Delhi High Court
Mr. Manoj Nagar vs Coim India Pvt. Ltd on 18 August, 2025
Author: Amit Sharma
Bench: Amit Sharma
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 8th May, 2025
Pronounced on: 18th August, 2025
+ CRL.M.C. 2325/2023 & CRL.M.A. 8757/2023
MR. MANOJ NAGAR .....Petitioner
Through: Mr. Mayank Kshirsagar, Mr. Akhilesh
Yadav and Mr. Parth Sarath I.,
Advocates
versus
COIM INDIA PVT. LTD. .....Respondent
Through: Mr. Dinesh Minocha, Mr. Hariday
Minocha and Mr. Ajay Yadav,
Advocates
CORAM:
HON'BLE MR. JUSTICE AMIT SHARMA
JUDGMENT
AMIT SHARMA, J.
1. The present petition under Section 482 of the Code of Criminal
Procedure, 1973, (for short, ‘CrPC‘) has been filed seeking the following
prayers: –
“In light of the foregoing facts, it is humbly prayed that this Hon’ble
Court may be pleased to:
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a) Quash and set aside the complaint bearing CC No. 9656/2019 pending
before the Ld. Metropolitan Magistrate, Tis Hazari, New Delhi; and/or
b) Quash and set aside the Final Order dated 07.01.2020 passed by the Ld.
Metropolitan Magistrate Tis Hazari Court Complex, New Delhi in
complaint bearing CC No. 9656/2019,
c) Pass other and such orders as this Hon’ble Court deems fit in the
interest of justice.”
2. The present petition arises out of complaint, CC No. 9656/2019, under
Section 138 read with Section 142 of the Negotiable Instruments Act, 1881,
(for short, ‘NI Act‘) filed by the respondent/company against the petitioner.
Necessary averments in the complaint filed by the respondent/company are as
under: –
“3 . That the Accused is the Sole proprietor of Mans Marketing and
incharge for day to day affairs and responsible for conduct of the business
of Mans Marketing being its sole proprietor. The Accused is also the
signatory of cheque in question.
4. That the Accused approached the Complainant Company and
represented that the Accused has been doing his business as Sole
Proprietor of Mans Marketing and has experience in sales promotion for
various clients and necessary wherewithal in the food packaging industry
and have lot of links with various customers in the said industry. The
Accused also represented that he could help the Complainant Company
with the development of sales in the territory of Indore as the Accused had
had its base there for the past so many years and was well connected in the
industry circles. Based on the representations and warranties of the
Accused, the Complainant Company appointed the Accused as its agent
and an ‘Agreement with Commercial Agent’ dated 01.12.2017 was
executed between the Accused and the Complainant, hereinafter referred
to as the ‘Agreement’.
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5. That as per the terms and conditions of the Agreement, the Accused was
required to promote sales of the products of the Complainant Company
with the diligence of a good merchant and a responsible businessman. As
per terms and conditions agreed with the Accused, the Accused was
responsible for regular sales of products of the Complainant Company,
timely collection and/payment for the sales made through the Accused to
different customers and to make payment to the Complainant.
6. That in furtherance of the said Agreement, the Accused represented to
have made the following sales and the goods were accordingly supplied
by the Complainant Company as per instructions of the Accused and were
delivered to the concerned as per details below: –
S Customer Name Invoice Date Invoice No Amount
No.
1. Primaflex 17.04.2018 HRFPI1800265 4,09,578/-
2. Arcox Multipack 27.04.2018 HRFPI1800415 5,11,973/-
Private Limited
3. Packers 04.05.2018 HRFPI1800545 2,04,789/-
Total Amount Payable 11,26,340/-
7. That out of the above, Mr. Manoj Nagar was able to get payment of Rs.
1,11,973/- from Arcox Multipack Private Limited only. No other
purchaser has made any direct payment to complainant. I say that the
Accused is thus liable to pay the amount of Rs. 10,14,367/- (Rupees Ten
lakhs fourteen thousand three hundred sixty seven only). Apart from the
above, the Accused is also liable and the Complainant Company is entitled
to interest @22% on the aforesaid amount as per terms and conditions of
sale.
