Suresh Chandra Goyal v. Amit Singal

Judgment reserved on:

27.04.2015 % Judgment delivered on: - 2S(S~ +

CRL.L.P. 706/2014 SURESH CHANDRA GOYAL Petitioner Through: Mr. Kshitij Sharda, Advocate, versus ,,-rp-3=!5;-E-r~, Respondent ■>) Through: f.;siMri Aman B^alla,^Advocate. CORAM:# .V % HON'BLE MR. JUSTICEtPiPTOSANGHI t : I " I i J U D GsM EM T I i ' I H j ifift VIPIN SANGHI. J. tl#

¶1■ After // #

¶2Let the appeal be regiStqrediand^^ - ^V--. " ^ '"'i CrI.A. No. ^ 72015 (to be registered and numbered)

¶3I heard learned counsel finally at the admission stage with their consent and reserved judgment. Accordingly, I now proceed to dispose of the appeal.

¶4The present appeal is directed against the judgment dated 15.09.2014 passed in complaint No. 96/2012, whereby the learned Metropolitan Magistrate, Karkardooma Courts, Delhi, has acquitted the respondent-accused of the offence under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

¶5The case of the complainant, as emerging from the complaint and the evidence led by the complainant, was that the complainant had 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 to the complainant. Xhe:aGGUsed^m.cting as the first party, entered into a Memorandum qfsTfhdefstandS'ng with the .s/" C appellant - acting . as ,the seeond^j^ig^ifgr retum^oX the said remaining investment of RsS Jaffis to tneieohihlairianL^# The ralevarit extract of the MOU (Ex.CW-ll'4)?^/«?er alia, reWs' as follbfs: ■! i! fi fifalff tj S V . M a .f-J " and whefeas the second. Chandra Gdyal has invested a s' um only) in the month of Jdhe, Sffd^Md cdsH^ &^yafiqus cheques by way ofpartnefship TheyPaftnership was broken by way Bf -mUtMaJc^pfts^e^^^ of December, 2010. and whereas both the parties agreed that First party will return full amount ofRs. 3,00,000/- (Rs. Three Lakhs only) to Second Party Sh. Suresh Chandra Goyal in six instalment of Rs. 50,000.00 (Rs. Fifty thousand only) by way of six monthly cheque starting from December, 2011 and Second Party Suresh Chandra Goyal will return all security cheque drawn in favour of second party, if any. It is also agreed upon by all the parties that interest @ 1.5% per month will be charged if there is any delay in getting the cheques cleared by the first party. " CRL.L.P. No.706/2014 --i'

¶6Thus, the complainant held six cheques of Rs. 50,000/ each, given by the accused in terms of the MoU (Ex.PWl/4). The appellant/complainant admitted the receipt of Rs. 1.50 lakhs out of the aforesaid amount. Three cheques in respect thereof were returned to the accused when the said amount of Rs. 1.50 lakhs was returned in installments of Rs. 50,000/- each. The appellant/complainant claimed that the accused, in order to repay the remaining amount of Rs. 1.50 Lakhs issued three cheques of Rs. 50,000/- each, bearing Nos. 864160, 864161 &_86^162 dated 15.01.2012, 15.02.2012 & 15.03.2012 respeetively,;!dfa^^on-4^is Bahlt^Ereet Vihar Branch, Delhi, -S-0/^ in favour of the appellant, fwmeh were exhibited as'<^Ex<€Wl/l, CWl/2 and CWl/3. The said cfieques werlfpe^sente&and were dishonoured upon presentation on a!cequht of insuffidi'ddt^nis^^fter issu^ce l)f the statutory notice dated 04i08.2012 under SeMohiSS:^^^ Act, since the accused did not n SY \\ IW ' U li lOl If If make payment, Ithe complaint was/prefeirea The accused admitted, while I making his statement under Sectidri725;-ft6f^B.C., that he was/liable to make payment to the appellarit/\<cdniplaihahtV-oft{R:S.60;QOO/-;5,.but{'denied that the I-TX _ 1 A7-liability was Rs.l,5d;'OO074</^;;?

¶7The submission of le^e4^^gHSjgg^^e€^pellant is that the learned Magistrate, while acquitting the accused, has given two reasons in the impugned judgment. The first is that the petitioner has not been able to establish that a debt was owed by the accused towards the appellant-thus, it could not be said that the cheques Exs.CWl/1, CWl/2 and CWl/3 were issued in discharge of a debt; secondly, the learned Magistrate had held that the cheques in question were given as security cheques and, therefore, could not form the basis of a complaint under Section 138 of the NI Act. CRL.L.P. No.706/2014 8, In respect of the first reason, the submission of learned counsel for the appellant is that MOU (Ex.CW-1/4) itself reflects the debt owed by the accused, and the undertaking given by him that the same shall be returned in six monthly installments from December, 2011, onwards of Rs. 50,000/- each. Learned counsel submits that in the face of the acknowledgement of debt contained in the MOU (Ex.CW-1/4), and the statement of the accused that he was indebted to the appellant/complainant - though to the extent of Rs.60,000/- and not Rs.1.50 lakhs, the exercise undertaken by the learned Magistrate to ascertain whetheFthe raGeused..was?indebted to the appellant, and the doubt entertained b^the learned Magisfrate>with regard to the said debt, itself was misdirected, andriU^aFhCt^open to Magistrate to go behind the MOU (Ex.C/W-L/4) to to whetlilr; or not, the debt existed. ii Y' It FFms /I ri d o p iji F'- \i F'. (t (A

¶9The further submission ofieafriedl.bdunsel for the appellant is that the MOU (Ex.CW-1/4) itself?recordedThaffiie repayment had to/fee made in six n 'A A' monthly installments..rl^^^^'^ubniitFtMt'Ti^^ leabSedtl^M'aeistrate has placed reliance on the cross-bxarninatiombfThe"appcllant;' ,who was examined as CW-l, as also the languagFuse,dUn~M©^(& - to the effect that the complainant/ appellant shall return the security cheques drawn in his favour, upon the installments being paid-to hold that the cheques in question were "security cheques;" and were not meant for payment of a legally recoverable debt. Learned counsel has referred to the cross-examination of the appellant's/ complainant's witness to submit that the accused never challenged the genuineness, or authenticity of the MOU (Ex.CW-1/4). In fact, the suggestion was that the complainant had received '1, ? a sum of Rs. 1.50 Lakhs in respect of the outstanding liability/ debt of Rs. 3 Lakhs. The further submission of the appellant is that the statement of the accused that the outstanding liability was only to the tune of Rs.60,000/- and not Rs.1.50 lakhs, was his mere ipse dixit, which was not shown to be even probably true. The same did not dislodge the presumption under Section 118 and 139 of the NI Act, which arose on account of the indisputed position that the cheques Ex.CWl/1, CWl/2 and CWl/3 had been issued/signed by the accused drawn from the bank account maintained by him.

