2023 (12) TMI 74 - HC - Indian Laws

Cheque dishonour requires legally enforceable debt at time of issuance under Section 138 Negotiable Instruments Act

Gujarat HC disposed of applications regarding dishonoured cheques under Section 138 of the Negotiable Instruments Act. The court held that criminal ... Dishonour of Cheque - Legally enforceable debt or not - whether the officials could have acted in such a manner and asked the applicants to make good the payment without there being any adjudication in accordance with the provisions of the Excise Act and the Rules framed therein? - HELD THAT:- In order to attract the penal provisions for the bouncing of a cheque, it is essential that the dishonoured cheque should have been issued in discharge, wholly or in part, or any debt or other liability of the drawer to the payee. The explanation to Section 138 of the Negotiable Instruments Act defines the expression “debt or other liability” as a legally enforceable debt or other liability. Unless the two conditions set out in Section 138 of the Act are satisfied, no criminal liability can be fastened. This is also in accordance with the general scheme as laid down in Section 118(a) of the Negotiable Instruments Act. It also enforces the doctrine of consideration as laid down in Section 2(d) of the Indian Contract Act, 1872. In the facts of the cases on hand where there is no legally enforceable debt is found and considering the above judgment which is passed in identical facts and the ratio laid down on the aspect that there should be legally enforceable debt existing on the date of issuance as well as presentation of cheques and accordingly considering the ratio laid down in the judgments of M/s Indus Airway Pvt. Ltd. [2014 (4) TMI 464 - SUPREME COURT], Sampelly Satyanarayana Rao [2016 (9) TMI 867 - SUPREME COURT] and Dashrathbhai Trikambhai Patel [2022 (10) TMI 424 - SUPREME COURT], all these applications are allowed. Application disposed off. Issues Involved:1. Quashing and setting aside of Criminal Case Nos. 18 of 2011, 613 of 2012, 614 of 2012, and 615 of 2012 under Section 138 of Negotiable Instruments Act.2. Legally enforceable debt or liability in the context of dishonored cheques.3. Allegations of obtaining cheques under threat, pressure, and duress.4. Adjudication and assessment of tax liability by the competent authority.Summary:Issue 1: Quashing and Setting Aside Criminal CasesThe applications were filed under Section 482 of the Code of Criminal Procedure to quash and set aside Criminal Case Nos. 18 of 2011, 613 of 2012, 614 of 2012, and 615 of 2012, which were filed under Section 138 of the Negotiable Instruments Act, pending in the Court of the learned Additional Chief Metropolitan Magistrate, Court No. 36, Ahmedabad. The cheques in question were issued by the applicant to show bonafides during the bail application process and were dishonored, leading to the statutory notice and subsequent criminal cases.Issue 2: Legally Enforceable Debt or LiabilityThe applicant argued that the cheques were not issued in discharge of any enforceable debt or liability but were given to show bonafides for bail. The cheques were allegedly obtained under threat, pressure, and duress by the Central Excise officers. The applicant contended that no tax liability assessment or show-cause notice was issued at the time of cheque issuance, and thus, no legally enforceable debt existed.Issue 3: Allegations of Obtaining Cheques Under DuressThe applicant claimed that the cheques were obtained by the Central Excise officers under threat, pressure, and duress while the applicant was in jail. The cheques were issued without any assessment of tax liability, and the demand raised by the department was later quashed in statutory appeal.Issue 4: Adjudication and Assessment of Tax LiabilityThe court referred to the judgment in cognate matters, where it was held that a legally enforceable debt or liability must exist on the date of cheque issuance and presentation. The court observed that the liability to pay excise duty cannot be determined solely on the statements made under Section 14 of the Central Excise Act without proper adjudication. The court emphasized that without adjudication by a competent authority, there was no existing enforceable debt or liability on the date the cheques were drawn.Conclusion:The court allowed the applications and quashed the proceedings of Criminal Case Nos. 18 of 2011, 613 of 2012, 614 of 2012, and 615 of 2012, pending in the Court of the learned Additional Chief Metropolitan Magistrate, Court No. 36, Ahmedabad, and consequential proceedings pursuant thereto. The court ruled that there was no legally enforceable debt existing on the date of issuance and presentation of cheques, thereby making the rule absolute in favor of the applicants.