Question : Whether in case of dishonour of cheque , person issuing the cheque can claim that the debt or other liability should be in existence on the date of issuance of the cheque before punishing him with imprisonment or fine as per the provisions of Section 138 of the Negotiable Instruments Act, 1881 ?
Neither the main provision of section 138, nor the explanation suggest that the debt or other liability should be in existence on the date of issuance of the cheque, i.e., on the date of its delivery to the drawee or someone on his behalf or, on the date that the cheque bears. The only reference to time in the section, is the point of time when the cheque is returned unpaid by the drawers bank.
If, on the date that the cheque is presented, the ascertained and crystallised debt or other liability relatable to the dishonoured cheque exists, the dishonour of the cheque would invite action under section 138
HIGH COURT OF DELHI
Credential Leasing & Credits Ltd.
CRL. L. P. NO. 558 OF 2014
JUNE 29, 2015
Subject ;-Section 138 of the Negotiable Instruments Act, 1881
FACTS of the Case
■ The complainant was a member of the National Stock Exchange (NSE) of India, dealing in capital market. Accused No. 1 was the name of a business enterprise of a Hindu Undivided Family (HUF), dealing in capital markets, through accused No. 2, its Karta.
■ The complainant claimed that at the request of accused No. 1 through accused No. 2, and in consideration of issuance of a cheque dated 22-6-1996 for Rs. 14 lakhs drawn on Oriental Bank of Commerce, New Delhi and deposit of certain shares with the complainant as security, the accused were allowed to conduct the sale and purchase of shares on credit basis with the complainant, with the understanding that the aforesaid shares and cheque could be encashed by the complainant, in case of failure of the accused to meet its liability if and when it arises due to the shares transactions undertaken by the accused through the complainant.
■ The accused conducted several transactions of shares with the complainant as per the detailed bills and statement of accounts placed on record, and more than Rs. 14 lakhs were found payable and outstanding against the accused.
■ Hence, as per the request of the accused, the complainant presented the said cheque for encashment to its bank, and the said cheque was dishonoured and returned unpaid due to ‘Insufficient Fund’ by the Accused’s Banker Oriental Bank of Commerce.
■ An intimation in this regard vide Bank advice dated 27-7-1996 along with cheque Return memo and said cheque were received by the complainant through its Bank on 27-7-1996.
■ On their failure to pay the outstanding amount, a statutory notice dated 8-8-1996 was served upon the accused. The accused failed to pay the amount of the cheque within the prescribed statutory period.
■ Accordingly, the complainant preferred the complaint under section 138.
■ The complainant had claimed that the security cheque of Rs. 14 lakhs was given to meet the liability which was likely to arise in future, and on the date of presentation there was a liability of more than Rs. 14 lakhs. The complainant claimed that the cheque was presented with prior notice to the accused.
■ The accused stated that the cheque was not issued to discharge any liability and that the complainant was false. He claimed that a blank cheque had been issued to the complainant.
■ The MM acquitted the accused on the premise that cheque in question was given by accused as security. Admittedly, on the date of cheque, i.e. 22-6-1996 there was no transaction between the parties and, admittedly, there was no debt or other liability existing on that date. Therefore, it was held that the cheque in question was not issued in discharge of an existing debt or other liability.
■ On appeal:
■ In the instant case, the liability or debt is claimed to have arisen under the contract in respect of which the dishonoured cheque was issued. The cheque was issued precisely to secure the debt/liability that may arise under the contract on account of the accused undertaking the share sale/purchase transactions on credit basis through the appellant broker. [Para 22]
■ The ‘debt or other liability’ has to be a legally enforceable debt or other liability. Neither the main provision of section 138, nor the explanation suggest that the debt or other liability should be in existence on the date of issuance of the cheque, i.e., on the date of its delivery to the drawee or someone on his behalf or, on the date that the cheque bears. The only reference to time in the section, is the point of time when the cheque is returned unpaid by the drawers bank. [Para 27]
■ Therefore, the scope of section 138 would cover cases where the ascertained and crystallized debt or other liability exists on the date that the cheque is presented, and not only to case where the debt or other liability exists on the date on which it was delivered to the seller as a post-dated cheque, or as a current cheque with credit period. The liability, though, should be in relation to the transaction in respect whereof the cheque is given, and cannot relate to some other independent liability. If, on the date that the cheque is presented, the ascertained and crystallised debt or other liability relatable to the dishonoured cheque exists, the dishonour of the cheque would invite action under section 138. There could be situations where, for example, an issue may be raised with regard to the quality, quantity, deficiency, specifications, etc. of the goods/services supplied, or accounting. It would have to be examined on a case to case basis, whether an ascertained or crystallized debt or other liability exists, which could be enforced by resort to section 138 or not. [Para 28]
■ There is no merit in the legal submission of the respondent accused that only on account of the fact that the cheque in question was issued as security in respect of a contingent liability, the complainant under section 138 would not be maintainable. At the same time, it may be added that it would need examination on a case to case basis as to whether, on the date of presentation of the dishonoured cheque the ascertained and crystallised debt or other liability did not exist. The onus to raise a probable defence would lie on the accused, as the law raises a presumption in favour of the holder of the cheque that the dishonoured cheque was issued in respect of a debt or other liability. As settled by the Supreme Court, the said onus obliges the accused to raise a defence – either by picking holes in the case of the complainant and/or by positively leading defence evidence which leads the Court to believe that there is a probable defence raised by the accused to the claim of the complainant with regard to the existence of the debt or other liability. The said onus does not cast as stringent an obligation on the accused, as it casts on the complainant, who has to prove beyond reasonable doubt the guilt of the accused. [Para 30]
