2012 (7) TMI 1169 - HC - Indian Laws

Cheque as Security Enforceable: Petition Dismissed, Burden on Issuer to Disprove Debt Under Negotiable Instruments Act.

The court dismissed the petition, affirming the maintainability of the complaint under Section 138 of the Negotiable Instruments Act. It concluded that ... - Issues Involved:1. Whether the cheque issued as security can attract liability under Section 138 of the Negotiable Instruments Act.2. Whether the complaint under Section 138 is maintainable when the cheque was issued as security and not for discharge of any debt or liability.3. The applicability of statutory presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act.4. The necessity for the petitioner to disprove the evidence led by the respondent.Detailed Analysis:1. Cheque Issued as Security and Section 138 Liability:The petitioner argued that the cheque in question was issued solely as security and not towards any lawful outstanding debt or dues. They relied on the case of *M.S. Narayana Menon @ Mani v. State of Kerala and Anr.*, where the Supreme Court held that if a cheque is issued for security or any other purpose, it does not come within the purview of Section 138 of the Act. Similarly, in *Sudhir Kumar Bhalla v. Jagdish Chand and Ors.*, the Apex Court observed that criminal liability under Section 138 is attracted only on account of the dishonor of cheques issued in discharge of liability or debt, not on account of issuance of security cheques.2. Maintainability of Complaint under Section 138:The respondent contended that the cheque initially issued as security became a cheque for enforceable debt when the petitioner failed to pay the debt. They cited the case of *I.C.D.S. Ltd. V. Beena Shabeer and Anr.*, where it was held that the language of Section 138 includes cheques issued for any debt or other liability. The respondent argued that the petitioner had to disprove the evidence led by them, and in the absence of such disproof, the complaint was maintainable.3. Statutory Presumptions under Sections 118(a) and 139:The court discussed the statutory presumptions under Sections 118(a) and 139, which presume that every negotiable instrument was made for consideration and that the holder of a cheque received it for the discharge of any debt or other liability. The respondent relied on *MMTC Ltd. and Anr. V. Medchi Chemicals & Pharma (P) Ltd. and Anr.*, where it was held that the burden of proving no existing debt or liability lies on the accused, which they must discharge during the trial.4. Petitioner's Burden to Disprove Evidence:The respondent emphasized that the petitioner had to prove in the trial that they did not owe any dues to the respondent. They referred to *Lok Housing & Constructions Ltd. V. Raghupati Leasing & Finance Ltd.*, where it was held that the presumption is in favor of the holder of the cheque, and the accused must disprove the existence of debt or liability.Conclusion:The court concluded that the cheque in question, although initially issued as security, became enforceable due to the petitioner's failure to pay the debt. The statutory presumptions under Sections 118(a) and 139 were applicable, and the burden of disproving the existence of debt or liability lay on the petitioner. The court found no merit in the petitioner's arguments and dismissed the petition, affirming the maintainability of the complaint under Section 138 of the Negotiable Instruments Act. The interim order was vacated, and the petition was dismissed with no orders as to costs.