¶10On the other. 'V' s-i I- ■" I supports the impugnecf^dgmbhtifeH^^subr^its' that the ^appellant could not establish the availability of monetarfdidm with him, tcTshdw that he had I I advanced any loan, and that Rs. TiMaMsBwas outstanding. The claim made . fMVMi i by the appellan{]( complainant, thatjliyhld||'arlier too advanced/a loan of Rs. % 'f 3 Lakhs, out of\ which ffqnly4RS:(ii2tXakhsf'hadf«:been rethmed was not ^ '--f-'f'" "XX believable, as there, waCmbt^reaSbh''Tbf''the petitio*ner#tofinvest a further amount in the business\of^the%aG,cusbd^"JOiphatheiihitially invested amount had not been fully returneBt^He^^j^ei^j^bmits that the petitioner had admitted during his cross-examination that the cheques in question had been given as security cheques. He has placed reliance on the decisions taken note of in the impugned judgment as well as on the decision of Supreme Court in Vijay Vs. Laxman & Am., (2013) 3 SCC 86. Learned counsel has also referred to the statement of the accused recorded before the learned Magistrate on 02.07.2014, wherein he admitted his liability to the extent of Rs.60,000/- only.

¶11The scope of interference with a judgment of acquittal, in appeal, by the Appellate Court, has been noticed by the Supreme Court in Ghurey Lai Vs. State ofUttar Pradesh, (2008) 10 SCC 450, wherein the Supreme Court held:

¶70In light of the above, the High Court and other appellate courts should follow the well settled principles crystallized by number of judgments if it is going to overrule or otherwise disturb the trial court's acquittal:

¶1The appellate courfrnc0''v^pverfule.^or otherwise disturb the trial court's.^^itt^l^^^t(hc^y'mr^^bstaraial and compelling reasons''fordbins: so. A nutfibef^ insta^^^^i^jj^ch the:.0>^eliate court would hape ,f^ry suljM00J^Ial§i^bmpellmg^edsons'' to discard thc^-^rial court'swfyfi'g.^^ "Very su^siani}ql and compelling reasons" exist I I llflH ' I

i) The trial court's concluMph^tih regard to the facts is palpablylrong; n I tJc-/Yz?/? j pyiriM\-ii}>^n_ A*/r»o/7W %

ii) The trialfpu^sfdepisitmwMsfbd^ offM^effoneods view of X'i.''-'e''*-'?- i'y // • • ^ '"ll ¥ 'Cf? Hi) The' trial court'sfjudgthyntl iS^^y%Presult in "grave miscarriage of justice

iv) The entire approach of the trial court in dealing with the evidence was patently illegal;

v) The trial court's judgment was manifestly unjust and unreasonable;

vi) The trial court has ignored the evidence or misread the material evidence or has ignored material documents like dying declarations/ report of the Ballistic expert, etc.

vii) This list is intended to be illustrative, not exhaustive. " CRL.L.P. No.706/2014 Page 6of 36 r

¶12Therefore, the impugned judgment has to be tested in the aforesaid light.

¶13The MOU (Ex. CW-1/4) has been duly proved by the appellant/ complainant. The accused has not challenged the genuineness and authenticity of the MOU (Ex. CW-1/4) executed between him (as the first party), and the appellant/ complainant (as the second party). This MOU -ky' acknowledges the debt owed by the accused in favour of the appellant/ complainant of Rs.3 Lakhs. The?-:M©UiE^int^.,,alia, records "and whereas both the parties agrefd^ lh0t\^r^i par^c mil ^return full amount of Rs.3,00,000/- (Rs. Thre!e^fdkhs grdyfitS;Secpnd Faftf.Skh^Suresh Chandra Goyal in six instdlm^fof Rs. thoils^g^dFnly) by way of six monthly chefue-itartingfron^^e^^^2Oil ... ... Thus, the factum of the jdebt of Rs.3 Laldiis|fbeiiig owed by the accused to the appellant/ complainant stands dulyMprpvl^and established by the MOU (Ex. CW-1/41. 'WCHi'u H-Pf 1/

¶14The approach%f^the4earned M the existence of the debt, and m going behind:M^U'(Ex. C^#/4)4is"€learly misdirected. No further inquiry was called for on dif^id'^Tpect since the MOU (Ex. CW-1/4) was not even challenged by the accused, and the exercise undertaken by the learned Magistrate was even barred by law. 15 . The endeavour of the learned Magistrate to go behind the MOU (Ex. I CW-1/4) was not permissible, in view of Sections 91 & 92 of the Evidence Act. When the terms of a contract have been reduced to the form of a document, no evidence could be given in proof of terms of such contract. CRL.L.P. No.706/2014 Page 7of 36 except the document itself. The two exceptions and three explanations to Section 91 of the Evidence Act do not come into play in the facts of the present case.

¶16The accused admitted as correct the suggestion that to discharge the legal liability towards the complainant, he had issued three post-dated cheques in question, namely Ex.CW-1/1, CW-1/2 & CW-1/3. However, he qualified his admission by stating that the cheques were given as security. n He did not dispute the legal hability-owed^Orthe^appellant. But he admitted his liability to the exterif "ofiRsf^BjOOof-only^^and%ot of the amount of Rs. 1,50,000/-. ^ ^ X

¶17Section 92^orfe Eyideif<^S|-Bl^^^s that wHenTne terms of any // such contract h^e been proved Spgj^ftg^^'Section 91, no e\|dence of any P ' |1 hp'''' II il oral agreement,|ior Statement shal|^^&mhed as between the jparties to any such instrument^ or their represbntati^^Mh interest for tbib purpose of contradicting, vaiying,^.aqdmgfttb^a^|iSub^^^ terms. Thus, the accused could' not n'^|fe^%ght^contra4ie1?%e^]^y^x. CW-1/4) by claiming that an amounf<o.^^^^Khs'^5^^d£l9wed by the accused, or refundable in terms of the MOU tExf eW^'f/IJ'to the appellant/ complainant. Pertinently, the accused did not set up a defence in terms of provisos 1 to 6 to Section 92 of the Evidence Act.

¶18Thus, in my view, the approach of the learned Magistrate was completely misdirected in law, in proceeding to examine the issue whether the debt in question was owed by the accused to the appellant/ complainant. The finding returned by the learned Magistrate on the said issue is clearly contrary to the terms of the MOU (Ex. CW-1/4), and certainly cannot be sustained. It is even contrary to the statement/stand of the accused that he was indebted to the complainant, though to the extent of Rs. 60,000/- and not to the extent of Rs. 1.50 lakhs. The finding returned by the learned Magistrate on the aforesaid aspect cannot even be termed as one of the plausible views. It is a finding, which the learned Magistrate could not have returned in the face of the terms contained in the MOU (Ex. CW-1/4), and the stand of the accused.

¶19The defence selM^y 0%eMsS |ut^nding liability was Rs.60,000/-, and n^t'Rs>)..5 lal0|.if|®;rely an ipiifdfxit of the accused. Neither on a reading^of the e|m|rain#^Mrom the^^ddnce led by the complainant and thci cross exammM^^®^^ complaMantl witness, the , [J i accused has been able to createi a Ireasonable doubt with regard to the quantum of the |utstanding debt^^Jhg a|^s^d has also not le^^ny evidence to show that the ktstandteJidii^^ and n^ Rs.1.5 lakhs. The accused, to rebjitThe,m.resumptW S'emiot§y9 fead with Section 118 of the NI Act, hds^.setvup^ldeWfCprpbabl^^^^ The defence cannot be frivolous or moonshin^^^^WlgqtJeim^^^ a "possible" defence.

