2025 (10) TMI 1124 - HC - Indian Laws

Complaints under s.138 NI Act dismissed as cheques were non-encashable security instruments per MoU; summons found defective

Sri Sai Sapthagiri Sponge Pvt. Ltd. Versus The State (GNCT Of Delhi), M/s. Magnifico Minerals Pvt. Ltd.

Delhi HC quashed complaints under s.138 NI Act, holding the disputed cheques were security cheques issued only to be shown to banks and not encashable for ... Dishonour of Cheque - security cheque - existence of legally enforceable liability or not - summoning order are challenged by the Petitioner on the ground that the summons issued by the Ld. MM, Bellary, later adopted by the Ld. MM, Delhi are contrary to law and facts on record, and were passed mechanically without consideration of the documents placed before the Court. Whether the Cheques in question were security Cheques and not encashable for any existing legally enforceable Debt or liability? - HELD THAT:- The perusal of the MoU as recorded above, clearly records that the cheques were issued only for the purpose of being shown as security to the Banks, and not for presentation. The plain reading of the second paragraph of the MOU dated 06.05.2014 makes it further clear that the said Clause pertains only to the Letters of Credit (LCs), which could be adjusted towards old outstanding dues, and not to the subsequent payments that may become due. mentioned therein. Therefore, Respondent No. 2 has failed to read the complete terms of the MOU and has instead read the same in isolation. In Mohd. Akram Siddiqui v. State of Bihar [2018 (10) TMI 2030 - SUPREME COURT], the Hon’ble Supreme Court, while referring to Yin Cheng Hsiung v. Essem Chemical Industries, [2011 (1) TMI 1603 - SUPREME COURT], and State of Haryana v. Bhajan Lal, [1990 (11) TMI 386 - SUPREME COURT], observed that ordinarily and in the normal course, when the High Court is approached for quashing of a criminal proceeding, it will not appreciate the defence of the accused, nor will it consider the veracity of the documents relied upon by the accused. However, an exception has been carved out in appropriate cases where the document relied upon is a public document, or where the veracity thereof is not disputed by the complainant; in such cases, the same may be considered. This Court, at this stage, is well empowered to consider any document which is either a public document, or one which though placed by the accused, is beyond suspicion or doubt - the impugned cheques were security cheques given for a specific purpose and could not have been encashed for a liability which may have subsequently arisen. The Complaints under S.138 NI Act are therefore, liable to be quashed. Summoning order - territorial jurisdiction - summons were initially issued by the Ld. MM, Bellary, and thereafter, the Complaints were returned - HELD THAT:- On 01.08.2014, the Apex Court in Dashrath Rupsingh Rathod v. State of Maharashtra, [2014 (8) TMI 417 - SUPREME COURT], held that territorial jurisdiction for the purposes of an offence under Section 138 N.I. Act would be the place within whose local jurisdiction the offence is committed, i.e., the place where the cheque is dishonoured by the bank on which it is drawn. In various cases, the Hon’ble Supreme Court has specifically clarified that where the stage under Section 145(2) of the N.I. Act is not reached, the Complaint must be returned for presentation before the Court having competent territorial jurisdiction. It was in these circumstances that the Ld. MM, Bellary, returned the Complaint to be presented before the Court at Delhi - It is a settled principle of law that once a Complaint is returned, all proceedings conducted in that Court becomes non-est in the eyes of law. Thus, it is evident that the Ld. MM, Patiala House Courts, erred in adopting the summons earlier issued by the Ld. MM, Bellary, even though those Orders of Summoning had already become non-est in law, upon return of the Complaint. Fresh summoning Order were required to be made by the Ld. MM, Delhi; however, this mandatory step was overlooked. Despite the Complaints being filed afresh and there being no fresh Summoning Order, the summons were erroneously issued by the Ld. MM, by wrongly adopted/ relying on the Summoning Order of the Ld. MM, Bellary - thus, on this ground as well, the summoning Orders are liable to be quashed. Thus, it is concluded that the cheques in question were security Cheques and were not issued or encashable for any legally enforceable liability or debt and the Complaints under S.138 NI Act on account of dishonour of such cheques, is not maintainable. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether cheques described as issued 'for security purpose only' (to be shown to the banker and not for deposit) constitute non-encashable security cheques such that a complaint under Section 138 of the Negotiable Instruments Act is not maintainable. 2. Whether a memorandum of understanding and related documentary communications, not disputed by the complainant, can be relied upon at the pre-trial stage in proceedings under Section 482 Cr.P.C. to quash complaints under Section 138. 3. Whether summons issued by an earlier magistrate which subsequently returned the complaint for want of territorial jurisdiction retain legal efficacy and can be adopted by the receiving court, or whether such summoning orders become non est and require fresh summoning. 4. Whether disputed questions of fact (including whether cheques were issued as security or in discharge of liability) are amenable to determination in quashing proceedings under Section 482 Cr.P.C., or must be left to trial. ISSUE-WISE DETAILED ANALYSIS - 1. Security Cheques v. Encashable Instrument Legal framework: Section 138 of the Negotiable Instruments Act penalises dishonour of cheques issued for discharge of any debt or other liability; Explanation(s) and statutory presumptions under Section 139 operate in favour of the payee, subject to rebuttal by the drawer. Precedent treatment: Higher court decisions have recognised a distinction between cheques issued purely as security and cheques issued in discharge of liability, and have held that whether a cheque is security or for discharge is ultimately a question of fact. Interpretation and reasoning: The Court examined the plain language of the memorandum of understanding (MOU) which expressly stated the cheques were issued 'for Security