8. That after lot of follow ups and reminders, as per agreed terms and
conditions and in discharge in discharge of part of liability, the Accused
made a part payment of Rs.7,00,000/- (Rupees Seven lakhs only) vide
Cheque bearing no.249932 dated 16.10.2019 drawn in PNB Bank, Airport
Road , Indore Branch with an assurance that the said cheque was good for
payment and shall be honoured by its bankers on its first presentation itself
by the Complainant Company.
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9. That accordingly as per assurance and commitment of the Accused that
sufficient funds were available in his bank account to honour the said
cheque, the abovementioned cheque for Rs. 7,00,000/- (Rupees Seven
lakhs only) vide bearing nO.249932 dated 16.10 .2019 drawn on PNB
Bank, Airport Road, Indore Branch was presented for encashment by the
Complainant through its banker Bank of India, Kirti Nagar Branch, Delhi.
However, to the shock and surprise of the Complainant, the aforesaid
cheque for Rs .7,00,000 / – bearing nO.249932 dated 16.10 .2019 drawn
on PNB Bank, Airport Road, Indore Branch was returned back unpaid and
dishonoured by the bankers of the Accused, with the remarks “FUNDS
INSUFFICIENT” and an intimation of the same was received by the
Complainant vide memo of Bank of India dated 02.11.2019.
**** **** ****
11. That since the monies due and payable by the Accused to the
Complainant were not paid by the Accused, the Complainant Company
got sent a Legal Notice dated 20.11.2019 sent through Speed Post on
21.11.2019 to the Accused under the provisions of section 138 of the
Negotiable Instruments Act, 1881 (as amended up to date) through its
Advocate . That the said legal notice was duly served upon the Accused
on or around 26.11.2019 as is evident from Tracking Report downloaded
from the official website of “India Post”. The Accused has however,
avoided to receive the notice sent at other two addresses of the Accused
and as such the Accused has been duly served with the legal notice.
However, even after receipt of the said legal notice, the accused neither
replied nor made payment as demanded by the said legal notice within
stipulated period of 15 days and thus the accused has committed offence
punishable under section 138 of the Negotiable Instruments Act (as
amended upto date).”
3. Learned counsel for the petitioner has submitted that the proceedings
arising out of the complaint case are abuse of the process of the Court inasmuch
as the subject cheque was handed over to the respondent as a security at the
time of the execution of the agreement in terms of Clause 11.3 of the Agreement
dated 01.12.2017 and not in discharge of any existing debt or other liability. It
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is the case of the petitioner that no debt or liability was existing against the
petitioner from the respondent at the time of the issuance of the subject cheque,
and thus, the offence punishable under Section 138 of the NI Act has not been
made out in the present case. Reliance has been placed on the judgment of
Hon’ble Madras High Court in Balaji Seafoods Exports (India) rep. by its
Director, Chalapathy and Anr. v. Mac Industries Ltd.1, wherein it was held
that if an undated cheque was issued only as a security and not in discharge of
any liability, the same would not draw the liability for the offence punishable
under Section 138 of the NI Act. Reliance has also been placed on the judgment
of a Coordinate Bench of this Court in Poonam v. Kotak Mahindra Bank
Ltd. & Anr.2. In the said case, the accused had merely stood as a guarantor
under the loan agreement and the subject cheque was not issued in discharge of
primary liability towards loan, and therefore, could not be prosecuted under
Section 138 of the NI Act. Reliance has also been placed on the judgment of a
Coordinate Bench of this Court in M/s Collage Culture & Ors. v. Apparel
Export Promotion Council & Anr.3, to contend that the post-dated cheque
which was issued for a debt payable in future upon the occurrence of a
contingent event by way of security would not attract liability under Section
138 of the NI Act. Reliance has also been placed on Indus Airways Pvt. Ltd.