¶20This Court in KS. Yadav v. Reena, 172 (2010) DLT 561, commented on the obligation of the accused while setting up a defence to repulse the presumption created by virtue of Section 118 and 139 of the NI Act as follows: "5. It must be borne in mind that the statement of accused under Section 281 Cr.P.C. or under Section 313 Cr.P.C. is not the evidence of the accused and it cannot be read as part of CRL.L.P, No. 706/2014 evidence. The accused has an option to examine himself as a witness. Where the accused does not examine himself as a witness, his statement under Section 281 Cr.P.C. or 313 Cr.P. C. cannot be read as evidence of the accused and it has to he looked into only as an explanation of the incriminating circumstance and not as evidence. There is no presumption of law that explanation given by the accused was truthful. In the present case, the accused in his statement stated that he had given cheques as security. If the accused wanted to prove this, he was supposed to appear in the witness box and testify and ; get himselfsubjected to cross examination. His explanation that he had the cheques as jecurfy^fyr^taking loan from the complainant but np<^lofm^ wqSf/gfyenf^ not have been considered by the ^'TridijGdiii'Pds hisjSidenB&^jmd this was /r (i "--A. liable to be f^0ected-mnce theymcc^^ didihgf appear in the witness boyfio^^pel thfkpKfsfm00p0iat ihe,^cheqpes were issued as fecuijjp. Mere%^^0Jyg^0p0he witneks'ihd^fheques were issuedZiqs security §^^r000^^0planation ^iyehf^ in the statement! of accused un%er0^epkb^ 281 Cr.P.C., that the cheques yi;ere issued as se0M0^jmes not amount to^proof Moreover, the Trial Court lsAmed\d) be obsessed with!idea of proof befgnd reasonablefdp0t;ffgrgetiing that offencf under Section of 0f^Af^w^00M0rmaI^^ the complainankis pnfyfstdpposedi^fdfmove tmtfHefypeqiies issued by the resporidenti^iepe dishgnoured,pifHatemehjfihat cheques were issued agdinsfpdpilit^0%0eh$^^^ proof of the debt or liability anajhefpfyussshiftsktrfhedespondent/ accused to show the circumstances unSePWliich the cheques came to be issued and this could be proved by the respondent only by way k: of evidence and not by leading no evidence. "

¶21The Court further observed: "7. Mere pleading not guilty and stating that the cheques were issued as security, would not give amount to rebutting the presumption raised under Section 139 of N.l. Act. If mere statement under Section 313 Cr.P.C. or under Section 281 Cr.P.C. of accused of pleading not guilty was sufficient to I a rebut the entire evidence produced by the complainant/ prosecution, then every accused has to be acquitted. But, it is not the law. In order to rebut the presumption under Section 139 of N.I. Act, the accused, by cogent evidence, has to prove the circumstance under which cheques were issued. It was for the accused to prove if no loan was taken why he did not write a letter to the complainant for return of the cheque. Unless the accused had proved that he acted like a normal businessman/prudent person entering into a contract he could not have rebutted the presumption under Section 139 N.I. Act. If no loan was given, but cheques were retained, he immediately would have protested and qskeddthei cheques to be returned and if still cheques werej^Tj-eturned, he^would have served a notice as complqmanf Nothing was proved mjhisxase . N" 'O j/% n %

¶22The accused#aid''^n6t leadfah>%^Slideiree to shdw^that apart from the amount of Rs.l.'S lakhs, admittedl#Jreturned?to the appellant/complainant after the execution of the MOU a further sum pf Rs.90,000/- fl f a was returned by the accused to ttfeiicbm^l^inant. The accuse! did not step into the witness\box to stand Kfem^ in this respect? He did not A A V ^ 1 A produce any documentaiwfeMdencei?in\theporm:,;Ois'an acknowledgment or receipt nor claimed^thaToiie had been, issuedf-bypB^etcbnipiainant, to show that the said amount, i."^^J^9,^0^%i^ad?i^^^al€^td^'the complainant over and above the amount of Rs.fTS^lal^s-ad'mitte^ and acknowledged by the complainant. He did not produce any other person as a witness in whose presence the amount may have been returned.

¶23The parties, admittedly, recorded the outstanding liability of the accused, existing on the date of the execution of the MOU (Ex. CW-1/4). In this light, it does not stand to reason as to why they would not record the repayment of the amount of Rs.90,000/- in some form, if the money had actually been so returned by the accused to the complainant. Pertinently, CW-1 in his deposition stated that at the time of repayment of Rs.1.5 lakhs in three instalments of Rs.50,000/- each, not only three security cheques were returned by the complainant to the accused, but the accused also got the vouchers signed from the complainant. On this aspect, there was no challenge raised by the accused during the course of the complainants cross examination. Thus, if the amount of Rs.90,000/- had been returned, over __ and above the amount of Rs.1.5 lakhs, the accused would have been holding not only a receipt/ackno.wJeafmept-sgw complainant, but the complainant would ndf ha'yejbeen in,^|3pssessi6n qfralTthe three remaining security cheques d#Rs. %,000/- each. At least, one of them wMd have b^igrgfhKfeb the accused, ^hus, it stands .U,-U..U ^ A W . established beyond all reasonabMpubphlf the debt of Rs.liSO lakhs was fl Ir outstanding and! payable by the aeeuledito'lthe complainant when the three Cheques m question were presentbdTor payment. if n . n n n A'

¶24The next issue tnat-neeps ekamiMtitih is .j^l^jfibrJhd^complaint of the appellant was maint^ybli; NI Act since'the cheques in question were "secUri^^gu^g^^MOU (Ex. CW-1/4) itself provides that the first party/ accused will return the amount of Rs.3 Lakhs to / the second party/ appellant in six installments of Rs.50,000/- each by way of six monthly cheques starting from December, 2011 and second party/ Suresh Chandra Goyal will return all security cheques drawn in favour of the second party, if any. Thus, the MOU (Ex. CW-1/4) provided that the amount ofRs.3 Lakhs shall be returned by way of six monthly cheques. The complainant (CW-1) in his cross-examination accepted that he had in his Page 12 of36 • s II possession some security cheques issued by the accused. He further stated that he had received Rs.1.50 Lakhs in cash from the accused. He volunteered that the same was received by him in three monthly installments of Rs.50,000/- each and that whenever the accused had given a sum of Rs.50,000/- to him, he had taken back a cheque, and had also got the voucher signed from the complainant. He stated that he did not have the said security cheques with him anymore. He accepted that the security cheques have been filed by him with his complaint before the Court. It is. therefore, evident that the^jtransactioa betweerf'the, parties was that at the time of execution of the'MCtJX'Ex'! CW-1/4) sixpostsdated monthly cheques of Rs.50,000/- each^ tojvafds seiairi&l^yyeiietdelivered^^^^^ the accused to the / ^ "I complainant/ accused'. These#cl%lutsMwere issuefi}MnVespect of a crystallized and/admitted debt oflR^Sf^LaMiE The accused returned Rs.1.50 fl P Lakhs to the complainant in cash,^ ih!three||installments of Rs.60,000/- each I

Mi I and on each such occasion, ih#4Gompfaihant returned one cheque of Rs.50,000/-. AcGordinf'#oi;5,tfi^/Gbmplaihaht/vthetj amount of \ Rs.1.50 Lakhs was hb,t^fetumed'-and,^&i^Jhesap^ to enforce the security by presentin|¥J%''t5^^^febunl^^eque^tEx. CW-1/1, CW-1/2 & CW-1/3), which were dishonoured/^' "^

