TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1038
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....ints filed under Section 138 of the Negotiable Instruments Act for the dishonour of the cheques. 3 The Criminal Miscellaneous Application No.24863 of 2016 is treated as the lead matter. 4 The respondent No.2 herein - original complainant lodged a complaint in the Court of the Additional Chief Metropolitan Magistrate (N.I. Act) at Ahmedabad culminating in the Criminal Case No.1213 of 2016 for the offence punishable under Section 138 of the Negotiable Instruments Act. The complaint reads as under: "2 That accused No.1 is a Company Registered under the Company's Act, 1956, under Registration No.U52100TN2010PTC074515, having Registered Office at 2/1, Subrayyan Street, Nungambakkam, Chennai. Accused No.2 to 6 are directors of No.1 company who are looking after the day to day routine and financial business activity of the company. Accused No.7 is also company incorporated under Company Act having its Registered office address mention hereinabove. Accused No.8 to 10 are directors of No.7 company who are looking after the day to day routine and financial business activity looking after the day to day routine and financial business activity of the company, all accused are jointly and....
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.... of September, October and November cheques issued by accused towards licence fee have been dishonoured, complainant has filed criminal complaint u/s 138 of Negotiable Instruments Act. Accused are in arrears of licence fee and the said amount is due and payable since September 2015 till March 2016 for period of 7 months. For the present complaint cheques are presented for December 2015 and January and February 2016 for 3 months that works out to Rs. 9,00,000 @ 3,00,000 p.m. + 18% interest P.A. on delay payment as per agreed terms and conditions. Accused have not paid the Licence fee from September 2015. Complainant submits that accused are in terms of Licence free for continuously for Seven months. 8 That as per the agreed terms and condition accused have issued post dated cheques towards the monthly licence fee, which is legal dues and complainant, in part of the following description, the cheques were issued along with service tax amount. CHEQUES DATE AMOUNT BANK 998041 '10/12/2015 3,07,080/ HDFC BANK 998042 '10/01/2015 3,07,080/ HDFC BANK 998043 '10/02/2015 3,07,080/ HDFC BANK TOTAL AMOUNT 9,21,240/- That complainant have....
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.... thus rendered themselves liable to prosecution for the offences under Section 138 of Negotiable Instruments Act, in addition to prosecution for other offences under the Indian Penal Code and other Laws. 12 That as per the agreed terms and conditions accused have no legal rights to stop the payment of cheques or block the account as matter of facts and terms and conditions of agreement fix lock in period was agreed for 5 years and if any issues arises and matter is referred to the arbitrator in that case also accused required to make the payment of licence free as such accused action of blocking the account if illegal cannot be sustained as such both companies and all the directors are jointly and severely responsible for the dishonoured of the cheques which attract the Penal provisions of Negotiable Instruments Act. 13 It is humbly further submitted that, as accused have issued cheques towards the licence fee, which are legal dues as such complainant will deposit the remaining cheques at the end of the month on its due date, and if the said cheques are also dishonour in the event complainant reserves his right to initiate appropriate legal action available to him. 14 Complai....
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....n as mentioned herein (herein referred to as "The Period"). b) The Lessee will be permitted to carry out fit outs and furniture after the Lessee have paid to the Lessor, deposits and all other monies under the terms hereof as stated in Clause 8 of this Deed. c) The payment of Lease rent and other payments will start from 15th AUG 2012 (hereinafter referred to as "THE EFFECTIVE DATE"). d) The tenure of the lease shall end on close of business hours on completion of 9 (Nine) years from the effective date and/or earlier termination thereof." 6 The Clause 5 provides with the minimum lockinperiod. It reads as under; "MINIMUM LOCK IN PERIOD: The initial period of 5 (five) years (from the date of commencement of Lease rent) of the tenure of lease shall be minimum lock in period. During such period the Lessee is not entitled to terminate this Deed for any reason/s whatsoever. During such period the Lessor ceases his rights to terminate/determinate this Deed for any reason whatsoever. During such period if this Deed is terminated and or determined for any reason whatsoever, whether by the Lessee, the Lessee shall pay to the Lessor compensation and all other monies payable under the....
