Security cheques and absence of dishonest intent defeated cheating and Section 138 liability, quashing the proceedings.

Cheating under Section 420 IPC was not made out because the materials showed a long-standing monetary relationship and no dishonest intention from the inception; the dispute was treated as a civil non-refund issue. Section 138 of the Negotiable Instruments Act was also not attracted because the complainant's own documents showed that the cheques were issued only as security, not in discharge of an enforceable debt or liability as alleged. Since the complaint materials and pre-charge record disclosed no offence, the orders taking cognizance and rejecting discharge were unsustainable, and the criminal proceedings were quashed.

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Issues: (i) Whether the materials disclosed the ingredients of cheating under Section 420 of the Indian Penal Code. (ii) Whether dishonour of cheques issued as security attracted Section 138 of the Negotiable Instruments Act. (iii) Whether the orders taking cognizance and rejecting discharge were sustainable.

Issue (i): Whether the materials disclosed the ingredients of cheating under Section 420 of the Indian Penal Code.

Analysis: The complaint and the complainant's own documents showed a long-standing monetary relationship between the parties, with transactions extending from 2011 to 2014. The material on record did not disclose any dishonest intention from the inception, and the dispute was essentially one of non-refund of money advanced in a business relationship. Suppression of these material facts also indicated that the criminal allegation was used to give a colour of cheating to a civil dispute.

Conclusion: The ingredients of cheating were not made out, and the finding was in favour of the petitioner.

Issue (ii): Whether dishonour of cheques issued as security attracted Section 138 of the Negotiable Instruments Act.

Analysis: The complainant's own agreements recorded that the cheques were handed over as security against the loan. Since the cheque issuance was not shown to be in discharge of an enforceable debt or liability in the manner alleged, and the security character of the cheques was admitted from the complainant's documents, Section 138 was not attracted on the facts found.

Conclusion: Section 138 of the Negotiable Instruments Act was not attracted, and the finding was in favour of the petitioner.

Issue (iii): Whether the orders taking cognizance and rejecting discharge were sustainable.

Analysis: The court below confined itself to the complaint and did not properly consider the materials emerging from the complainant's own documents and evidence before charge. Once those materials were considered, no offence was disclosed, and the continuation of the proceedings could not be justified.

Conclusion: The orders taking cognizance and rejecting discharge were unsustainable and were set aside.

Final Conclusion: The criminal proceedings arising from both complaint cases were quashed as no offence under Section 420 of the Indian Penal Code or Section 138 of the Negotiable Instruments Act was disclosed on the record.

Ratio Decidendi: Where the complainant's own admitted documents show that cheques were issued only as security and the surrounding materials disclose a long-standing monetary transaction without dishonest intention from the inception, neither cheating nor liability under Section 138 of the Negotiable Instruments Act is made out.

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