¶25It has come in evidence that the cheques (Ex. CW-1/1, CW-1/2 & CW-1/3) were all filled up in all respects by the accused at the time of their being delivered to the complainant, simultaneously with the execution of the MOU (Ex. CW-1/4). The said original cheques are placed on the Trial Court Record which has been summoned and perused, and it is clear to the naked eye that they had been filled by the same person, and in the same ink. It is not even the case of the accused that these cheques were blank when given to the complainant, or that the appellant/ complainant had filled them up subsequently. Even otherwise, merely because the cheque may be blank in some or all respects (except that it bears the signatures of the drawer), and the blanks may have been filled in by the drawee subsequently, that by itself does not invalidate the cheque. It cannot be said that a complaint under Section 138 NI Act would not lie in respect of such a cheque, consequent upon its dishonor for reason of insufficient funds [see Sandeep Khanna & Anr. V. State & Ors., MAUM'fQUl23B^I-^Q\QCF^vi-^hopra v. State &Anr., 2008 (102) DRJ 147)#"

¶26The submissiomoT learnbdlcouh^ilifofethe accused¥:is,%nd the finding returned by theSiearfeed • Magistr^®§|^^^|e said three'-€he|ues Ex. CW-1/1, CW-l/2 &|CW-l/3 being securMfeheques, could not formlthe basis of a |i y iji i/ , j-j complaint undenSection 138 of the^^cIA,, ']

¶27Reliance had been:iplabed.by>?the,AaebUsbd:/^^^^^^ itidgment of the Supreme Court m MiS:%^dmyttna Menon.-@^Mdrii' Vs.4State of Kerala & Another, (2006) 6 SCC''39;^Of5Jtis^^ D. Vs. State of Delhi & Another, MANU/DE/i53S7J0Tl,' 'and; of the Supreme Court in Vijay (supra).

¶28There is no magic in the word "security cheque", such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a "security cheque", the Magistrate would acquit the accused. The expression "security cheque" is not a statutorily defined expression in the NI Act. The CRL.L.P. No.706/2014 NI Act does not per se carve out an exception in respeet of a 'security cheque' to say that a complaint in respect of such a cheque would not be maintainable. There ean be mirade situations in which the cheque issued by the aecused may be called as security cheque, or may have been issued by way of a security, i.e. to provide an assurance or comfort to the drawee, that in case of failure of the primary consideration on the due date, or on the happening (or not happening) of a eontingency, the security may be enforeed. While in some situations, the dishonor of sueh a cheque may attraet the penal provisionsgc6ntained';inT7Section^Ti38 of the Act, in others it may not. i ^

¶29To elaborate ,on/the afbfe§^id§sp0OE may cbnsid^r the different ■f *>5-V\ kinds of situations tllat the Court^^^p|^|M^with from time to^time, and the manner in which the defenee of f^fe^itVllheque'', or that the cheque was given as a security, set up by theycd^sedlhas, been dealt with, ll

¶30In ICDS Mtd. 6^^'SCC 426, the cheque in question nadH|^en issued by th^.guafanfofe5,(^fe) of the principal debtor (husband) m respeGt^ofvaJ^ipurchasgsai^^ entered into by the principal debtor with the complaihahtToFpirchase of a car. The cheque in question was issued by the guarantor towards part payment to the appellant/complainant. The same was returned unpaid on aecount of insufficient funds. The issue raised before the Supreme Court was whether a complaint under Section 138 of the NI Act was maintainable in respect of the said cheque. The High Court had come to the conelusion that when a cheque was issued as security, no complaint would lie under Section 138 of the NI Act, since the cheque issued could not be said to be for the purpose of discharging any debt or liability. The High Court held that the cheque must be for payment of money from out of the drawer's account. In the case of a cheque issued by a guarantor or surety, it could not be said to be for immediate payment of money. The High Court placed reliance on the decision of the Kerala High Court in Sreenivasan Vs. State ofKerala (1999) 3 K.L.T. 849 wherein the Kerala High Court had observed: "A comparative reading of the principle laid down by the Andhra Pradesh High Court gnfjhe mandatory provisions laid down in Section 13,8:^^ tlie^^Ns^ Act is crystal clear thajt^yvli^(a'^jch§qMe has %em4sMed as a security, no complaint/mil liefunder^Sgction ISS^pf ,th\ Negotiable Instruments jfct - V"- insirumcnis^ci X, \\

¶31The Supi^ine^ourt reV^^(^,|4€^teision of f^e;._ High Court by placing reliance/on the languagewf|SeGtipnwl38 of the NI Actl Section 138 . ii It tf huil ',..1, ".11.5SJ/:iU],j| begins with the-word, 'where ahyfchemei. These three' words were held to be significant. In partieulaE' /emphasis was laid on /the use of the • ,•■4 'V- // word, 'fl«y'-which\suggdsts^that*iif\/fof whatey# reason a cheque drawn on an account maintairiedw5the*drawer withTh^'bahKer ihTavour of another person for the discharg^Q|^|^gD^jbr^^^.^l^.ifril^ is dishonoured, the liability under Section 138 Nl A^"'ckWn6t"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 Nl Act. The Supreme Court held that the issue regarding the liability of a guarantor and the principal debtor being co-extensive, was out of purview of Section 138 of the Nl Act and did not call for any discussion. The Supreme Court held: y CRL.L.P. No.706/2014 "11 The language of the Statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act. 'Any cheque' and 'other liability' are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the Statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of grantee and guarantor's liability and thusrzha&iigyprlooked the true intent and purport ofSectiopd'SSnf the Act. H 0-Thus, the view taken? By the^iKerala High^CoUit in Sreenivasan (supra) was cle^ly appr^|^h|fe™|^|^|reme The Supreme Court rejected tlie w^e proposi^j^Ji^ll^iishonour o£a s^^urity cheque a %mMmt " t issued by a guarantor from his accQUht%vhUid not attract Section 138 of the NIAct I I I .MItk

¶32The accused has id has plfchdTChahc^.on/MiS'/i'pra^ Menon (supra). In this case, the cheque^ffadj, been issued by^The^<appeH - who was transacting shares withvthe,^ share-t?broker/(seg0nd^T;espondent/complainant. The appellant/accused disputed"thfest^^ent-OT"account relied upon by the complainant, on the basis whereof it was claimed that the cheque amount was due and outstanding. The Supreme Court examined the nature of the transactions undertaken between the parties in the light of the evidence before it. The Supreme Court held that the complainant had not been able to explain the discrepancies in his books of accounts. The complainant did not bring on record any material to show that the parties had transactions, other than those which had been entered into through the Cochin Stock Exchange. The Supreme Court held that the so called acknowledgement, as correct, of some of the statements of account was not enough since, admittedly, there was no acknowledgement in respect of fiye statements of accounts. After examining the evidence, the Supreme Court observed as follows: "26. In view of the said error of record, the findings of the High Court to the effect that the appellant had not been able to substantiate his contention as regards the correctness of the accounts ofEx.PIO series must be rejected. "

¶33The Supreme Court thempfd^efdidto^delve into Sections 118(1) and 139 of the NX Act whicftTaise|ajpWshmptiomd|gtinst^the,drawer of a cheque. In para 52 of the judgment, the Suprelie5Couft, interaJlia, dbserved; ' ^Y"f " 77z|' appellant cledf^f0aj^^h0^nothing isfdjie^and the cheque \^as issued by The said defence has been accepted as probabl4 ffffth^^defence is acceptable as probablef0e cheque therJffre %p0hot be held to have been issued inXdischarge of th^fd£b§;a^foi%^ample, if a cheque is » 'Ort \ . aV'."? t'A nn nwtv nthi?r)'ntM (emphasis suppl!edfe> ''''^w

¶34The aforesaid observ^fionS^made by^thb^'iSupreime Court in Narayana Menon (supra) have been relied toTafp'tfiafin respect of a cheque issued by way of security, a complaint under Section 138 NI Act is not maintainable.