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....d to terminate this Deed by giving two months notice in writing. It is clarified that no specific notice and or intimating is requiring to be given by the Lessor in respect of all kinds of payments to be made by the Lessee. c) In case the services being provided by the association are not satisfactory and no attempt is made by the association to rectify the services after receiving such intimating from the Lessee for such deficiency, the Lessee may withhold/deduct the common maintenance charges till such defects are rectified. d) Upon the termination of this Deed, the Lessee shall have the lensed premises in as good condition as it was at the beginning of this arrangement, except for reasonable wear and tear. The Lessee hereby undertakes to the Lessor that on termination of this Deed it shall remove their employees, agents belonging and its articles from the leased premises and vacates and give charge of the leased premises together with the fixtures and fittings (loft, shutters and glass doors) belonging to Lessor, if any, in the same status and condition in which it was at the beginning of this Deed. e) In the event of the Lessee failing to leave the leased premises on the ....
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....whether before or after the termination or breach of this Deed) the Lessor and the Lessee shall promptly and in good faith negotiate with a view to reach its amicable resolution and settlement. In case no amicable resolution or settlement will reach withing a period of 30 days from the date of which the dispute or difference was referred for such settlement then such dispute and difference shall be referred to the two arbitrators appointed by the Lessor and Lessee separately. All the charges of the Arbitrators shall be paid by the Lessor and Lessee separately. All such proceeding shall be conducted at Ahmedabad in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification thereof or any other reenactment for the time being in force. b) the parties have mutually agreed that in case of anydispute, not settle mutually by the parties hereto, then and in such an event before referring such dispute to the arbitration, the Lessee shall have the option either to hand over the leased premises to the Lessor after bringing the leased premises in the same State and condition (except normal wear and tear) in which it was at ....
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.... arising out of or accruing from this Deed. e) Neither party shall disclose to any third party any information as to the business plan/secret/methods relating to conduct or financial affairs, present or past or future plans or the policy of the other which information is not in public domain and is not compulsorily disclose able under any statute. f) The parties further record and confirm that this Deed is their final Deed and this overrides all other writings and other representations made prior hereto. g) Access to the leased premises shall be on all days of the week subject to relevant prevailing rules of the Government and the Association rules." 11 Mr. R.S. Sanjanwala, the learned senior counsel assisted by Mr. Sahil M. Shah, the learned counsel appearing for the applicants submitted that the lease agreement dated 9th August 2012 was terminated by mutual consent in a meeting convened between the parties on 5th September 2015 in Ahmedabad. It was agreed by the applicants that they would pay the lease rental for a period of three months from July 2015 by way of compensation for the early termination of the lease agreement. Mr. Sanjanwala submits that the complainant had ....
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....ce under Section 138 of the Negotiable Instruments Act could be said to have been made out. 15 The learned counsel, thereafter, submitted that the applicants Nos.2 and 3 were not Directors of the company at the time when the lease agreement dated 9th August 2012 was executed. The applicants Nos.2 and 3 had already resigned on 24th December 2011. The learned counsel tried to substantiate his submission by placing reliance on the Form No.32 submitted before the Registrar of the Companies in that regard. 16 On the other hand, both the applications have been vehemently opposed by Mr. Nair, the learned counsel appearing for the complainant. According to Mr. Nair, none of the contentions canvassed merit any consideration. Mr. Nair submitted that the understanding was distinct and the same was reduced into writing in the form of a lease agreement. What is sought to be enforced by the complainant are the terms of the lease agreement. While entering into the lease agreement, the postdated cheques were issued by the accused persons towards rent, and thereby, they created a debt, which could be termed as legally enforceable. Merely because they were unable to continue with the business and ....