v. Magnum Aviation Pvt. Ltd.4, to contend that the criminal liability under
Section 138 of the NI Act would be attracted in case of legally enforceable debt
or other liability subsisting on the date of drawal of the cheque. Reliance has
also been placed on a judgment of Hon’ble Madras High Court in M/s S. Albert
1
1998 SCC OnLine Mad 704
2
2012 SCC OnLine Del 382
3
2007 SCC OnLine Del 1407
4
(2014) 12 SCC 539
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& Company (P) Ltd. v. M/s Sree Meghana Distributors & Ors.5, to contend
that in similar circumstances, the accused therein who was del credere agent of
the complainant and had issued a cheque by way of security was acquitted by
the Court therein by holding that the cheque issued in such transactions would
be in the nature of security and thus, would not attract the liability under Section
138 of the NI Act.
4. It was further submitted that as per Clause 11.3 of the Agreement, it
was imperative on the respondent to provide written intimation to the petitioner
for the sole purpose of bad credits recovery. However, no intimation was
provided by the respondent to the petitioner prior to the presentation of the
subject cheque which was in their custody. Reliance has been placed on
Harshendra Kumar D. v. Rebatilata Koley and Ors.6, to contend that this
Court in exercise of power under Section 482 of the CrPC can quash the
proceedings even in cases wherein, the trial is yet to take place and the matter
is at the stage of issuance of summons if materials relied upon by the accused
which are in the nature of public documents beyond suspicion show that the
accusation against him cannot stand and that it would be travesty of justice if
the accused is relegated to trial to prove his defence before the Trial Court.
5. Learned counsel for the petitioner has further submitted that the learned
Metropolitan Magistrate has erred in summoning the petitioner in the present
5
Criminal Appeal 681 of 2006 decided vide judgment dated 29.09.2018 by Hon’ble Madras High Court
6
(2011) 3 SCC 351
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complaint as the subject cheque was given as security and was not issued in
discharge of existing or past adjudicated liability in terms of Section 138 of the
NI Act. It is pointed out that the respondent/company had filed two suits,
CS(COMM) 239/2021 and 241/2022, under Order XXXVII of the Code of
Civil Procedure, 1908, (for short, ‘CPC‘) against the merchants/purchasers of
the petitioner for recovery of their respective amounts due towards the
respondent. It is submitted that in one of the said suits, CS(COMM) 241/2022,
the petitioner stood discharged from liability as his name was removed from
the array of parties in the plaint and the said suit was decreed vide judgment
dated 12.10.2022 and the other suit, CS(COMM) 239/2022, was dismissed as
withdrawn as the same was settled between the respondent/plaintiff and
defendant Nos. 1, 2 and 3 therein (actual debtors) and the present petitioner was
defendant no.4 in the said suit.
6. Per contra, learned counsel for the respondent/complainant has
submitted that subject cheque was presented for encashment in pursuance of an
intimation received from the petitioner via email in respect of his liability
existing on the date of drawing of cheque as the latter had failed to collect
payments and the respondent had raised debit note on 11.10.2019 for
Rs.11,26,340/-. He further submitted that the petitioner was appointed as del
credere agent of the respondent vide the agreement dated 01.12.2017 and he
had taken responsibilities and guarantees for recovery of the amounts from the
buyers, to whom sales were made by him, and in case of default of payments
to make good the said payments and therefore, he cannot avoid his obligations
as agreed to in the said agreement.
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7. It is the case of the respondent that the petitioner had given the said
cheque as additional guarantee in respect of payments from customers for the
purchase of goods supplied by the respondent and had also given authority to
them to deposit the same if he fails in his commitment for payments. Attention
of this Court has been drawn towards an email dated 24.12.2018 sent by the
petitioner to the respondent wherein the petitioner himself had undertaken that
all the overdue payment from his side will be paid till 15th of January and he
had also given authority to the respondent to deposit the cheque given by him,
in case, he fails in his commitment for the payment of the customers in the said
timeline. It is submitted that the subject cheque was presented for encashment
after the aforesaid undertaking was given by the petitioner and the same can
also be considered as due intimation as contemplated in Clause 11.3 of the
Agreement entered into between the parties. Learned counsel has placed
reliance on T.I. and M Sales Ltd. v. CIT7, to contend that a del credere agent
guarantees to his principal that third persons with whom he enters contracts on
behalf of the principal shall pay any sum becoming due thereafter under those
contracts and the same shall be due in every case of sale of goods.