¶35The aforesaid observations have to be read in the context in which they were made. It is well settled that a judgment cannot be read like a Statute. Construction 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 r-CRL.L.P. No.706/2014 )h 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 SCO 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: "755. While analyzing^^fferent~--idecisl^s rendered by this Court, an attempt has^beenjp^cie^T^*^bad''the^ud^ as should be read under the rfile QfpmC'etents. A aedisior^^^tdsjrite, should not be read as asfatute.^''^' f r^" V \

¶139A decisio% isHan authoMt^fdr-AheWde^ions of law'determined by it. While applying the ratiyi^H'e/ebkrt^may not piclc-^Ouila word or a sentence jrom the judgr^e00,i^.^j7ced from the coritext in which the sdid question arose ^^op^^yisi^eration. A judgment as is well-known, \must be read in its ehtif0vtand the observation^ made therein should receive considierdtibMinHhe light of the questions raised before if. (See/f[d}^piiq.'F4pqncialfCqp^ and Anr. v. Jagdamba of India and Ors. v. Dhdh^akiiff5eVi::^(md Ors.^,i.^ff99d^f0^SjCC 44 , Dr. Nalini Mahajan v. '^^I^ifep^^f>I^o^fff^-'(Ifiyi'stigation) and Ors., [2002] 257 and Anr. v. Synthetics and Chemicals Ltd'^dhW'Whr , 1991 (4) SCC 139 , A-One Granites v. State of UP. and Ors., AIR 2001 SCW 848 and Bhavnagar University v. Palitana Sugar Mill (P) Ltd. and Ors.,

(2003) 2 SCC 111.

¶140Although, decisions are galore on this point, we may refer to a recent one in State of Gujarat and Ors. v. Akhil Gujarat Pravasi V.S. Mahamandal and Ors., AIR2004SC3894 wherein this Court held: "... It is trite that any observation made during the course of reasoning in a judgment should not be read divorced from the context in which they were used.

¶36The Supreme Court in Narayana Menon (supra) was not particularly dealing with the issue as to whether, or not, a cheque issued for security or for any other purpose would come within the purview of Section 138 of the NI Act. The observation of the Supreme Court as extracted above cannot, therefore, be understood as laying down a general proposition that a cheque issued as security would not cQmeswithinThezpuiview of Section 138 of the NI Act in all eases. SuphTeadingJ)i'theljudgment would go contrary to the •express language the M^Acf,^which uses the expression, where ^qnp chequ^^^f^^^ffp0payment^j:pf any amount of money oftmy^debtorotheniwdjlfiMm^...'. t wfmsm0 u p fi /I H n n

¶37The Karnktaka High Court|in|]|l/||'^/i^ Ganesh Steel R^ olling Mills Ltd. V. M/s SfipL Limited, C^minal-^ltltion No.4104/200^ decided on

21.05.2013, 2O13^CC4<gi!Mhe^^®093ai®(2O^ I&nt R 70, inter ,. , ,. "x--- .41 aha, observed m relatidB^^drajijipfl Menonf^\xpT^Yf ''It is to be noticed thdt^tJjef^servatidf^.yaade by the apex court in Narayana Menon's case thai "I... if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act This was a passing observation in that case with reference to the facts found therein. It cannot be construed as an axiomatic statement of law to be mechanically applied, in all circumstances'".

¶38I 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 hurden 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.

¶39Thus, the decision in Nqrjiyana'-MmonJisupYa) is of no avail, as it cannot be said to have^laM^^dO^h^anyigeneraLpro that a complaint under Section 138 M''Actxw6'uld..not^lfe^aintainahleTmr&pect of a security cheque or a cheqqe given as a'-s^ljqpfKtMasspre the performance of another I

Ww i

¶40I may take note of a decision ;pf.\the Karnataka High Court m M/s. A-6 issued a hundi in faVbur 'Sf the accused^A-Htowards'supply of certain materials. Under an agfeemen|.'%eMeeni^^ complainant, the complainant discounted the hundfaMd^afd'ah amount of Rs.50 lacs to A-1. In addition to the discounted hundi, A-1 also issued a cheque as security to bind himself, in case A-6 does not pay the hundi amount on the due date. Eventually, the hundi was not paid hy A-6 and the cheque issued by A-1 was presented for encashment, but was dishonoured. Consequently, after issuance of statutory notice under Section 138 of NI Act, the complainant preferred the complaint. The accused raised several defences, including the defence that the cheque in question was a security cheque. In this regard. the parties and peru^qd>ihe infirmity^ the impugned ordef\ Thus, Ae^iew of tfi^^itbKMigh Cou&->-intoA. Klen & the accused relied on the judgment in Sreenivasan (supra). By referring to an earlier decision 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 Kamataka 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.l. Act. Criminal Appeal No. 1842/2008 from th^judgment of the Kamataka High Court m M/s Klen & MarsKali^ -syas^disniissed by the Supreme Court on 17.08.2010.by obieiwiSng"thatj'77av//f|' h^arMearned counsel for us^ddhe recofdtiMeifiha " pMMl Marshalls (supra) was affirmed.'^|^^^ ' | i IlifWl {I .

¶41In Bhkshi v. State, 146p()(|^]|LT 125, the issue/that arose for y, ^ .. ■''-Vv p. consideration before this^<CQurtH|vas|thb scbpii and-ambit of the expression, other liability occui^ing> in^Sectidh^^ the'*'5^f?^et.,# collaboration agreement was entered^nt^bg;(w||mfoe'^^ Buildwell Co. (referred to as ABC) - whdse^direetorswvefCth before the Court (in a petition under Section 482 Cr.P.C. seeking quashing of the summoning order issued by the Magistrate), and another company who was termed as the confirming party. Clause 5 of the agreement stipulated that, as a security for due performance of the agreement (whereunder the immovable property of the complainant had to be developed by ABC), a defined sum was to be deposited by ABC with the complainant and other owners. ABC issued 30 cheques in favour of the complainant. Six of these cheques were / ^ dishonoured upon presentation with the remarks, 'exceeds arrangement'. After issuance of the statutory notice of demand, a complaint was preferred wherein, apart from a company ABC, its directors-which included the petitioner before the High Court, were named as accused. The submission of the petitioners before the High Court was that the sine qua non for an action under Section 138 of the NI Act is that the dishonored cheque has been issued towards discharge of "a debt or other liability". The expression, 'other liability' envisaged under Section 138 of the NI Act was akin to a debt or money owed: '' |tf,vv^as'^^argued^^^ cheques in question ii B t fl (Q) could not be said to have beetf'issued towards' payment,of a debt or other liability, for the reasonf^that theiramquht^'oyefed by the^cheques, m terms of clause (v) of the/colfeboration "a^b^Bht^as liable t^bfe returned by the complainant tc)'| the accused co^mySqw the due performance of the agreement. I! I U