Purpose only' and 'not for depositing into Bank.' The Court construed a subsequent clause relating to letters of credit as referring only to LCs and not to the security cheques, and considered subsequent communications (emails, legal notices) which reaffirmed the limited purpose of the cheques. The MOU was not disputed by the complainant and was therefore treated as a document of unimpeachable quality permitting pre-trial reliance. Ratio vs. Obiter: Ratio - where an undisputed contemporaneous written instrument unequivocally records that cheques were issued only as security and not for presentation, such cheques are not encashable to found a Section 138 complaint; this determination can be dispositive at the quashing stage if the document is beyond suspicion. Obiter - general observations that in most cases whether a cheque is for security or discharge is a question of fact for trial. Conclusion: The cheques were security cheques not issued for encashment to discharge an existing legally enforceable debt; the complaints under Section 138 based on their dishonour were therefore not maintainable and liable to be quashed. ISSUE-WISE DETAILED ANALYSIS - 2. Reliance on Undisputed Documentary Evidence in Section 482 Proceedings Legal framework: Ordinarily High Court exercising inherent jurisdiction under Section 482 Cr.P.C. should not investigate disputed factual issues or appreciate evidence which ought to be considered at trial; exceptions exist where documents are public or beyond suspicion and, on their face, render the allegations unsustainable. Precedent treatment: Binding authorities recognise the narrow exception permitting quashing where documentary material placed by the accused is credible, not disputed by the complainant, and conclusively negates the essentials of the offence. Interpretation and reasoning: The MOU and related communications were treated as such documents: they were in the record, not disputed by the complainant (who had in fact relied upon the MOU for other contentions), and their plain terms negated the essential element that the cheques were issued for discharge of a debt. The Court held it was therefore permissible to rely on these materials at the quashing stage. Ratio vs. Obiter: Ratio - where the accused places on record an undisputed, unimpeachable document that negates a necessary element of the offence, the High Court may consider it in exercise of Section 482 Cr.P.C. and quash the complaint. Obiter - cautionary remarks that this is an exception and not a license to decide factual disputes generally. Conclusion: The Court was justified in relying on the undisputed MOU and communications to quash the complaints under Section 138 at the pre-trial stage. ISSUE-WISE DETAILED ANALYSIS - 3. Effect of Return of Complaint for Want of Territorial Jurisdiction on Earlier Summoning Orders Legal framework: Territorial jurisdiction for offences under Section 138 is governed by the place prescribed in statute (including the place where the cheque is dishonoured) and subsequent statutory amendments and validating provisions govern transfer and validation of pending matters. Precedent treatment: Higher court rulings require that complaints not meeting territorial jurisdictional criteria be returned for presentation before the competent court; once returned, prior proceedings (including summoning orders) are regarded as non est. Interpretation and reasoning: The earlier magistrate returned the complaints for presentation before the court of competent jurisdiction; consequently, all proceedings undertaken by that magistrate thereafter became non est. The receiving magistrate could not rely on or adopt the returned court's summoning orders; fresh summoning orders were mandatory. The Court found the receiving magistrate erred by adopting and relying on the earlier summoning orders without issuing fresh summons. Ratio vs. Obiter: Ratio - where a complaint has been returned for want of territorial jurisdiction, earlier summoning orders become void (non est) and cannot be adopted by a subsequent court; fresh summoning is required. Obiter - discussion of retrospective operation of statutory amendments and validation provisions in related contexts. Conclusion: Summoning orders which had been issued by a magistrate whose return of the complaint rendered prior proceedings non est could not be lawfully adopted by the receiving court; those summoning orders were therefore liable to be quashed. ISSUE-WISE DETAILED ANALYSIS - 4. Scope of Examination of Factual Disputes in Quashing Proceedings Legal framework: High Court's inherent jurisdiction is circumscribed; contested factual issues and credibility assessments are ordinarily the province of the trial court, subject to the exception for undisputed documentary evidence of unimpeachable character. Precedent treatment: Authorities caution against premature appreciation of evidence in quashing petitions, while acknowledging the limited exception where documents conclusively negate the offence. Interpretation and reasoning: The Court reiterated that disputed factual issues should proceed to trial, but distinguished the present matter because the key documentary evidence (the MOU and associated communications) was not disputed and conclusively established that the cheques were issued only as security. Hence, the matter fell within the narrow exception permitting disposal at the quashing stage. Ratio vs. Obiter: Ratio - disputed questions of fact are generally not to be adjudicated in Section 482 proceedings; exception applies when undisputed documents conclusively negate essential elements of the offence. Obiter - caution that this exception must be narrowly applied. Conclusion: The Court acted within permitted bounds in resolving the specific factual issue (security status of cheques) on the undisputed documentary record and quashing the complaints, while reaffirming that other factual disputes should be left for trial. FINAL CONCLUSION On the combined grounds that (a) the undisputed MOU and related communications established that the cheques were issued only as security and not for presentation, and (b) earlier summoning orders had become non est upon return of the complaints for lack of territorial jurisdiction and could not be adopted by the receiving court, the summoning orders and the complaints under Section 138 were quashed. The Court disposed of the petitions accordingly.