8. Learned counsel has further submitted that the learned Metropolitan
Magistrate had declared the petitioner as proclaimed offender vide order dated
03.04.2023 and a revision against the said order before learned ASJ was filed,
however, no stay was granted and the said fact was not disclosed in the pleading
7
1972 SCC OnLine SC Cal 187: (1985) 151 ITR 286
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filed before this Court. It is further submitted that even though the suit for
recovery was decreed in favour of the respondent, however, the said amount
has not been recovered so far. Reliance has been placed on HMT Watches
Ltd. v. MA Abida8, to contend that the question whether the subject cheque
was given as security or not or whether there was outstanding liability on the
drawer of the cheque towards the complainant is a question of fact which could
be determined by the Trial Court after recording evidence of the parties.
Reliance has also been placed on Sunil Todi v. State of Gujarat9, to contend
that the presentation of the cheque upon the failure of the buyer to pay is a
consequence which would be in the knowledge of the drawer of the cheque and
the cheque, as such, would be in such instance mature for presentation as in
effect, it was towards a legally enforceable debt or liability. Thus, it is prayed
that the present petition is not maintainable at this stage and is to be dismissed
with costs. Reliance has also been placed on the following judgments: –
a) Credential Leasing & Credits Ltd. v. Shruti Investments &
Anr.10,
b) Rathish Babu Unnikrishnan v. The State (Govt. of NCT of
Delhi) & Anr.11,
9. Heard learned counsel for the parties and perused the record.
8
(2015) 11 SCC 776
9
(2022) 16 SCC 762
10
2015: DHC:5015
11
(2022) 20 SCC 661: 2022 SCC OnLine SC 513
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10. The issue raised in the present petition is that the subject cheque was
given as a security and not in discharge of any legally enforceable debt at the
time it was drawn and handed over to the respondent and therefore there can be
no prosecution against the present petitioner for the offence punishable under
Section 138 of the NI Act.
11. The relevant clause, i.e., 11.3, of the agreement dated 01.12.2017
between the petitioner and the respondent/complainant is as under: –
"LIABILITY FOR THE SOLVENCY OF CUSTOMERS-
COLLECTION
**** **** ****
11.3 The Agent will be fully responsible in case the customers will be
default in payment. In case of non- payment by the customers, the Agent
will pay in place of them. On this regards, Agent will provide to the
Principal, security cheques for an amount of INR 50,00,000/- (fifty lacs
only), that the Principal will keep in his custody and that will be used by
the Principal, at its own discretion, only after written intimation to the
Agent and for the sole purpose of bad credits revovery. Bad credits will be
consider all the oustanding amount that crossed 180 days from date of
invoice.
**** **** ****”
12. In this context, it will be relevant to examine the communication via
email on 24.12.2018 and 04.01.2019 between the petitioner and
respondent/company, which have been reproduced thus: –
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(emphasis supplied)
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In the aforesaid email dated 24.12.2018 sent by the petitioner to the
respondent, there is a clear unambiguous consent to deposit the cheque, if he
fails to pay the amount within the timeline given by him, i.e., 15th January,
2019. Subsequently, the email dated 04.01.2019, sent by the respondent to the
petitioner to the effect that if payment is not made till 15.01.2019, they shall
deposit his cheque in the bank.
