TaxTMI 
TaxTMI 
2015 (6) TMI 1274
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....ck Exchange (NSE) of India, dealing in capital market. Accused No. 1 is the name of a business enterprise of a Hindu Undivided Family (HUF), dealing in capital markets, through accused no. 2, its Karta. The complainant claims that at the request of accused no. 1 through accused no. 2, and in consideration of issuance of a cheque bearing No. 501416 dated 22.6.96 for Rs. 14 Lacs drawn on Oriental Bank of Commerce, Tagore Garden Branch, New Delhi - 110 027, and deposit of certain shares with the complainant as security, the accused were allowed to conduct the sale and purchase of shares on credit basis with the complainant, with the understanding that the aforesaid shares and cheque can be encashed by the complainant, in case of failure of the accused to meet its liability if and when it arises due to the share transactions undertaken by the accused through the complainant. The accused conducted several transactions of shares with the complainant as per the detailed bills and statement of Accounts placed on record, and more than Rs. 14 Lacs were found payable and outstanding against the accused. Hence as per the request of the Accused, the complainant presented the said cheque for enc....
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....d MM relied on the decision of the Supreme Court in M/s Indus Airways Pvt. Ltd. vs M/s Magnum Aviation Pvt. Ltd., IV (2014) SLT 321, wherein the Supreme Court had observed: "....the fine distinction between civil liability and criminal liability under Section 138 of the N.I. Act. If at the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. For a criminal liability to be made out under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque." (Emphasis supplied) 10. Learned Counsel for the Petitioner submits that the Trial Court has wrongly placed reliance on Indus Airways (supra), as the facts of that case were very different and the observations of the Supreme Court have to be viewed in the light of the background facts of the case. In that case, the purchase order had been cancelled by the drawer of the cheque given as advance, who was al....
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....ay, or may not, come into existence. 14. Ld. Counsel for Respondent submits that the cheque in the present case is a security cheque as no liability existed on the date of its issuance, and the liability allegedly came into existence subsequently on account of alleged transactions undertaken by the accused. Since the liability depended on a contingency, the aforesaid cheque - issued as security, will not be covered under Section 138 of NI Act. 15. In Suresh Chandra Goyal Vs. Amit Singhal, Crl. Appeal Nos.601/2015 decided on 14.05.2015, this Court had occasion to consider the defence of "security cheque". In that case the complainant invested monies, from time to time, in the business of the accused. A sum of Rs. 3 Lakhs was outstanding after accounting for the monies returned by the accused. The accused entered into a MOU for repayment of the said outstanding amount in 6 monthly instalments of Rs. 50,000/- each. The accused issued six security cheques of Rs. 50,000/-, which were to be returned upon payment of the corresponding instalment. While three instalments were admittedly received by the complainant, he claimed that the remaining three were not paid. The corresponding s....
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....ictionary (5th edition), inter alia, to mean: "Property etc. deposited or pledged by or on behalf of a person as a guarantee of the fulfillment of an obligation (as an appearance in court or the payment of a debt) and liable to forfeit in the event of default". (Emphasis supplied) 59. Thus, when one party gives a security to the other, implicit in the said transaction is the understanding that in case of failure of the principal obligation, the security may be enforced. 60. In V.K. Ashokan v. CCE, (2009) 14 SCC 85, the Supreme Court observed that: "The term "security" signifies that which makes secure or certain. It makes the money more assured in its payment or more readily recoverable as distinguished from, as for example, a mere IOU, which is only evidence of a debt, and the word is not confined to a document which gives a charge on specific property, but includes personal securities for money. (See Chetumal Bulchand v. Noorbhoy Jafeerji, AIR 1928 Sind 89). It is a word of general import signifying an assurance". 61. Thus, in my view, it makes no difference whether, or not, there is an express understanding between the parties that....
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....t had observed: "A comparative reading of the principle laid down by the Andhra Pradesh High Court and the mandatory provisions laid down in Section 138 of the Negotiable Instruments Act is crystal clear that when a cheque has been issued as a security, no complaint will lie under Section 138 of the Negotiable Instruments Act." 31. The Supreme Court reversed the decision of the High Court by placing reliance on the language of Section 138 of the NI Act. Section 138 begins with the word, "where any cheque......‟. These three words were held to be significant. In particular, emphasis was laid on the use of the word, "any‟- which suggests that, if, for whatever reason a cheque drawn on an account maintained by the drawer with the banker in favour of another person for the discharge of any debt or other liability is dishonoured, the liability under Section 138 NI Act cannot be avoided. The Supreme Court also emphasized that the legislature had been careful enough to use not only the expression "discharge, in whole or in part, of any debt", but has also included the expression "other liability‟ in the language of Section 138 NI Act. The Supreme Court ....
