2021 (11) TMI 66 - SC - Indian Laws

Supreme Court restores Magistrate's order on dishonored cheques, deems complaint maintainable.

Sripati Singh (since deceased) Through His Son Gaurav Singh Versus The State of Jharkhand & Anr.

The Supreme Court set aside the High Court's decision and restored the Judicial Magistrate's orders, holding that the complaint under Section 138 of the ... Dishonor of Cheque - cheating - respondent No.2 had taken the money on the assurance that the same would be returned but had deceived the appellant - legally recoverable debt or not - Section 420 of IPC with Section 138 of N.I. Act - HELD THAT:- It is the very case of the appellant that he has advanced substantial amount of ₹ 2 crores to the respondent No.2 by way of financial assistance for business purpose. While taking note of the nature of the transaction and also the proceedings initiated, it is necessary for us to remain conscious of the fact that the proceedings between the parties is at the preliminary stage and any conclusive findings rendered in relation to the dispute between the parties would affect their case if ultimately the appellants were to succeed herein and the criminal proceedings are to be restored for further progress. Therefore, what is necessary to be examined herein is, as to whether the appellant has prima facie established a transaction under which there is a legally recoverable debt payable to the appellant by the respondent No.2 and as to whether the cheques in question relating to which the complaint has been filed by the appellant is issued towards discharge of such legally recoverable debt. In that regard, what is necessary to be considered is also as to whether the cheques in question are still to be considered only as ‘security’ for the said amount and whether it was not liable to be presented for recovery of the legally recoverable debt. It is evident that the learned Magistrate having referred to the complaint and sworn statement of the complainant and the witnesses has taken cognizance, issued summons and has consequently arrived at the conclusion that the discharge as sought by the respondent No.2 cannot be accepted. The conclusion reached by the High Court, insofar as the High Court arriving at the conclusion that no case punishable under Section 420 IPC can be made out in these facts, we are in agreement with such conclusion. This is due to the fact that even as per the case of the appellant the amount advanced by the appellant is towards the business transaction and a loan agreement had been entered into between the parties. Under the loan agreement, the period for repayment was agreed and the cheque had been issued to ensure repayment - In the present facts and circumstances, there is no sufficient evidence to indicate the offence under Section 420 IPC is made out and therefore on that aspect, we see no reason to interfere with the conclusion reached by the High Court. 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 - 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. In the instant facts, the appellant cannot be non­suited for proceeding with the complaint filed under Section 138 of N.I. Act merely due to the fact that the cheques presented and dishonoured are shown to have been issued as security, as indicated in the loan agreement - In the instant facts, the repayment as agreed by the respondent No.2 is during June/July 2015. The cheque has been presented by the appellant for realisation on 20.10.2015. As on the date of presentation of the cheque for realisation the repayment of the amount as agreed under the loan agreement had matured and the amount had become due and payable. Therefore, to contend that the cheque should be held as security even after the amount had become due and payable is not sustainable. In any event, it was not a case for the Court to either refuse to take cognizance or to discharge the respondent No.2 in the manner it has been done by the High Court. Therefore, though a criminal complaint under Section 420 IPC was not sustainable in the facts and circumstances of the instant case, the complaint under section 138 of the N.I Act was maintainable and all contentions and the defence were to be considered during the course of the trial - the order passed by the Judicial Magistrate are restored. Appeal allowed. Issues Involved:1. Legality of the High Court's decision to set aside the orders of the Judicial Magistrate.2. Applicability of Section 420 IPC (Indian Penal Code) for the alleged cheating.3. Applicability of Section 138 of the Negotiable Instruments Act (N.I. Act) for the dishonored cheques.Detailed Analysis:1. Legality of the High Court's Decision:The appellant challenged the High Court's order which set aside the Judicial Magistrate's orders dated 04.07.2016 and 13.06.2019. The Magistrate had taken cognizance of the offense and issued summons, which the High Court reversed. The appellant argued that the High Court erred in concluding that the cheques issued were for security and not for the discharge of a legally recoverable debt.2. Applicability of Section 420 IPC:The High Court concluded that the case was a simple non-refunding of a loan and did not constitute cheating under Section 420 IPC. The Supreme Court agreed with this conclusion, noting that the transaction was a business loan with an agreement for repayment. There was no evidence of mens rea (criminal intent) to cheat on the part of the respondent, and mere dishonor of cheques did not imply an intention to cheat.3. Applicability of Section 138 of the N.I. Act:The Supreme Court examined whether the dishonored cheques could be considered as issued for the discharge of a legally recoverable debt. The High Court had ruled that since the cheques were given as security, Section 138 of the N.I. Act did not apply. The Supreme Court disagreed, referencing its own precedents, including Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Ltd. and M/s Womb Laboratories Pvt. Ltd. vs. Vijay Ahuja and Anr., which clarified that cheques issued as security could still be considered for the discharge of a debt if the debt had become due.The Supreme Court emphasized that a cheque issued as security does not become a worthless piece of paper. If the debt becomes due and the cheque is presented and dishonored, the provisions of Section 138 of the N.I. Act are attracted. The appellant had presented the cheques after the due date for repayment, and the cheques were dishonored due to insufficient funds, thus prima facie establishing a case under Section 138.Conclusion:The Supreme Court set aside the High Court's order and restored the Judicial Magistrate's orders. It concluded that the complaint under Section 138 of the N.I. Act was maintainable and should proceed to trial. However, it upheld the High Court's decision that no case under Section 420 IPC was made out. All contentions and defenses were left open for consideration during the trial, and the trial court was directed to proceed independently based on the evidence presented.