13. Reliance placed by learned counsel for the petitioner on Balaji Seafoods
Exports rep. by its Director, Chalapathy and Anr. (supra) is misplaced as
in the present case there was a clear consent, as pointed out hereinabove, from
the petitioner to deposit the subject cheque. Similarly, in Poonam (supra), the
petitioner therein had given the subject cheque as a guarantor of the loan
agreement and was not the principal loanee of the concerned bank. In M/s S.
Albert & Company (supra), the case of the complainant was that the accused
therein had taken the loan which was rebutted during the course of the trial by
demonstrating that the subject cheque has been given security with respect to
some other transaction, and therefore, the same is not applicable in the facts of
the present case. In M/s Collage Culture (supra), the subject cheque had been
issued not for existing due but by way of security, however, in the present case
there was specific consent given by the drawer of the cheque, petitioner, to
present the same for encashment.
14. Learned counsel for the petitioner had place reliance on the judgment
of the Hon’ble Supreme Court in Indus Airways Pvt. Ltd. (supra) to argue
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that a cheque which was given as a security cannot be considered to be given
in discharge of legally enforceable debt.
15. The Hon’ble Supreme Court in Sunil Todi (supra) while dealing with
the aforesaid judgment and as also other judgments with respect to the issue, as
noted hereinbefore, has observed and held as under: –
“17. The issues which arise for our consideration are as follows:
17.1. (i) Whether the dishonour of a cheque furnished as a “security” is
covered under the provisions of Section 138 of the NI Act.
**** **** ****
18. The first submission which has been urged on behalf of the appellants
is that a complaint under Section 138 of the NI Act would not be
maintainable since the cheque of Rs 2.67 crores was issued by way of a
security and, is thus not against a legally enforceable debt or liability. The
appellant has placed reliance on the judgment of a two-Judge Bench of
this Court in Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd. [Indus
Airways (P) Ltd. v. Magnum Aviation (P) Ltd., (2014) 12 SCC 539 :
(2014) 5 SCC (Civ) 138 : (2014) 6 SCC (Cri) 845] The issue in that case
was whether the postdated cheques which were issued by the appellants
who were purchasers, as an advance payment in respect of purchase
orders, could be considered to be in discharge of a legally enforceable debt
or other liability and whether the dishonour of the cheques amounted to an
offence under Section 138. The appellants had placed two purchase orders
for the supply of aircraft parts with the first respondent and had issued two
postdated cheques as advance payment. The supplier received a letter from
the purchasers cancelling the purchase and requesting the return of both
the cheques. Following a notice by the suppliers, a complaint was
instituted under Section 138 upon which cognizance was taken by the
Magistrate and summons were issued. The High Court allowed a petition
under Section 482CrPC and set aside [Magnum Aviation (P) Ltd. v. State,
2010 SCC OnLine Del 2910] the order issuing process by construing the
expression “discharge of any debt or other liability” in Section 138 holdingSignature Not Verified
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that there must be a liability at the time of issuing the cheque [
“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 provision 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.” ] . In appeal, R.M. Lodha, J. writing for a two-Judge Bench
allowed the appeal [ It was held that the view taken by the Andhra Pradesh
High Court in Swastik Coaters (P) Ltd. v. Deepak Bros., 1996 SCC
OnLine AP 1003 : (1997) 89 Comp Cas 564; the Gujarat High Court
in Shanku Concretes (P) Ltd. v. State of Gujarat, 1999 SCC OnLine Guj
366 and the Madras High Court in Balaji Seafoods Exports (India)
Ltd. v. Mac Industries Ltd., 1998 SCC OnLine Mad 704.] observing :
(Indus Airways case[Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd.,
(2014) 12 SCC 539 : (2014) 5 SCC (Civ) 138 : (2014) 6 SCC (Cri) 845] ,
SCC pp. 542-43, para 9)
“9. 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
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under Section 138, there should be a 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 an 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 existing 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.”
