioners No. 2 and 3 as accused.Summary:1. Quashing of the Criminal Complaint:The petitioners filed an application u/s 482 of the Criminal Procedure Code to quash a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. The complaint was based on the dishonor of cheques issued by Shanku Concretes Pvt. Ltd. through its Managing Director, Mr. Jaidev Kotak, to repay an advance of Rs. 15 lacs obtained from the complainant. The cheques were issued as collateral security and not for the discharge of any existing debt or liability. The court held that since the liability to repay the amount was to arise only after six months from the date of the agreement, the cheques issued were not for the discharge of any existing debt. Therefore, the transaction was purely of a civil nature, and the complaint did not attract criminal liability under Section 138 of the Negotiable Instruments Act. The court relied on the decision of the High Court of Madras in BALAJI SEAFOODS EXPORTS (INDIA) LTD vs. MAC INDUSTRIES LTD, which held that undated cheques given as security would not attract the provisions of Section 138.2. Quashing of Proceedings to Implead Petitioners No. 2 and 3:The original complainant sought to implead Mr. Sandip Jaidev Kotak and Mr. Kunal Jaidev Kotak as accused in the criminal case. The petitioners argued that they were not in charge of the company at the relevant time and could not be made accused under Section 138 read with Section 141(1) of the Negotiable Instruments Act. The court noted that the complaint did not disclose any offence against the petitioners and that the cheques were issued as collateral security. Therefore, the proceedings to implead petitioners No. 2 and 3 were also quashed.Conclusion:The court allowed the Misc. Criminal Application, quashing the complaint and all proceedings in Criminal Case No. 132 of 1996. The petition succeeded, and the rule was made absolute accordingly.