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....ision in the case of Smt. Umaswamy v. K.N. Ramanath, 2006 (5) AIR Kar R 171, wherein a contrary view had been taken, reliance on Sreenivasan (supra) was rejected. In Umaswamy (supra), the Karnataka High Court had taken the view that the cheque issued either for discharge of debt or as a security makes little distinction in law. Dishonour of cheque in both the situations attracts valid prosecution under Section 138 of N.I. Act. Criminal Appeal No.1842/2008 from the judgment of the Karnataka High Court in M/s Klen & Marshalls (supra) was dismissed by the Supreme Court on 17.08.2010 by observing that "Having heard learned counsel for the parties and perused the record, we find no infirmity in the impugned order". Thus, the view of the Karnataka High Court in M/s. Klen & Marshalls (supra) was affirmed. x x x x x x x x x x 44. In Sai Auto Agencies through its partner Dnyandeo Ramdas Rane v. Sheikh Yusuf Sheikh Umar, 2011 (1) Crimes 180, the defence of the respondent/accused was that, in relation to purchase of a tractor and equipments from the appellant, five blank cheques were given only as security. The respondent claimed that the complainant had already received the entir....
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....t to be made immediately upon receipt of goods. For this reason, the security cheques were issued by the petitioner at the time of taking delivery of the goods. However, they were to be returned upon receipt of payment by the respondent/seller. In case payment was not forthcoming, the security cheques were considered as consideration towards supply of goods, and the respondent would bank the cheques. The cheques in question had similarly been banked since payment was not otherwise made by the petitioner/accused on the expiry of the credit period. 56. This Court, by placing reliance on Beena Shabeer (supra), rejected the petitioner's submission that the cheques in question being security cheques could not be the foundation of a complaint under Section 138 of NI Act. " 18. In Suresh Chandra Goyal (supra), the accused/ respondent had placed reliance on, inter alia, M.S. Narayana Menon @ Mavi Vs. State of Kerala & Another, (2006) 6 SCC 39. M.S. Narayana Menon (supra), incidentally, was also a case involving issuance of a security cheque for undertaking share transactions. The analysis of M.S. Narayana Menon (supra) undertaken by this Court reads as follows: "32. Th....
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.... of a judgment should be made in the light of the factual matrix involved therein. What is more important is to see the issues involved in a given case, and the context wherein the observations were made by the Court while deciding the case. Observation made in a judgment, it is trite, should not be read in isolation and out of context. [See Goan Real Estate & Construction Ltd. v. Union of India, (2010) 5 SCC 388]. It is the ratio of the judgment, and not every observation made in the context of the facts of a particular case under consideration of the court, which constitutes a binding precedent. The Supreme Court in P.S. Sathappan v. Andhra Bank Ltd., AIR 2004 SC 5152 has held as follows: "138. While analyzing different decisions rendered by this Court, an attempt has been made to read the judgments as should be read under the rule of precedents. A decision, it is trite, should not be read as a statute. 139. A decision is an authority for the questions of law determined by it. While applying the ratio, the court may not pick out a word or a sentence from the judgment divorced from the context in which the said question arose for consideration. A judgment as is w....
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....matic statement of law to be mechanically applied, in all circumstances". 38. I may also observe that in Narayana Menon (supra), the earlier decision of the Supreme Court in Beena Shabeer (supra) was not cited or brought to the notice of the Court, and has not been considered by the Court. In fact, on a reading of Narayana Menon (supra), it is clear that the said decision was rendered in the specific facts of that case, and upon examination of the evidence led before the Court by holding that the accused had been able to discharge his initial burden of raising a probable defence, and that the complainant had failed to establish that the cheques in question have been issued in discharge of a legal debt or other liability. 39. Thus, the decision in Narayana Menon (supra) is of no avail, as it cannot be said to have laid down any general proposition that a complaint under Section 138 NI Act would not be maintainable in respect of a security cheque or a cheque given as a security to assure the performance of another obligation." 19. The decision in Indus Airways (supra), relied upon by the respondent in the present case, was also taken note of and discussed as foll....