19. Drawing the distinction between civil and criminal liability, it was
observed that if there is a breach in the condition of advance payment, it
would not incur criminal liability under Section 138 of the NI Act since
there is no legally enforceable debt or liability at the time when the cheque
was drawn. The Court held that if at the time when a contract is entered
into, the purchaser has to pay an advance and there was a breach of that
condition, the purchaser may have to make good the loss to the seller, but
this would not occasion a criminal liability under Section 138. The
issuance of a cheque towards advance payment at the time of the execution
of the contract would not–in the view which has been adopted in Indus
Airways [Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd., (2014) 12
SCC 539 : (2014) 5 SCC (Civ) 138 : (2014) 6 SCC (Cri) 845] –be
considered as a subsisting liability so as to attract an offence under Section
138 upon the dishonour of the cheque.
20. A later judgment of a two-Judge Bench in Sampelly Satyanarayana
Rao v. Indian Renewable Energy Development Agency Ltd. [Sampelly
Satyanarayana Rao v. Indian Renewable Energy Development Agency
Ltd., (2016) 10 SCC 458 : (2017) 1 SCC (Civ) 126 : (2017) 1 SCC (Cri)
149] considered the decision in Indus Airways [Indus Airways (P)
Ltd. v. Magnum Aviation (P) Ltd., (2014) 12 SCC 539 : (2014) 5 SCC
(Civ) 138 : (2014) 6 SCC (Cri) 845] . In Sampelly [Sampelly
Satyanarayana Rao v. Indian Renewable Energy Development Agency
Ltd., (2016) 10 SCC 458 : (2017) 1 SCC (Civ) 126 : (2017) 1 SCC (Cri)
149] , the appellant was the Director of a company which was engaged in
power generation, while the respondent was a government enterprise
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engaged in renewable energy. The respondent agreed to advance a loan for
setting up a power project and the agreement envisaged that postdated
cheques towards payment of instalments of the loans would be given by
way of security. The cheques having been dishonoured, complaints were
instituted under Section 138 which led to quashing [Sampelly
Satanarayana Rao v. Indian Renewable Energy Development Agency
Ltd., 2014 SCC OnLine Del 2932 : (2016) 198 Comp Cas 683] petitions
filed before the High Court. The submission which was urged before this
Court was that dishonour of the postdated cheques given by way of
security did not amount to a legally enforceable debt or liability under
Section 138 in praesenti. This Court held, after adverting to the decision
in Indus Airways [Indus Airways (P) Ltd. v. Magnum Aviation (P) Ltd.,
(2014) 12 SCC 539 : (2014) 5 SCC (Civ) 138 : (2014) 6 SCC (Cri) 845]
that if on the date of the cheque, a liability or debt exists or the amount has
become enforceable, Section 138 would stand attracted and not otherwise.
The decision in Indus Airways [Indus Airways (P) Ltd. v. Magnum
Aviation (P) Ltd., (2014) 12 SCC 539 : (2014) 5 SCC (Civ) 138 : (2014) 6
SCC (Cri) 845] was distinguished in Sampelly [Sampelly Satyanarayana
Rao v. Indian Renewable Energy Development Agency Ltd., (2016) 10
SCC 458 : (2017) 1 SCC (Civ) 126 : (2017) 1 SCC (Cri) 149] on the
ground that in that case, the cheque had not been issued for discharge of a
liability but as advance for a purchase order which was cancelled. On the
other hand, in Sampelly [Sampelly Satyanarayana Rao v. Indian
Renewable Energy Development Agency Ltd., (2016) 10 SCC 458 : (2017)
1 SCC (Civ) 126 : (2017) 1 SCC (Cri) 149] , the cheque was for the
repayment of a loan instalment which had fallen due. The Court noted that
though the deposit of cheques towards the repayment of instalments was
described as a security in the loan agreement, the true test was whether the
cheque was in discharge of an existing enforceable debt or liability or
whether it was towards an advance payment without there being a
subsisting debt or liability.
