2022 (2) TMI 849 - HC - Indian Laws

High Court quashes Section 138 complaint, deems cheque security not debt, declares warrant illegal.

C.M. Smith and Sons. Ltd Through Deinesh Mohanlal Panchal Versus State Of Gujarat

The High Court quashed the order dated 18.11.2019 and the complaint under Section 138 of the Negotiable Instruments Act as the cheque was given as ... Dishonor of Cheque - existence of enforceable debt or not - Issuance of warrant of attachment - HELD THAT:- he earlier order dated 22.03.2016 passed by the executing Court at Rajkot below application Exhibit-15 was quashed and set aside by the coordinate Bench of this Court vide order passed in Special Civil Application No.7417 of 2016 dated 18.11.2016 and the matter was remanded to the executing Court at Rajkot for consideration afresh. The executing Court at Rajkot considered the matter afresh; however, it stood by the conclusion arrived at in its earlier order dated 22.03.2016 by passing the order dated 20.08.2019 below applications Exhibits – 11 and 15. The said order dated 20.08.2019 was assailed before this Court in Special Civil Application No.15137 of 2019 and by judgment and order dated 16.10.2019, the subsequent order dated 20.08.2019 passed by the executing Court at Rajkot was quashed and set aside by the Division Bench of this Court. Thus, both the orders dated 22.03.2016 and 20.08.2019 passed by the executing Court at Rajkot below Exhibits – 11 & 15 were quashed and set aside by this Court after recording elaborate reasons. Coming to the proceedings initiated under the NI Act, itis not in dispute that the cheque in question was given as ‘security’. The Deed of Undertaking dated 07.04.2016 executed by and between the parties in the presence of the Court Bailiff lays down the terms and conditions of payment. It specifically mentions that the cheque in question has been been given as ‘security’ and also lays down the conditions as to when the said cheque shall be deposited. It is a settled proposition of law that proceedings under Section 138 of the NI Act would lie only in respect of any ‘enforceable debt’. In the case of LALIT KUMAR SHARMA VERSUS STATE OF UP. [2008 (5) TMI 429 - SUPREME COURT] the Apex Court held that the second cheque dated 29.07.2000 was issued in terms of the compromise and it did not create a new liability and therefore, the same cannot be said to have been issued towards payment of debt, even if the compromise had not fructified. In the present case also, evidently, the cheque in question was given as ‘security’ and not in respect of any ‘enforceable debt’, which the applicant No.1-Company was required to pay to the respondent-complainant. In paragraph-1 of the complaint filed under Section 138 of the NI Act, the respondent-complainant itself has stated that the cheque in question has been given in view of the compromise arrived at between the parties. Thus, as per the admission of the complainant also, the cheque in question was not issued in respect of any ‘enforceable debt’, which the applicant No.1 Company was required to pay to the respondent-complainant. Considering the aforesaid factual aspects and in view of the principle laid down in Lalit Kumar Sharma’s case, the impugned proceedings initiated under the provisions of the NI Act deserves to be quashed and set aside. The impugned order dated 18.11.2019 passed by the Court of learned 13th Additional Chief Judicial Magistrate, Rajkot below Exhibit-1 as also the complaint filed by respondent No.2 under section 138 of the NI Act are quashed and set aside - application allowed. Issues Involved:1. Quashing of the order dated 18.11.2019 by the 13th Additional Chief Judicial Magistrate, Rajkot.2. Validity of the proceedings under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).3. Legality of the Warrant of Attachment issued by the Civil Court at Rajkot.4. Enforceability of the cheque given as security.Issue-wise Detailed Analysis:1. Quashing of the Order Dated 18.11.2019:The applicants sought to quash the order dated 18.11.2019, passed by the 13th Additional Chief Judicial Magistrate, Rajkot, which directed the registration of a complaint under Section 138 of the NI Act and issuance of process under Section 204 of Cr.P.C. against them. The Court found that the cheque in question was given as security and not in respect of any enforceable debt, thus, the proceedings under Section 138 of the NI Act were not sustainable. Consequently, the Court quashed the impugned order and the complaint.2. Validity of the Proceedings under Section 138 of the NI Act:The applicants contended that the cheque was given as security, as stated in the Deed of Undertaking dated 07.04.2016, and not for any enforceable debt. The Court agreed, referencing the case of Lalit Kumar Sharma v. State of Uttar Pradesh, which held that a cheque issued as part of a compromise does not constitute an enforceable debt. The Court concluded that since the cheque was given as security, the proceedings under Section 138 of the NI Act were invalid.3. Legality of the Warrant of Attachment Issued by the Civil Court at Rajkot:The applicants argued that the Civil Court at Rajkot lacked jurisdiction to issue a Warrant of Attachment for properties located outside its territorial limits, specifically in Nadiad. The Court noted that the order dated 22.03.2016, which directed the issuance of the Warrant of Attachment, was quashed by the High Court in Special Civil Application No.7417 of 2016. The subsequent order dated 20.08.2019 by the executing Court at Rajkot, which reaffirmed the earlier order, was also quashed by the High Court in Special Civil Application No.15137 of 2019. Thus, the Warrant of Attachment and all consequential proceedings, including the Deed of Undertaking, were rendered baseless.4. Enforceability of the Cheque Given as Security:The Court observed that the cheque was explicitly given as security, as per the Deed of Undertaking dated 07.04.2016. The Court cited the Supreme Court's decision in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited, which held that a cheque given as security does not attract Section 138 of the NI Act unless it is towards an enforceable debt. Since the cheque in question was not issued for an enforceable debt but as security, the proceedings under Section 138 of the NI Act were deemed unsustainable.Conclusion:The High Court quashed the impugned order dated 18.11.2019 and the complaint under Section 138 of the NI Act, as the cheque was given as security and not for an enforceable debt. The Warrant of Attachment issued by the Civil Court at Rajkot was also found to be illegal, rendering all consequential proceedings baseless. The Court stayed the operation of its judgment for six weeks to allow the respondent to approach a higher forum.