■ Therefore, turning to the facts of the present case to examine as to whether, or not, the accused has been able to raise a probable defence to cast a doubt on the claim made by the complainant with regard to the existence of an ascertained and crystallised debt or other liability in relation to the transactions in respect whereof the cheque in question had been issued as security. [Para 31]
■ The complainant has produced the daily sauda confirmation and the cash difference bills in respect of the share transactions to substantiate its claim. The cash difference bills are for the period of 2-7-1996 to 16-7-1996. [Para 32]
■ CWI, D, exhibited the letter dated 24-7-1996 of the accused along with which the accused tendered a cheque of Rs. 50,000 dated 24-7-1996 drawn on its Bank. In this letter, he inter alia, stated that he was giving that cheque towards his liabilities. Pertinently, accused No. 2 did not deny his signatures on the said letter. He only claimed that the said document was signed in blank and given as such to the complainant. This defence of the accused would be tested a little later. The aggregate of cash difference bills purports to project the liability of the accused as on 24-7-1996 to the tune of Rs. 14,42,789.50. [Para 33]
■ In defence, the accused DW-2 admitted his signatures on the cheque. He also admitted that he had filled the payee and the date himself. However, he denied having filled the amount. He stated that the rest of the particulars were not filled by him. He also admitted to have given the cheque to the complainant. He denied the transactions recorded. He claimed that the complainant was dealing with the said shares on its own. He claimed that he had given order to the complainant to purchase only 700 shares, i.e. 500 shares of English Indian Clays Limited and 200 shares of State Bank of India. He stated that he had no concern with the difference bills. He stated that the cheque in question was without any legally enforceable liability. In his examination in chief, DW-2 stated that the complainant Credential leasing & Credits Limited took the signatures on certain blank papers and told him that the same were required as some formality with SEBI for making him as their sub-broker. He further deposed that Shruti Investments is in HUF business of which he is a Karta and that Shruti Investments was dealing only in secondary market of shares. He stated that Shruti Investments was doing its business of sale and purchase of shares through two or three brokers. [Para 34]
■ The defence set up by the respondent/accused that accused No. 2 had given blank signed papers to the appellant/complainant is unbelievable. Firstly, there is no contemporaneous record produced by the accused to show that the accused had delivered blank signed papers to the complainant for any purpose, much less for the purpose of becoming a sub-broker of the complainant. Secondly, a perusal of Ex. Documents shows that the signatures of accused No. 2 on the said documents are so positioned and placed as to rule out the possibility of the said documents being filled in later. In the daily sauda confirmation on a printed format, the signatures appear outside the printed area and are so placed as to suggest that they have been consciously engrossed on these documents close to the printed area. In a hand written communication, and there is nothing to suggest that the writing in the said document is different from the signatures of DW-2, which he has admitted. Pertinently, a latter records that the accused issued a cheque of Rs. 50,000/- towards his liabilities. The said letters along with the cheque were issued on the 24-7-1996, i.e. the same day on which the last of the cash difference bills were prepared. The cash difference bills, are premised on the daily sauda confirmation acknowledged by the accused. [Para 35]
■ While claiming that the complainant took his signatures on certain blank papers and told that the same were required as some formality with SEBI for making me as sub-broker, the accused does not even disclose as to who in the organization of the complainant had held out such a representation to him. While he admits that to become a sub-broker of a member of the NSE margin money has to be deposited to secure the broker/member of NSE, DW-2 states that he did not give any margin money to the appellant member of NSE to become a sub-broker. It is not explained by DW-2, as to why such a preferential treatment was meted out to the respondents by the appellant, and why the appellant exposed itself to such a risk qua the respondents share transactions. This information was within the personal knowledge of DW-2, and his failure to disclose the same raises an adverse inference against the accused. The defence of the accused is merely an ipsi dixi of the accused and appears to be too farfetched and sham. It cannot be construed as a probable defence. A defence would be considered to be probable if it appeals to the Court as probable and reasonable keeping in mind the natural course of conduct of a prudent human being of reasonable intelligence. Thus, the debt/other liability of the accused to the tune of Rs. 14.42 lakhs stood ascertained, crystallised and established being the cash difference bills as on 24-7-1996. The cheque in question when presented was in respect of a crystallised outstanding debt owed by the accused. Consequently, its dishonour coupled with the non-payment of the cheque amount despite statutory notice led to the commission of the offence under section 138. [Para 36]
■ The Magistrate founded the impugned judgment on a wrong premise of law, holding that merely because the cheque in question was issued as a security cheque and held that the same could not be the basis of a complaint under section 138. The Magistrate overlooked the legal position and in particular the judgment of the Supreme Court in I.C.D.S. Ltd. v.Beena Shabeer  39 SCL 305. Since the trial Court has based its decision on an erroneous view of law, the Court is inclined to interfere with the judgment of acquittal in the light of the guidelines laid down by the Supreme Court inGhurey Lal v. State of U.P. 10 SCC 450. The impugned judgment is, accordingly, set aside and the respondents/accused are held guilty and convicted of the offences under section 138. [Para 37]