SAMPELLY SATYANARAYANA RAO versus INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED

[2016] 6 S:C.R. 531

SAMPELLY SATYANARAYANA RAO

· INDIANRENEWABLEENERGY. DEVELOPMENT AGENCY LIMITED (Criminal Appeal No. 867 of2016) SEPTEMBER 19, 2016

[DIPAK MISRA AND ADARSH KUMAR GOEL, JJ.]

Negotiable Jnsn•uments Act, 1881 : s. 138-Dishonour of post-dated cheques given for repayment of loan installment and described as "security" in loan agreement, if covered uls. 138 -Held: ·Applicability of s.138 depends on whether the cheque represents discharge of existing enforceable debt/liability or it represents advance payment without there being-subsisting debt or liability-Thus. i/bJJ the date of the cht;que. liability or debt exists , 'or the ainount becomes legally recoverable, s.138 is attracted and not otherwise.:_ In the instant case, loan was disbursed prioi· io the date of the cheques - Though, the word ;.security" is used in the loan agreement, it, however refers to the c7ieques towards repayment of installments of loan -Ther(ore, once the loan was advanced and the installment had fallen due on the date of the cheque as per the agreement. dishonour of such cheques would-fall u_uder s.138. ·•

Criminal law - Quashing of complaint'- Held: While dealing with quashing petition, the Court has ordinarily to proceed on the basis of averments in complaint-'- Defence of accused cannot be considered at this stage - Court considering the prayer for quashing does not adjudicate upon disputed question of fad.

Dismissing the appeal, the Court

HELD: 1.1 The question whether post-dated 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. [Para·lO] (536-F]

1.2 Reference to the ·racts of the present case· clearly shows · that though the word "security" is used in clause 3.l(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 prior to the date of the cheques. Once the loan was disbursed and installments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act. The cheques undoubtedly represent the outstanding liability. [Para 11] (536-G; 537-A-B] _

1.3 Crucial question to determine applicability of s.138 of the

Act is whether the cheque represents discharge of existing enforceable debt or liability or whether it represents advance payment without there being subsisting debt or liability. (Para 13] [537-G]

2. In the present case, reference to the complaint shows that

as per the case of complainant, the cheques which were subject ma_tter of the said complaint were towards the partial repayment of the dues under the loan agreement. It is well settled that while dealing with quashing petition, the Court has ordinarily to proceed on the basis of averments in the complaint. The defence of the accused cannot be considered at this stage. The court considering the prayerfor quashing does not adjudicate upon disputed question of fact. [Paras 16 and 17] [540-B-C] .

HMT Watches Ltd. v. M.A. Abida (2015) 11 SCC 776: 2015 (3) SCR 719; Rangappa v. Sri Mohan (2010) 11 SCC 441 : 2010 (6) SCR 507; Goaplast (P) Ltd. v. Chico Ursula 'D · Souza (2003) 3 SCC 232: 2003 (2) SCR 712 - relied on.

Indus Airways Private Limited v. Mag,;um Aviation Private -"° Limited (2014) 12 SCC 539; Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd. (1999) 1 CTC 6 (Mad) -distinguished.

Swastik Coaters (P) Ltd. v. Deepak Bros. (1997) Cr!. LJ 1942 (AP); Shan/at Concretes (P) Ltd. v. State of Gujarat (2000) Crl LJ 1~88 (Guj); Supply House v. Ullas (2006) Crl. LJ 4330 (Ker); Magnum Aviation (P) Ltd. v. State (2010) 172 DLT 91 : (2010) 118 DRJ 505; Mojj Engg. Systems Ltd. v. A.B. Sugars Ltd. (2008) 154 DLT 579 -referred to.

Case Law Reference

(1997) Crl. LJ 1942 (AP) referred to (2000) Cr! LJ 1988 (Guj) referred to

referred to Para 9 referred to Para 9

SAMPELLY SATYANARA YANA RAO v. INDIAN RENE»-'ABLE ENERGY DEVELOPMENT AGENCY LIMITED

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 867 6f2016.

From the Judgment and Order dated 08.05.2014 of the High Court of Delhi in Writ Petition (Criminal) No. 1170of2011.

Vikas Singh, Sr. Adv., Vivek Singh, Deepika, K., Lakshmi Raman Singh, Advs. for the Appellant.

