Head Note: 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.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 830 OF 2014
(Arising out of SLP (Crl.) No.9752 of 2010)
M/s. Indus Airways Pvt. Ltd. & Ors. …
Appellants
Versus
M/s. Magnum Aviation Pvt. Ltd. & Anr. …
Respondents
JUDGMENT: R.M. LODHA, J.
1.
Leave granted.
2.
The only question that arises for
consideration in this appeal by special leave is, whether the post-dated
cheques issued by the appellants (hereinafter referred to as ‘purchasers’) as
an advance payment in respect of purchase orders could be considered in discharge
of legally enforceable debt or other liability, and, if so, whether the
dishonour of such cheques amounts to an offence under Section 138 of the
Negotiable Instruments Act, 1881 (for short, ‘the N.I. Act’). The Delhi High
Court in the impugned order has held that to be so.
3.
The brief facts are these: On 19.02.2007 and
26.02.2007, the purchasers placed two purchase orders for supply of certain
aircraft parts with respondent No.1, M/s. Magnum Aviation Pvt. Ltd.
(hereinafter referred to as ‘supplier’). In respect of these purchase orders,
the purchasers also issued two post-dated cheques dated 15.03.2007 for a sum of
Rs.34,57,164/- and 20.03.2007 for a sum of Rs.15,91,820/-. The said cheques
were issued by way of advance payment for the purchase orders. One of the terms
and conditions of the contract was that the entire payment would be given to
the supplier in advance. The supplier says that the advance payment was made by
the purchasers as it had to procure the parts from abroad.
4.
These cheques got dishonored when they were
presented on the ground that the purchasers had stopped payment.
5.
It is not in dispute that the supplier
received letter dated 22.03.2007 from the purchasers cancelling the purchase
orders and requesting the supplier to return both the cheques.
6.
The supplier sent response to the letter dated
22.03.2007 on 23.03.2007 asking the purchasers as to when the supplier could collect
the payment. Thereafter, on 12.04.2007, the supplier sent a notice to the
purchasers and then filed a complaint against the purchasers under Section 138
of the N.I. Act before the Court of Additional Chief Metropolitan Magistrate,
New Delhi.
7.
On 22.05.2007, the concerned Additional Chief Metropolitan
Magistrate took cognizance of the alleged offence and issued summons to the
purchasers.
8.
The purchasers challenged the order issuing
summons in a revision petition under Section 397 of the Code of Criminal
Procedure, 1973 (for short, ‘Code’). The Additional Sessions Judge, after
hearing the parties, allowed the revision petition vide order dated 02.09.2008 and
quashed the process issued by the Additional Chief Metropolitan Magistrate.
9.
The supplier challenged the order of the
Additional Sessions Judge in a petition under Section 482 of the Code before
the High Court. The High Court allowed the petition, set aside the order of the
Additional Sessions Judge and restored the order of the Additional Chief
Metropolitan Magistrate issuing process to the purchasers.
10.
The
Delhi High Court following its earlier decision in Mojj Engineering { M/s. Mojj Engineering Systems Limited and others
v. M/s. A.B. Sugars Ltd. [154 (2008) Delhi Law Times 579]} held
that the issuance of a cheque at the time of signing such 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.
11.
Section 138 of the N.I. Act is as follows:
“138.
Dishonour of cheque for insufficiency, etc., of funds in the account. - Where
any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for
the discharge, in whole or in part, of any debt or other liability, is returned
by the bank unpaid, either because of the amount of money standing to the
credit of that account is insufficient to honour the cheque or that it exceeds the
amount arranged to be paid from that account by an agreement made with that
bank, such person shall be deemed to have committed an offence and shall,
without prejudice to any other provisions of this Act, be punished with imprisonment
for a term which may be extended to two years, or with fine which may extend to
twice the amount of the cheque, or with both:
Provided that nothing contained in
this section shall apply unless –
(a) the cheque has been presented
to the bank within a period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
(b) the payee or the holder in
due course of the cheque, as the case may be, makes a demand for the payment of
the said amount of money by giving a notice in writing, to the drawer of the cheque,
within thirty days of the receipt of information by him from the bank regarding
the return of the cheque as unpaid; and
(c) the drawer of such cheque
fails to make the payment of the said amount of money to the payee or, as the
case may be, to the holder in due course of the cheque, within fifteen days of
the receipt of the said notice.
Explanation. - For the purposes of
this section, "debt or other liability" means a legally enforceable debt
or other liability.”
12.
The
interpretation of the expression ‘for discharge of any debt or other liability’
occurring in Section 138 of the N.I. Act is significant and decisive of the
matter.
13.
The explanation appended to Section 138
explains the meaning of the expression ‘debt or other liability’ for the
purpose of Section 138. This expression means a legally enforceable debt or
other liability. Section 138 treats dishonoured cheque as an offence, if the cheque
has been issued in discharge of any debt or other liability. The explanation
leaves no manner of doubt that to attract an offence under Section 138, there
should be legally enforceable debt or other liability subsisting on the date of
drawal of the cheque. In other words, drawal of the cheque in discharge of
existing or past adjudicated liability is sine qua non for bringing an offence
under Section 138. 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 purchase order was placed is not supplied, in our considered
view, the cheque cannot be held to have been drawn for an exiting debt or
liability. The payment by cheque in the nature of advance payment indicates
that at the time of drawal of cheque, there was no existing liability.