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....that at the time of drawal of cheque, there was no existing liability. While disagreeing with the view of this Court, the Supreme Court held as follows: ".... .... .... If at the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. For a criminal liability to be made out under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. We are unable to accept the view of the Delhi High Court that the issuance of cheque towards advance payment at the time of signing such contract has to be considered as subsisting liability and dishonour of such cheque amounts to an offence under Section 138 of the N.I. Act. .... ... ... In what we have discussed above, if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or o....
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....eque should be in relation to a debt or other liability subsisting on the date of drawal of the cheque, to be able to maintain a complaint under Section 138 of the NI Act, which is the cornerstone of the legal submission of the respondents/ accused. 21. On a closer scrutiny of the decision in Indus Airways (supra), it appears to me that Indus Airways (supra) has no application to the facts of the present case as the above extracted observations were made in a materially different factual background. I have consciously extracted paragraph 35 from the decision in Suresh Chandra Goyal (supra), wherein this Court has taken note of the settled legal position on the aspect as to how the observations in an earlier judgment of the Supreme Court have to be read and applied in subsequent cases. As noticed above, in Indus Airways (supra), the purchaser issued advance cheques with the two purchase orders. Before the supplies under the purchase orders was made, the purchaser/accused cancelled the two purchase orders (which was not in dispute), and requested the complainant to return the cheques. The cheque was presented and dishonoured. As a result, a complaint was preferred. The Supreme Cou....
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....ase order issues in advance a post-dated cheque; goods/ services are supplied in terms of the contract, and; the post-dated cheque upon presentation on the due date gets dishonoured. The Supreme Court was not dealing with such a fact situation. Could it be said that, because there was no pre-existing or pre-determined debt or other liability on the date of issue of the cheque by the purchaser (as the goods/ services were supplied only after the issuance of the post-dated cheque), a complaint under Section 138 NI Act would not lie? 25. In my view, it would defeat the object of Section 138 NI Act to hold that the seller/ service provider cannot enforce his right conferred by Section 138 NI Act in such a situation, as it would encourage dishonest buyers to evade their penal liability. It would erode the efficacy and credibility of commercial transactions undertaken on the basis of post-dated cheques, or cheques issued towards advance payment, with a credit period. The view of the Supreme Court in Indus Airways (supra) does not appear to take out from the scope of Section 138 NI Act cases of this nature, as what fell for examination was a fact situation where the advance cheque had ....
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....fact that the cheque in question was issued as security in respect of a contingent liability, the complaint under Section 138 of the NI Act would not be maintainable. At the same time, I may add that it would need examination on a case to case basis as to whether, on the date of presentation of the dishonoured cheque the ascertained and crystallised debt or other liability did not exist. The onus to raise a probable defence would lie on the accused, as the law raises a presumption in favour of the holder of the cheque that the dishonoured cheque was issued in respect of a debt or other liability. As settled by the Supreme Court, the said onus obliges the accused to raise a defence - either by picking holes in the case of the complainant and/ or by positively leading defence evidence which leads the Court to believe that there is a probable defence raised by the accused to the claim of the complainant with regard to the existence of the debt or other liability. The said onus does not cast as stringent an obligation on the accused, as it casts on the complainant, who has to prove beyond reasonable doubt the guilt of the accused. 31. Therefore, I now turn to the facts of the presen....
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....tate Bank of India. He stated that he had no concern with the difference bills Ex. CW-1/16. He stated that the cheque in question was without any legally enforceable liability. In his examination in chief, DW-2 stated that the complainant Credential Leasing & Credits Limited took the signatures on certain blank papers and told him that the same were required as some formality with SEBI for making him as their sub-broker. He further deposed that Shruti Investments is in HUF business of which he is a Karta and that Shruti Investments was dealing only in secondary market of shares. He stated that Shruti Investement was doing its business of sale and purchase of shares through two or three brokers. DW-2 further deposed that: "It is correct that for becoming a sub-broker with a member of National Stock Exchange, a margin money has to be deposited. The said margin money has to be deposited by the interested person who wants to become sub-broker to the member of National Stock Exchange. No other security is required except the margin money for the purpose of becoming a sub-broker with the member of NSE. Margin money is kept by the member of NSE to secure himself from the fluctuat....