Siddharth-Luthra, Sr. Adv., Annam D. N. Rao, Abhishek Agarwal, Viraj Gandhi, Sameer Gandhi, Ad vs. forthe Respondent.

The Judgment of the Court was delivered by

ADARSH KUMAR GOEL, J. I. This appeal has been preferred against the judgment and order dated 8[1]h May, 2014 passed by the High Court of Delhi at New Delhi in Writ Petition (Criminal) No.1170 of201 l.

2. Question for consideration is whether in the facts of the present

case, the dishonour of post-dated cheque given for repayment of loan installment which is also described as "security" in the loan agreement is , covered by Section 138 of the Negotiable Instruments Act; 1881 ("the Act"). .

3. The appellant is Director of the company whose cheques have been dishonoured and who is also the co-accused. The company is engaged in the field of power generation. The respondent is engaged in development of renewable energy and is Government of India ~nterprise. Vide the loan agreement dated l S1h March, 200 I, the respondent agreed to advance loan of Rs.11.50 crores for setting up of 4.00 MW B,iomass based Power Project in the State of Andhra Pradesh. The agreement recorded that post-dated cheques towards payment of installment of loan (principal and interest) were given by way of security. The text of this part of the agreement

is quoted in the later part of this order. The cheques carried different dates depending on the dates when the installments were due and upon dishonour thereof, c<;>mplaints including the one dated 27'h September, 2002 were filed by the respondent in the court of the concerned Magistrate at New Delhi.

4. The appellant approached the High Court to seek quashing of the

complaints arising out of 18 cheques of the value ofabout Rs. I 0.3 crores. Contention of the appellant in support of his 'case was that the cheques wer-e given by way of security as mentioned in the agreement and that on the date the cheques were issued, no debt or liability was due. Thus, dishonour of post-dated cheques given by way of security did not fall m1der Section 13_8 of the Act. Reliance was placed on clause 3.1 (iii) of the agreement to the effect that depQsit of post-dated cheques toward repayment of installments was by way of "security''. Even the first inst11llment as per the agreement became.due subsequent to the handing over of the post-dated cheque. Thus, contended the appellant, it was not towards discharge of debt or liability in presenti but for the amount payable in future.5. The High Court did not accept the above contention and held :-"J 0. In the present case when the post-dated cheques were issued. the loan had been sanctioned and hence the same fall ·E in the first categ01y that is they were cheque issued for debt '"'"' in present but payable in future. Hence, I find no reason to quash the complaints. However, these observations are only prima facie in nature and it will be open for the party to prove to the contrary during trial. "

6. We have heard learned counsel for the parties. 7. It will be appropriate to reproduce the statutory provision in question which is as follows :

· '" 138. Dlslto11our of cltequefor lnsuffeclency, etc., of funds 111 tlte accou11t. - Where any cheque drall'n by person on an account maintained by him with banker forpayment 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 insiifficient to honour the cheque or that it exceeds the amount

agreed repayment schedule and installments of interest payable thereon."

9. Reference may now be made to the decision of this Court in lndusAirways PrivateLimfied versus Magnum Aviation Private Limited', on which strong reliance has been placed by learned counsel for the appellant. The question therein was whether post-dated cheque fasued by way of advance payment for purchase order could be considered for discharge of legally enforceable debt. The cheque was issued by way of advance payment for the purchase order but the purchase order was cancelled and payment of the cheque was stopped. This Court held that while the purchaser may be liable for breach of the co-ntract,_when contract provides that the purchaser has to pay in advance and cheque towards advance payment is dishonoured, it will not give rise to criminal liability under Section 138 of the Act. Issuance of cheque towards advance payment could not be considered as discharge of any subsisting liability. View to this effect of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. versus Deepak Bros.[1], Madras High Court in Bala.ii Seafoods Exports (India) Ltd. versus Mac Industries Ltd.·', Gujarat High Court in Slu111ku .Co11cretes (P) Ltd. versus State of Gujarat and Kerala High Court in Supply House versus Ulla!>-' was held to be correct view as against the view of Delhi High Court in Mag11umAviatio11 (P) Ltd. versus State[6 ]and Mojj Engg. Systems Ltd. versusA.B. Sugars Lttl.7 which was disapproved.