14.
In Swastik
Coaters {M/s. Swastik Coaters Pvt.
Ltd v. M/s. Deepak Brothers and others; [1997 Cri. L.J. 1942 (AP)]}, the single
Judge of the Andhra Pradesh High Court while considering the explanation to
Section 138 held:
“……..Explanation to Section 138
of the Negotiable Instruments Act clearly makes it clear 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. ……..”
15.
The Gujarat High Court in Shanku Concretes {Shanku Concretes Pvt.
Ltd. and others v. State of Gujarat and another; [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 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.I. Act. While holding
so, Gujarat High Court followed a decision of the Madras High Court in Balaji Seafoods. { M/s. Balaji Seafoods Exports
(India) Ltd. and another v. Mac Industries Ltd.; [1999 (1) CTC 6]}
16.
In Balaji Seafoods, the Madras High Court
held:
“Section 138 of the Negotiable
Instruments Act makes it clear that where the cheque drawn by a person on an
account maintained by him with a banker for payment of any amount of money to another
person from out of that account for the discharge, in whole or in part, of any
debt or other liability, is returned by the bank unpaid, either because of the
amount of money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged to be paid from that
account by an agreement made with that bank, such person shall be deemed to have
committed an offence under Section 138 of the Act. The explanation reads that
for the purposes of this section, ‘debt or other liability’ means a legally
enforceable debt or liability.”
17.
The Kerala High
Court in Ullas {Supply House, Represented by Managing
Partner v. Ullas, Proprietor Bright Agencies and another; [2006 Cri. L.J. 4330
(Kerala)]} had an occasion to consider Section 138 of the
N.I. Act. In that case, the post-dated cheque was issued by the accused along
with the order for supply of goods. The supply of goods was not made by the
complainant. The accused first instructed the bank to stop payment against the
cheque and then requested the complainant not to present the cheque as he had
not supplied the goods. The cheque was dishonoured. The single Judge of the
Kerala High Court held, “………Ext.P1 cheque cannot be stated to be one issued in
discharge of the liability to the tune of the amount covered by it, which was
really issued, as is revealed by Ext. D1, as the price amount for 28 numbers of
mixies, which the complainant had not supplied. …..”
18.
The
reasoning of the Delhi High Court in the impugned order is as follows:
“8. 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 then advance payment is a liability of the
purchaser. The seller of the items would not have entered into contract unless
the advance payment was made to him. A condition of advance payment is normally
put by the seller for the reason that the purchaser may not later on retract
and refuse to take the goods either manufactured for him or procured for him.
Payment of cost of the goods in advance being one of the conditions of the
contract becomes liability of the purchaser. The purchaser who had issued the
cheque could have been asked to make payment either by draft or in cash. Since
giving cheque is a mode of payment like any other mode of payment, it is
normally accepted as a payment. The
issuance of a cheque at the time of signing such 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. Where the seller or manufacturer, on the basis of
cheques issued, manufactures the goods or procures the goods from outside, and
has acted upon the contract, the liability of the purchaser gets fastened, the moment
the seller or manufacturer acts upon the contract and procures the goods. If
for any reason, the seller fails to manufacture the goods or procure the goods
it is only under those circumstances that no liability is created. However,
where the goods or raw material has been procured for the purchaser by seller
or goods have been manufactured by the seller, it cannot be said that the
cheques were not issued against the liability. I consider that if the liability
is not construed in this manner, the sole purpose of making dishonour of the
cheque as an offence stands defeated. The purpose of making or enacting Section
138 of the N.I. Act was to enhance the acceptability of cheque in settlement of
commercial transactions, to infuse trust into commercial transactions and to make
a cheque as a reliable negotiable instrument and to see that the cheques of
business transactions are not dishonoured. The purpose of Negotiable Instrument
Act is to make an orderly statement of rules of law relating to negotiable instruments
and to ensure that mercantile instruments should be equated with goods passing from
one hand to other. The sole purpose of the Act would stand defeated if after placing
orders and giving advance payments, the stop payments are issued and orders are
cancelled on the ground of pricing of the goods as was done in this case.”
19.
The
above reasoning of the Delhi High Court is clearly flawed inasmuch as it failed
to keep in mind 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. 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. The Delhi High Court has traveled beyond the scope
of Section 138 of the N.I. Act by holding that the purpose of enacting Section
138 of the N.I. Act would stand defeated if after placing orders and giving
advance payments, the instructions for stop payments are issued and orders are cancelled.
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 purchase order was placed is not supplied by the
supplier, in our considered view, the cheque cannot be said to have been drawn
for an existing debt or liability.
20.
In
our opinion, the view taken by Andhra Pradesh High Court in Swastik Coaters, Madras High Court
in Balaji
Seafoods, Gujarat High Court in Shanku Concretes and Kerala High Court in Ullas is the correct view and accords with the
scheme of Section 138 of the N.I. Act.
21.
The
view taken by Delhi High Court is plainly wrong and does not deserve
acceptance.
22.
Criminal Appeal is, accordingly, allowed; the
impugned judgment of Delhi High Court is set aside; and the order of the
Sessions Judge is restored.
…..………………………….J.
(R.M. Lodha)
…..………………………….J.
(Shiva Kirti Singh)
New Delhi,
April 7, 2014