i) n ^

¶42The petitioner had;.splacedTeliSnceV6rilthe-^decision of the Supreme Court in Narayand\Mle^dh'<(supfd)f^'fm^ Couft heldjhat the expression, Vv*5^ "C: '«r./ 'other liability' could hof'be cPpstmed^^af'akinyto It was held that the expression, 'other //aZ>///(v'%ouId^akq^it^meamng and colour from the preceding word, 'debt', only if the rule of ejusdem generis is held to be applicable. The learned Judge held that the said rule could not be invoked because the expression, 'other liability' follows only one single expression i.e. 'debt' which is not a distinct genus. The learned Judge placed reliance on the judgment of the Supreme Court in Beena Shabeer (supra) to hold that the expression, 'other liability' must be given its ordinary and grammatical meaning. The learned Judge held that provisions and phrases used in Section 138 of the NI Act must be construed in the same sense, as people in the commercial world would understand the same. Thus, the expression, 'other liability' would take within its broad sweep any 'liability' to pay. The Court also held that the term stipulating creation of a security deposit in favour of the complainant was a fundamental term, breach whereof went to the root of the contract, entitling the complainant to rescind the contract. The Court, inter alia, observed: "31. A distinction has to,Jb.er-drW^rr-bet\y^en a cheque issued as security and a cheq^^'isjjied^t^dfdsidi^cM of a liability to pay notwithstandihg(tHhMke rnoney ii ky yyqy-of security for due performqpcefbfjTie coptraci^?A ^feque^giy^q ds^security is not to be enbashgd in pr^skMtr$Mt$becprnes elriforcedble if an obligationfisffuture is nofffffgi^^ff'^'lt is notftehdered in dischargejofafiability wHi^^^PTdfcfped.

¶32Thiis where a chequdfdy^^0ft of a consideration under q contract it is paid towards^ pjliabUity. " | \t • rfSiS-.-Ai ,y u " fx \ . ? li \\ |;y /;

¶43The Court also ^heldThat me|gx^ used in the Contract Act is a veiy^wideTermj^an^Ms,;^^ monetary benefit. Consideration does not heeessarij^|me return of money, or money in lieu of goods, or services. Any benefit or detriment of some value can be a consideration. The Court held that the complainant and the other owners of the property blocked their asset till the period of completion of the construction as per the collaboration agreement. The same was the consideration within the meaning of Section 2(d) of the Indian Contract Act. Thus, the reciprocal obligations of the builder, namely to create a security deposit was also a consideration for the contract. Consequently, the court dismissed the quashing petition. ■r / 7

¶44In SaiAuto Agencies through its partner Dnyandeo Rantdas Rane v. Sheikh Yusuf Sheikh Untar, 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 entire purchase consideration, and that the cheque in question was without consideration. The Court rejected the defence of the accused that the entire consideration stood paid to the appellant supplier. Relying upon Beena Shabeer (supra), theiTIifh Court qbseiw^&r"

¶7■'7' i e _ • ■ /A, J? M^-issarily.^ig'0ie^-^e gif^M (i^ecurity, if bounced, sHdllfhe' the SubfeMwAfkrPbf a prosecution under C loM vV A , A 41 4 Section 13'8 omhe Act. Somheicontention of the^accused that cheque (fxhibit 28) was^0?^d0t^^ as a security will not enable him to escape from^ifte^cfMenks of law". 1? i fjlilirf (emphasis siijjplied) l\ 7 ®'I 'I

¶45The HiglilCourt further hefMsjfolib^L k "P. Even4£blant^eheque^^ or even as secuHl0^])'mffheJiability is qsjehefi^pa^quantified, if the cheque is ftlled*mp'^ndZpvese^ the^bank, the person who had drawn the^-'Cj^equet^mij^^yoidAhe 'criminal liability arising out ofSection 138'8fAhe~NegbTidble Instruments Act". Thus, the myth that the dishonour of a cheque given as a security, cannot be the subject matter of a compliant under Section 138 NI Act was busted in this decision as well.

¶46I may now deal with the decision in Ravi Kumar D (supra) relied upon by the respondent. In this case the petitioner preferred a petition under Section 482 Cr PC to seek the quashing of the complaint filed against him y % under Section 133 of NI Act by respondent no.2, on account of dishonour of three cheques of Rs.25 lacs each. Respondent no.2 placed an order for supply of machinery and spare parts on the company of the petitioner, and gave a cheque for Rs.90 lacs towards advance payment. The said cheque was encashed hy the company of the petitioner. The company of the petitioner failed to deliver the machinery/spare parts. When approached, the petitioner expressed his inability to supply the machinery/spare parts and requested the respondent no.2 to treat the amount of Rs.90 lacs, given as advance payment, as a loam^^The ;pet=itionerJssuedxa post dated cheque for Rs.70 lacs m favquf o^^respdndent^. no.2.^ cheque, upon presentation, was/repeitedly dishdridufedihyi. the drawee%ank. Then the petitioner issuedf/thejthree cheque|^Miii|Mn of Rs.25'3'acs^each in favour of respondent np.2 as security, dnd%tat|d®at in the event of the cheque of H 1 ^ }fts r I] Rs.70 lacs heiiig again dishonour;edUi"^^hondent no.2 may encash the said fe three cheques given as securit)ff^6wever#the cheque of Rs.70 lacs was once again dishdhpured'M^rekentatidti.^^^ a legal notice upon the petilidhenian'd''his companysmrider^-SVction 138 of NI Act. However, no payment wla^^^Jlgbn^ii&l^-;?r^pondent no.2 filed a complaint under Section 138 read^WiM''SeSion 141 NI Act. Respondent no.2 also presented the three cheques of Rs.25 lacs each for encashment, which too were dishonoured with the remarks "account closed". Another notice under Section 138 of the NI Act was issued in respect of the said three cheques upon the petitioner and his company. Since the payment was not made, three separate complaints were filed in respect of the said three dishonoured cheques of Rs.25 lacs each. -Tv

¶47The submission of the petitioner before the High Court was that the said 3 cheques in question were issued from his personal account only as a security with the assurance that the cheque of Rs.70 lacs issued by the petitioner's company would be encashed upon presentation. Therefore, it was, claimed that the three cheques of Rs.25 lacs each could not be stated to have been issued in discharge of an existing liability and, therefore, it was contended that Section 138 of the NI Act was not attracted. It was also argued that the complainant had preferred multiple complaints -both in respect of the cheque of Rs'?7() laGSFand^alsojthfee. different complaints in H S. O respect of three cheques oT^!2'5 lacs^each. -

¶48The Court,fbyJpiacing fllianliJ^J^flyartfl MenonUsupra) and in particular the extrateCof the saic£ifG^;ib®s|quoted above'lrlpara 33, held p ii that Section 13:8 of the NI Act isjattrMtbclfonly if the dishonoured cheque [1 _ Ih \l ff I If ^ was issued in whole or in part payihentlofvan existing debt ofi liability, and I n n I that the said section ^ ^ j .J. liability, which may, anac^onThe happening ofesbrne^cont-mgency. It was ifsu^df held that a post dated cheque,vifr.issuqdTKfSispharge'^^ due debt, in event of dishonour, would attract'Sectmn^I^S^f jHAct, but a cheque issued not 'A existing debt/liability, but issued by way of a security for meeting some future contingency, would not attract Section 138 of NI Act.