10. We have given due consideration to th~ submission advanced on behalf of the appellant as well as the observations of this Court in llldus 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 th~ question r whether post-dated cheque is for "discharge of debt or liability" depends on the nature of the transaction. Ifon the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section vis attracted and not otherwise. ·

11. Reference to the facts of the present case clearly shows that

1 (2014) 12 sec 539

2 ( 1997) Crl. LJ 1942 (AP)

3 ( 1999) I CTC 6 (Mad)

4 (2000) Cr! LJ 1988 (Guj)

' (2006) Cr!. LJ 4330 (Ker)

'(2010) 172 DLT 91: (2010) 118 DRJ 505

; (2008) 154 DLT 579

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 install men ts. The repayment becomes due under !he agreement, the moment the loan is advanced and the installment falls due. It is undisputed that the loan was duly disbursed on 28[1]h February, 2002 wliich was prior to the date of the cheques. Once the loan was disbursed and installments have fallen nu;:; on 1h ~ date o{the cheque as per the agreement, dishonour of such cheques wc>'1ld fall under Section 138 of the Act: The cheques undoubtedly-represent the outstanding liability.

12. Judgment in Tm/us Airways (supra) . is clearly distinguishable. As already noted, it was held therein that liability arising out of claim for breach of contract under Section 138, which arises on account of dishonour of cheque issued was not by itself at par with criminal liability towards discharge of acknowledged and admitted debt under loan transaction. Dishonour of cheque issued for discharge oflater liability is clearly covered by the statute in question. Admittedly, on the date of the cheque there was debt/liability in presenti in terms of the lofilTagreement, as against the case of bu/us Airways (supra) where the purchase order had been cancelled and cheque issued towards advance payment for the purchase order was dishonoured. In that case, it was found that the cheque had not been issued f<>_r, discharge of liability but as advance for the purchase order which was cancelled. Keeping in mind this fine but real distinction, the ~ said judgment cannot be applied to case of present nature where the cheque was for repayment ofloan installment which had fallen due though such deposit of cheques towards repayment of installments. was also described as "security'' in the loan agreement. In applying the judgment in l~dus '1irways (supra), one cannot fose sight of the difference between transaction of purchase order which is cancelled and that of loaf! transaction where loan has actually been advanced and its repayment is due on the date of the cheque ..

13. Crucial question to determine applicability of Section 138 of the Act is whether the cheque represents discharge of existing enforceabie debt or liability or whether it represents advance payment without there being subsisting debt or liability. While approving the views of different High Courts noted earlier, this is the underlying principle as can be discerned from discussion of the said cases in the judgment of this Court.

14. In Balaji Seafoods (supra), the High Court noted that the cheque was not handed over with the intention of discharging the subsisting

liability or debt. There is, thus, no similarity 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 dis_charge of the liability, as in the prese[lt case.

I 5. In HMT W"tches Ltd. versus M.A. Abi</(1[8], 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 l) challenged the proceedings of criminal complaint cases before the High Court, taking/actual dejences. Whether the chequeswere given as security or not, or whether there was outstanding liability or not is questio11 of fact which could have been determined only by the trial court after recording evidence of the parties. Jn our opinion, the High Court should not have expressed its view on the disputed questions of fact in petition under Section 482 of the Code of Criminal Procedure, to come to conclusion thatthe offence isnot made ouCThe High Court has erred in law in going into the factual aspects ·of the matter which were not admitted between the partie.i. The High Court further erred in observing that Section J 38(b) of the NJ Act stood uncomplied with, even though Respondent 1 (accuse9) had admitted that he replied to the notice issued by the complainant. Also, the fact, as to whether the signatory of demand notice was authorised by the complainant company or not, could not have been examined by the High Court in its jurisdiction under Section 482 of the Code of Criminal Procedure when such plea was controverted by the complainant before it.

II. In Swyalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd. [(2008) 13 SCC 6'78], this Court has made the following observations explaining the parameters o.fjurisdiction of the High Courtin exercising its jurisdiction under Section 482 of the Code of Criminal Procedure: (SCC pp. 685-87. paras 17 & 22)