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....138 of the Negotiable Instruments Act, the ingredients to be proved are that a cheque was issued in discharge of any partial or whole liability which when presented was dishonoured and in spite of notice issued if the amount is not paid, then, it will attract the penal provisions under Section 138 of the Negotiable Instrument Act. The ultimate liability as to how much amount is payable, is a matter to be considered in the arbitration proceedings and that will not debar the complainant from filing a complaint for prosecution under Section 138 of the Negotiable Instruments Act, if the complainant comes forward with a case that the cheque was issued in discharge of an admitted liability by the accused. The question as to whether it is an admitted liability and whether there is any legally enforceable debt for which the cheque was issued, etc, are matters to be considered by the Trial Court on appreciation of evidence adduced on both the sides. 23 In view of the above discussion, the contention as regards the arbitration clause should fail and is hereby rejected. 24 Let me now deal with the contention that at the time of issuing the stop payment instructions to the Bank, there was su....
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....a debt or liability. 16. There is therefore no requirement that the Complainant must specifically allege in the complaint that there was a subsisting liability. The burden of proving that there was no existing debt or liability was on the respondents. This they have to discharge in the trial. At this stage, merely on basis of averments in the Petitions filed by them the High Court could not have concluded that there was no existing debt or liability. 17. Lastly it was submitted that complaint under Section 138 could only be maintained if the cheque was dishonoured for reason of funds being insufficient to honour the cheque or if the amount of the cheque exceeds the amount in the account. It is submitted that as payment of the cheques had been stopped by the drawer one of the ingredient of Section 138 was not fulfilled and thus the complaints were not maintainable. 18. Such a just contention has been negatived by this Court has, in the case of Modi Cements Ltd. v. Kuchil Kumar Nandi reported in (1998) 3 SCC 249. It has been held that even though the cheque is dishonoured by reason of 'stop payment' instruction an offence under Section 138 could still be made out. It is....
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.... the consequences provided in Section 138 of the Negotiable Instruments Act. This means that only those payments are covered which are in discharge of any debt or other liability. Unless the two conditions set out in section 138 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. Too many definitions of the word debt have been given though the word debt is not defined in the Act. 'Debt' is defined in the Stroud's Judicial Dictionary, (4th edition, volume 2) as a sum payable in respect of a liquidated money demand recoverable by action (Rawley vs. Rawley 1 QBD 460]. 28 In Dictionary of Banking by F.E. Perry (1979 edition, page 64), debt is mentioned as something owed to another, a liability, an obligation, a chose in action which is capable of being assigned by the creditor to some other person. Shri K.J. Aiyar's Judicial Dictionary (page 314) mentions debt as under: "Debt is a pecuniary liability. A sum payable or recoverable by action ....
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..... Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless - (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said....
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....s against the view of Delhi High Court in Magnum Aviation (P) Ltd. Versus State [(2010) 172 DLT 91] and Mojj Engg. Systems Ltd. Versus A.B. Sugars Ltd. [(2008) 154 DLT 579] which was disapproved. 10. We have given due consideration to the submission advanced on behalf of the appellant as well as the observations of this Court in Indus Airways (supra) with reference to the explanation to Section 138 of the Act and the expression "for discharge of any debt or other liability" occurring in Section 138 of the Act. We are of the view that the question whether a postdated cheque is for "discharge of debt or liability" depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise. 11. Reference to the facts of the present case clearly shows that though the word "security" is used in clause 3.1(iii) of the agreement, the said expression refers to the cheques being towards repayment of installments. The repayment becomes due under the agreement, the moment the loan is advanced and the installment falls due. It is undisputed that the loan was duly disbursed on 28th F....