¶49Firstly, I may observe that the present is a case where the post dated cheques in question were issued for discharge of a due debt, since the debt was existing at the time of execution of the MOU (Ex. PW-Cl/4) between the parties. Secondly, what appears to have influenced the decision of the Court in Ravi Kumar D (supra) is the above quoted extract from Narayana Menon (supra), which does not appear to be the ratio of the said decision. The Court while deciding Ravi Kuntar D (supra) has neither considered the earlier decision in Beena Shabeer (supra), nor the decision in K.S. Bakshi (supra). Since Beena Shabeer (supra) is an earlier deeision of the Supreme Court, whieh has not been dealt with in Ravi Kumar D (supra), the view taken in Ravi Kumar D (supra) would not bind this Court and this Court is bound by the ratio of the decisions in Beena Shabeer (supra).

¶50In Indus Airways Pvt Ljd^&^0rm-v,Magnum Aviation Pvt. Ltd., IV

(2014) SLT 321, the.^jqi^tip^f#af8an)sQ%» c6hsideration before the Supreme Court was,<Swh^thCT'the^po^Sisd.chequ#s45|V^4by the appellants (purchasers) as ah advShce pay|Si^^^^^4^ of purchase orders could be f/ considered in dischrarge of a legE^ll'ypnfbit^eable debt or other liability and, if if ' . so, whether the dishonour of suchlchedues amount to an openee under E E Seetion 138 of MI Act. The appellarits'ihblore the Supreme Cjburt were the - /f if purehasers who had plaeed^purGnas®Mersfahd issued post dated eheques in favour of the resp6hden€jt,myards''aSWhci" payffi^^ the terms and conditions of the contrac?^v"as5that3he'enhfe-p>yment.^6 be made to the supplier in advance. The suppli'^Jlgi^Jat'tfii' advance payment had to be made, as it had to procure the parts from abroad. The eheques were Jp-dishonoured upon presentation on the ground that the purchasers had stopped payment. Thereafter, the purchasers eaneelled the purchase orders and requested for return of the cheques. The respondent/seller insisted on collecting payment and initiated a eomplaint under Seetion 138 of NI Act after sending a demand notice.

¶51This Court, following its decision in Moji Engineering Systems Ltd. & Ors. V. A.B. Sugars Ltd., 154 (2008) DLT 579, held that the issuance.of a cheque at the time of signing such a contract has to be considered against a liability, as the amount written in the cheque is payable by the person on the date mentioned in the cheque.

¶52The Supreme Court did not agree, and held that to attraet an offenee under Section 138, there should be a legally enforeeable debt or other liability subsisting on the date..^ofedrawai=ioTThe cheque. In other words, drawal of the cheque in4ischarge\^f'fetistingor/pasf liability is a sine qua non for biingihg ah Sectibri!;^!^ 8%,f the NI Act. It nne qua non for brmgirig ah offenel^lffi'der Sectibri!J88%f • c-A'/C,-- .•j" ■(£% V. %, , ^ was held that ii the pheque is issuedsasiaii"adyiance paymenfTor purchase of ff ^ w goods and, fonJariyCreason, puijcha^e^d^^^ is not carried \to its logical conclusion either because of its cahcellktioh or otherwise, and the material j.re" 1, . . i. ismii, or goods for which the purchase Qrd|r|wia4piaced is not supplied, the eheque eould not be held\to have4been drawn forfah e'xistingKdebt or liability. It was held that the paynfentSrhad^^^^ a 6he^uf"ih the?hatU^e^b%kdvance payment indicates that at the time^6f|[rawalj5Teheque,Jhere^w existing liability. While disagreeing with the%ew-^f~this"Courtr^^^ 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 CRL.L.P. No.706/2014

¶53cheque. 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 otherwise and material or goods for which purchas^'ofd^'Wa^ is not supplied by the supplier, in our^considered hieWMhe ^hequ cannot be said to have been drawnfor anexistmg'debtor liability. f ^ &n}|hasis supplied) The SupremefCburt referflMMfe^afeions of tM Andhra Pradesh High Court andiGujarat High Couj^^'s®te Itj n n Vi 4 IH; It tl . S jl . nn n I ''14. In %vastik Coaters ^ffbtfy^Deepak Brothers arid Ors., rn/rr r in^'^ /■ a S 1997 CrfL.J 1942^ (AM)Xt0kslfiglf\ Judge of the&Andhra Pradesh High CouHl^whifeMddhsM^i^ing^^^ to Section 138 hejS^y^a ExpldiiqtiQMiid^ieMohi'M^^ Instruments A'ct^e^wjyffn^ that the cheque shall be relateaBle to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered...

¶15The Gujarat High Court in Shanku Concretes Pvt. Ltd. and Ors. V. State of Gujarat and Anr., 2000 Cri.L.J. 1988 (Guj.) dealing with Section 138 of the N.I. Act held that to attract Section 138 of the N.I. Act, there must be subsisting liability or debt on the date when the cheque was delivered. The very V iZ V fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques would take the case out of the purview of Section 138 of the N.L Act. While holding so, Gujarat High Court followed a decision of the Madras High Court in Balaji Seafoods Exports (India) Ltd. and Anr. v. Mac Industries Ltd. 1999 (1) CTC 6". (emphasis supplied)

¶54Reference was also made to the decision of the Kerala High Court in Supply House, represented by Managing Partner v. Ullas, Propreitor Bright Agencies & Am., 20O'6'Cri5. M) 4T330..(Kdfdla). In this case, the post dated cheque had beeii issued the»a,ccuse(Fwhile placing the order for supply of goods. # However, 4h'ejMMMo^^^ Ws nipt made by the complainant. Cbnseqhcntly, tli|M||uMi|fife^ instructcph^bank to stop f payment of thcfchcquc, and thciifeqjdfet#thc complainant not to present u Isl'iMll-f .1 the cheque as tie goods had not beep supplied. The Kerala High Court held I . ylij. p that the said chlque could notfri#faid lovbei one issued in discharge of a liflbilitV -yv ' "I •• ' ' "I'v. /"!- naoiniy. v« j \ tsiSTfeiju - • x < ,:n % 4/ V,

¶55I may refer ta:|^pcffi^|lMsi|m Haryana Petrochemicals Ltd. & Anr."Pl^Li^i^^etKOGh^micals Ltd. & Anr., 2015

(1) JCC (NI) 11. The petitioner, Haryana Petrochemicals had issued cheques in lieu of supply of chemicals by the respondent Indian Petrochemicals, which had been dishonoured upon presentation. The learned Magistrate had convicted the petitioners under Section 138 of Nl Act. The said judgment was endorsed by the learned Sessions Judge. Consequently, a revision has been preferred before the High Court. The primary submission of the petitioner was that the cheques in question were ■<- -f \

i--- security cheques, as it was a regular trade practice that after the goods had been received by the petitioner company, fresh cheques in lieu of the security cheques were issued by the petitioners. It was argued that the security cheques, by themselves, would not constitute a legal debt or liability of the petitioner towards the complainant. The Court observed that the manner in which the parties transacted their business was, that the complainant company would send the goods along with the invoices as per the value of the goods. The petitioner/purchaser enjoyed a credit facility, i.e. the payment was not ta,br''^de imn^ediatply^ of goods. For this reason, the security cheques were issued .by The^petitioner at the time of taking delivery of/t^^jgoods.i However,- they wefd to be returned upon receipt of payn:i,ent4]|y the respondent/seller. In casej^payment was not " 'As- - J forthcoming, th| security chequesi^erelcpnsidered as consideration towards I ■ 'iii-fti-if I supply of goodl, and the respondfplfMldlbank the cheques. SThe cheques . .. . I m question hadA similarly been#lMil%d^^^^ payment wasAot otherwise %■ ■■ -Tf'Y'"' A made by thepetiti^ner/^^^>bh.tfie"expJ|^of the credit penod.