21. Besides the distinguishing features which were noticed
in Sampelly [Sampelly Satyanarayana Rao v. Indian Renewable Energy
Development Agency Ltd., (2016) 10 SCC 458 : (2017) 1 SCC (Civ) 126 :
(2017) 1 SCC (Cri) 149] , there was another ground which weighed in the
judgment of this Court. The Court adverted to the decision in HMT
Watches Ltd. v. M.A. Abida [HMT Watches Ltd. v. M.A. Abida, (2015) 11
SCC 776 : (2015) 4 SCC (Cri) 552] to hold that whether the cheques were
given as security constitutes the defence of the accused and is a matter ofSignature Not Verified
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trial. The extract from the decision in HMT Watches [HMT Watches
Ltd. v. M.A. Abida, (2015) 11 SCC 776 : (2015) 4 SCC (Cri) 552] , which
is cited in the decision in Indus Airways [Indus Airways (P)
Ltd. v. Magnum Aviation (P) Ltd., (2014) 12 SCC 539 : (2014) 5 SCC
(Civ) 138 : (2014) 6 SCC (Cri) 845] is thus : (HMT Watches case[HMT
Watches Ltd. v. M.A. Abida, (2015) 11 SCC 776 : (2015) 4 SCC (Cri) 552]
, SCC p. 779, para 10)
“10. … Whether the cheques were given as security or not, or
whether there was outstanding liability or not is a question of fact
which could have been determined only by the trial court after
recording evidence of the parties. In our opinion, the High Court
[M.A. Abida v. HMT Watches Ltd., 2014 SCC OnLine Ker 3842]
should not have expressed its view on the disputed questions of fact
in a petition under Section 482 of the Code of Criminal Procedure,
to come to a conclusion that the offence is not made out. The High
Court has erred in law in going into the factual aspects of the matter
which were not admitted between the parties.”
22. In a more recent judgment of a two-Judge Bench in Sripati
Singh v. State of Jharkhand [Sripati Singh v. State of Jharkhand, (2022)
18 SCC 614 : 2021 SCC OnLine SC 1002] , an order of the Magistrate
taking cognizance and issuing summons on a complaint under Section
420IPC and Section 138 of the NI Act was challenged before the High
Court. There was a transaction between the second respondent and the
complainant pursuant to which the appellant had advanced sums of
money. Several cheques were handed over but they were dishonoured on
presentation. The High Court allowed [Hitesh Kumar R. Jain v. State of
Jharkhand, 2019 SCC OnLine Jhar 3033] the petitions. An appeal was
filed before this Court. Before this Court, the appellant urged that a cheque
issued towards discharge of the loan and presented for recovery could not
be construed as a security for the transaction. In appeal, this Court noted
that there were four loan agreements under which the second respondent
agreed to pay a total sum of Rs 2 crores and six cheques were issued as
security. The High Court had held [Hitesh Kumar R. Jain v. State of
Jharkhand, 2019 SCC OnLine Jhar 3033] that since under the loan
agreement the cheques were given by way of security, the complaint could
not be maintained.
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24. The Court observed : (Sripati Singh case [Sripati Singh v. State of
Jharkhand, (2022) 18 SCC 614 : 2021 SCC OnLine SC 1002] , SCC para
21)
“21. A cheque issued as security pursuant to a financial transaction
cannot be considered as a worthless piece of paper under every
circumstance. “Security” in its true sense is the state of being safe
and the security given for a loan is something given as a pledge of
payment. It is given, deposited or pledged to make certain the
fulfilment of an obligation to which the parties to the transaction are
bound. If in a transaction, a loan is advanced and the borrower agrees
to repay the amount in a specified time-frame and issues a cheque as
security to secure such repayment; if the loan amount is not repaid in
any other form before the due date or if there is no other
understanding or agreement between the parties to defer the payment
of amount, the cheque which is issued as security would mature for
presentation and the drawee of the cheque would be entitled to
present the same. On such presentation, if the same is dishonoured,
the consequences contemplated under Section 138 and the other
provisions of the NI Act would flow.”