. • (2015) 11 sec 776

SAMPELLY SATYANARAYANA RAO v. INDIAN RENEWABLE ENERGY 539 DEVELOPMENT AGENCY LIMITED [ADARSH KUMAR GOEL, J.] "17. The parameters a/jurisdiction of the High Court in exercising itsjurisdiction under Section 482 of the Code pf Criminal Procedure is now wel! settled. Although it is of wide amplitude. great deal of caution is also required in its exercise. What is required is application of the well-known legal principles involved in the matter. *** 22. Ordinarily, defence of an accused although appears defence of an accused although appears defence of an accused although appears of an accused although appears an accused although appears accused although appears to be plausible should not be plausible should not be be taken into consideration for exercise ofthesardjurisdiction. exercise ofthesardjurisdiction. Yet again, again, the High .Court at that stage would npt ordinarily enter into disputed question of fact. of fact. fact. it, however, does not mean that does not mean that not mean that mean that that documents of unimpeachable character should not be unimpeachable character should not be be taken into consideration at any cost for the pitrpose ·of consideration at any cost for the pitrpose ·of at any cost for the pitrpose ·of any cost for the pitrpose ·of finding out as as to whether continuance of the of the the criminal proceedings would amount to an abuse of process of court would amount to an abuse of process of court to an abuse of process of court an abuse of process of court abuse of process of court of process of court process of court of court court or that the the complaint petition ii filed for causing mere ii filed for causing mere filed for causing mere -o22. Ordinarily, defence of an accused although appears defence of an accused although appears defence of an accused although appears of an accused although appears an accused although appears accused although appears to be plausible should not be plausible should not be be taken into consideration for exercise ofthesardjurisdiction. exercise ofthesardjurisdiction. Yet again, again, the High .Court at that stage would npt ordinarily enter into disputed question of fact. of fact. fact. it, however, does not mean that does not mean that not mean that mean that that documents of unimpeachable character should not be unimpeachable character should not be be taken into consideration at any cost for the pitrpose ·of consideration at any cost for the pitrpose ·of at any cost for the pitrpose ·of any cost for the pitrpose ·of finding out as as to whether continuance of the of the the criminal proceedings would amount to an abuse of process of court would amount to an abuse of process of court to an abuse of process of court an abuse of process of court abuse of process of court of process of court process of court of court court or that the the complaint petition ii filed for causing mere ii filed for causing mere filed for causing mere harassment to the accused. While we are not oblivious of the fact that although large number of disputes should ordinarily be determine_d only by the civil courts, but · criminal cases ale flied only for achieving the ultimate goal, namely, to force the accused to pay the amount due to the complainant immediately. The courts on the one hand should 11.ot encourage such practice; but, ·an the othe1; cannot also travel beyond its jurisdiction to inte1fere with the proceeding which is othenvise genuine. T'he cou;ts 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. Tlie High Court could not have discharged the respondents of the said liability"at the threshold. Unless the parties are given opportunit)i to

540 •.'

. l?ad evidence. it. is not possible to come to definite conclusion as to what was"the date ·when the earlier partnership was dissolv~d and since what date the respondents ceased to be the.partners of the firm."

16. We are in respectfuiagreement with the above observations. In the present case, reference to the complaint (a copy of which is Annexures P-7) shows that as per the case of the complainant, the cheques Which were subject rhatter.9Jthe said complaint were towards the partial repayment of the dues under the loan agreement (para 5 of the complaint) ..

J 7. As is clear from the above observations of this Court, it is well ·settled that while dealing with quashing petition, the Court fias ordinarily td proceed on the basis ofaverments in the compfaint. The defence of the accused cannot be con~idered at this stage. The court considering the -prayer for quashing does not adjudicate upon disputed question of fact.

18. In R"ng"ppti versus Sri Mo/um~, this Court held that once issuance of cheque and signature thereon are admitted,' presumption of legally enforceable debt io favour of the holder of the cheque arises. his . for the accused to rebut the said presumption, though accused need not adduce his own evidence and can rely upon tlie material submitted by the. complainant. However, mere statement of the accused may_ not be sufficient to rebut the said presumption. post dat~ cl'\eque .is well recognized . mode ofpaymentio.19. Thus,the question has to be answered in favourofthe respondent and against the appellant. Dishonour of cheque· in the present case being for discharge of existing liabtlity is covered by Section 138 of the Act, as rightly held by the High Court. ~

20. Accordingly, w.e do not find any merit in t~is appeal and the . same is dismissed. Since we have only gone into-the questiop whethcr on admitted facts, case for quashing has not been made.put, the appellant will be at liberty to~contest the matter in trial court in accordance With law.

.. Divya Pandey

Appeal dismissed . . '

'(2010) 11sec441

"'Goaplast (P) tut. versus Chico Ursula o· Souza (2003) 3 SCC 232