¶56This Court, by placing^reliance^on^Be^iifl^i^^aAe^e/' (supra), reiected the petitioner's submissiort^&Ohggeques iiff'question being security cheques could not be the foundation of a complaint under Section 138 of NI Act. In the present case as well, the transaction clearly stipulated that the cheques in question were issued as security cheques, which were to be returned upon receiving payment in installments of Rs.50,000/- each from the respondent/accused by cheque. The oiily difference is that in Hutyana Petrochemicals Ltd. (supra), the Court found that as a matter of the inter se dealings between the parties, whenever the payment was not made at the end ¥' V •V of the credit period, the security cheques were banked for realization of the amount due. However, in the present case, there is no express agreement of the parties to this effect, and there is no established practice of this nature between the parties. Pertinently, the MOU (Ex. CW-1/4) does not expressly prohibit the appellant/ complainant from banking the security cheques, in case the installments are not paid on the due dates.

¶57At this stage, I consider it appropriate to analyse as to what is the meaning of the word "seeurityik>--'Wfrat-d0es_^ the issuance of a security cheque entail, and if there is''mb|specifiera:^peii&nt. touching upon this a security cheque, in case the pfinlary oM%^ibu^m(^^}ire whidfrthe'security cheque ^ /f . . kA ... \ . n was given, is not' discharged. The^ia|%^%Ea^ Dictionary (6 ^edition), inter a/ia, defines "security" to mean: |i =^1 in] tj | I 01 III /I 'Protection; assurance; j^demnijie^ The term iS/fusually applied to%n obli0iionff;ple^^^rJmp}^^^ ,lUn, etc., given by ckdebtdi^^ih drder^^fo'^asmre or performance 'bfAtis0ebt,,,^by furnishing the'^;.cre:aitor with a resource to be^ted^^it^MsAA^^^^^ principal obligation. CollateraApven^by^d^ secure loan. Document that indicates evidehte~of indebtedness. The name is A; also sometimes given to one who becomes surety or guarantor for another". (Emphasis supplied)

¶58Similarly, the word "security" is defined in the Shorter Oxford English Dictionary (5^*^ 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)

¶59Thus, 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.

¶60In V.K. Ashokan v. CCE, (2009) 14 SCC 85, the Supreme Court observed that: %4' -■ - ■' v.-4 ,4^-- . ''The term ''s^cTirityfj\ign^ie^ secure or certain. It ^dkesfthe rnQne^^r^e^ps^imekfifftf or "^ore readily t^verabl^^^^^^fboni'^ f^example, a mere iqp,^ich is orO^p^jpp^a debt, an^h^ord is not confineddb a docum^ -which.giyes a chargTon%pecific property!) but includes pepormf securities for money, (See Chetumdl^Bulchand v. No(^^ofpfperji, AIR 1928 Sind 89). It is a worp of general imp0(0^pp^ an assurance''. | \ ." if

¶61Thus, in m$^vie^^^^m^esmoJlfie^ oigliot, there is an express understanding'bMveemA parties thatTlie ldcMtf mav be enforced m the event of failure'^jfJthgdgapj^tojpa^ or discharge other liability on the due date. EvefriT-there4s-®"'such express agreement, the mere fact that the debtor has given a security in the form of a post dated ^ cheque or a current cheque with the agreement that it is a security for fulfillment of an obligation to be discharged on a future date itself, is sufficient to read into the arrangement, an agreement that in case of failure of the debtor to make payment on the due date, the security cheque may be presented for payment, i.e. for recovery of the due debt. If that were not so, there would be no purpose of obtaining a security cheque from the debtor. A CRL.L.P. No.706/2014 * ♦ security cheque is issued by the debtor so that the same may be presented for payment. Otherwise, it would not be a security cheque. As observed above, the MOU (Ex.CW-1/4) does not expressly, or even impliedly states that the security cheques are not to be used to recover the installments, even in case of failure to pay the same by the respondent/ debtor.

¶62Section 138 of NI Act does not distinguish between a cheque issued "4^ by the debtor in discharge of an existing debt or other liability, or a cheque issued as a security cheque qn^the^-pf^m^iBeiihat^on the due future date the " •» fr j> 'W' . debt which shall have ciWBiallizediDyitheh, sMljJbe paid. So long as there is a debt existing, in r^spqct Miereof.tlSSheque in%tie^ti6n is issued, in my /? Rrli'A . . view, the same wduld^ttract Se;ictiphrf3i3p® in case of|dts dishonour.

¶63Thus, thefdefence that the^eb6^U|SJi;y question-Ex. CW||1/1, CW-1/2 R - '--h fr»j " IfMi ,I - . II and CW-1/3 were issued as "security'^ cheques has no force inithe facts and I . nn I . ' circumstances ofithis case, as, omtbeMat'e w.fien the said chequ'es were issued simultaneously with thei^Mecu#pfe4fftfeK^ the debt of Rs.1.5 lacs was oulstahdpl|. ^Ije^appeUanfi^asl/w^tf^^ his rights to enforce the security in respecT4yhereqf theicnequesTn question were issued and to seek to recover the outstanBiil§'"'debt by encashment of the said cheques. Since the cheques in question were dishonoured upon presentation, the accused suffered all consequences as provided for in law and the appellant became entitled to invoke all his rights as created by law. Thus, the appellant was entitled to invoke Section 138 of the NI Act; issue the statutory notice of demand, and; upon failure of the accused to make payment in terms of notice of demand — to initiate the complaint under Section 138 of the NI Act.

¶64The learned Magistrate has returned findings of faet which are palpably wrong; its approach in dealing with evidence is patently illegal; its decision is based on an erroneous view of the law, and; the impugned judgment, if sustained, would lead to grave miscarriage of justice. For the aforesaid reasons, the impugned judgment is set aside. The accused is convicted of the offence under Section 138 of the NI Act. MAY J/f ^4^ t S li-4' H SANGHI) lUDGE ■n V\ F t'M ¥ li 'Mhl Ml, I? it \ i - ^ U.'tu}lr '-'if- ■%- 'frSpriV-, " "■&.V •-'■•&> * ^-14"l. c? <=-01 ° t./ // CRL.L.P. No.706/2014 Page 36 of36

S $-7. * IN THE HIGH COURT OF DELHI AT NEW DELHI