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....y in the facts of that case simply because in that case also loan was advanced. It was noticed specifically therein - as was the admitted case of the parties - that the cheque was issued as "security" for the advance and was not intended to be in discharge of the liability, as in the present case. 15. In HMT Watches Ltd. Versus M.A. Abida [(2015) 11 SCC 776], relied upon on behalf of the respondent, this Court dealt with the contention that the proceedings under Section 138 were liable to be quashed as the cheques were given as "security" as per defence of the accused. Negativing the contention, this Court held :" 10. Having heard the learned counsel for the parties, we are of the view that the accused (Respondent 1) challenged the proceedings of criminal complaint cases before the High Court, taking factual defences. Whether the cheques were given as security or not, or whether there was outstanding liability or not is a question of fact which could have been determined only by the trial court after recording evidence of the parties. In our opinion, the High Court should not have expressed its view on the disputed questions of fact in a petition under Section 482 of the Code of....
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....ch is otherwise genuine. The courts cannot also lose sight of the fact that in certain matters, both civil proceedings and criminal proceedings would be maintainable." 12. In Rallis India Ltd. v. Poduru Vidya Bhushan [(2011) 13 SCC 88], this Court expressed its views on this point as under: (SCC p. 93, para 12) "12. At the threshold, the High Court should not have interfered with the cognizance of the complaints having been taken by the trial court. The High Court could not have discharged the respondents of the said liability at the threshold. Unless the parties are given opportunity to lead evidence, it is not possible to come to a definite conclusion as to what was the date when the earlier partnership was dissolved and since what date the respondents ceased to be the partners of the firm." 16. We are in respectful agreement with the above observations. In the present case, reference to the complaint (a copy of which is Annexures P7) shows that as per the case of the complainant, the cheques which were subject matter of the said complaint were towards the partial repayment of the dues under the loan agreement (para 5 of the complaint). 17. As is clear from the above obs....
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....dorsee for collection though he may not have property in the instrument. The presumption incorporated in Section 139 is not intended to cover all kinds of holders; it covers only the holder of a cheque "of the nature referred to in Section 138". Only in respect of a cheque which was issued in discharge, in whole or in part, of a debt or other liability, the presumption operates in favour of the payee as well as in favour of a holder in due course as defined in Section 9. This construction receives support from the language employed in clause (a) of Section 142, which speaks of cognizance of offences, and provisions (b) and (c) of Section 138. Section 4 of the evidence Act defines the expression "shall presume" as, "Whenever it is provided by this Act, that the court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved". It is, therefore, incumbent on the court, in a prosecution under Section 138, unless the contrary is proved to draw the inference that the cheque received by its holder was a cheque of the nature referred to under Section 139 for the discharge, in whole or in part, of any debt or other liability. The presumption is displaced on....
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....the purpose of conviction, the Magistrate himself can decide that matter. Without deciding that matter, the Magistrate cannot enter conviction. After taking cognizance, the Magistrate need not refer the question of drawing of the cheque in discharge of a legally enforceable debt or other liability to a competent civil court and await its decision to proceed with the trial. 33 In the aforesaid context, I may quote the observations of the Supreme Court in the case of S. Krishnamoorthy vs. Chellammal [AIR 2015 SC 3182] as under: "4. The respondent (accused) challenged the proceedings of criminal complaint case by moving a Criminal Original Petition under Section 482 of the Code before the High Court. In said petition the accused pleaded that her soninlaw A. Raj and Ayyavu (father of A. Raj) had actually borrowed a sum of Rs. 2,00,000/- on 19.4.2005. The cheques in question were only taken as security. Actually, loan was taken by A. Raj and Ayyavu by mortgaging their house in favour of one Balakrishnan, brother of the present appellant. It is alleged by the present respondent (accused) in the petition that Balakrishnan, instead of getting the mortgage deed executed, obtained an agree....
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.... complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling uncontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be abuse of the process of court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role could be brought out in the trial. Quashing of a complaint is a serious matter. Complaint cannot be quashed for the asking. For quashing of a complaint it must be shown that no offence is made out at all against the Director." 35 I shall conclude my judgment quoting the observations of the Supreme Court, as contained in paras 10 and 13, in the case of HMT Watches Ltd vs. M.A. Abida [2015 (3) Scale 832] as under: "10. Having heard learned counsel for the parties, we are of the view that the accused (respondent No.1) challenged the proceedings of criminal complai....