25. Moreover, as the Court explained : (Sripati Singh case [Sripati Singh
v. State of Jharkhand, (2022) 18 SCC 614 : 2021 SCC OnLine SC 1002] ,
SCC para 22)
“22. When a cheque is issued and is treated as “security” towards
repayment of an amount with a time period being stipulated for
repayment, all that it ensures is that such cheque which is issued as
“security” cannot be presented prior to the loan or the instalment
maturing for repayment towards which such cheque is issued as
security. Further, the borrower would have the option of repaying the
loan amount or such financial liability in any other form and in that
manner if the amount of loan due and payable has been discharged
within the agreed period, the cheque issued as security cannot
thereafter be presented. Therefore, the prior discharge of the loan or
there being an altered situation due to which there would be
understanding between the parties is a sine qua non to not present the
cheque which was issued as security. These are only the defences
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that would be available to the drawer of the cheque in a proceedings
initiated under Section 138 of the NI Act. Therefore, there cannot be
a hard-and-fast rule that a cheque which is issued as security can
never be presented by the drawee of the cheque. If such is the
understanding a cheque would also be reduced to an “on demand
promissory note” and in all circumstances, it would only be a civil
litigation to recover the amount, which is not the intention of the
statute. When a cheque is issued even though as “security” the
consequence flowing therefrom is also known to the drawer of the
cheque and in the circumstance stated above if the cheque is
presented and dishonoured, the holder of the cheque/drawee would
have the option of initiating the civil proceedings for recovery or the
criminal proceedings for punishment in the fact situation, but in any
event, it is not for the drawer of the cheque to dictate terms with
regard to the nature of litigation.”
The complaint, insofar as it invoked the provisions of Section 138 of
the NI Act, was accordingly restored to the Judicial Magistrate to proceed
in accordance with law.
26. In the present case, the PSA between the parties envisaged that the
second respondent would supply power to the company of which the
appellants are Directors or as the case may be, Managing Director. The
agreement postulated that payment for the power supplied would be made
by means of LCs. Though, the LCs were provided, they were allegedly not
in a form acceptable to the bankers of the second respondent. The
appellants do not dispute that prior to the termination of the agreement,
power was supplied for a period of three months to the company. In other
words, the agreement for the supply of power was acted upon and power
was supplied to by the second respondent and consumed by the company.
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29. Thus, the term “debt” also includes a sum of money promised to be
paid on a future day by reason of a present obligation. A postdated cheque
issued after the debt has been incurred would be covered by the definition
of “debt”. However, if the sum payable depends on a contingent event,
then it takes the colour of a debt only after the contingency has occurred.
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Therefore, in the present case, a debt was incurred after the second
respondent began supply of power for which payment was not made
because of the non-acceptance of the LCs. The issue to be determined is
whether Section 138 only covers a situation where there is an outstanding
debt at the time of the drawing of the cheque or includes drawing of a
cheque for a debt that is incurred before the cheque is encashed.
30. The object of the NI Act is to enhance the acceptability of cheques
and inculcate faith in the efficiency of negotiable instruments for
transaction of business. The purpose of the provision would become
otiose if the provision is interpreted to exclude cases where debt is
incurred after the drawing of the cheque but before its encashment.
In Indus Airways [Indus Airways (P) Ltd. v. Magnum Aviation (P)
Ltd., (2014) 12 SCC 539 : (2014) 5 SCC (Civ) 138 : (2014) 6 SCC (Cri)
845] , advance payments were made but since the purchase agreement
was cancelled, there was no occasion of incurring any debt. The true
purpose of Section 138 would not be fulfilled, if “debt or other
liability” is interpreted to include only a debt that exists as on the date
of drawing of the cheque. Moreover, Parliament has used the
expression “debt or other liability”. The expression “or other
liability” must have a meaning of its own, the legislature having used
two distinct phrases. The expression “or other liability” has a content
which is broader than “a debt” and cannot be equated with the latter.
In the present case, the cheque was issued in close proximity with the
commencement of power supply. The issuance of the cheque in the
context of a commercial transaction must be understood in the context
of the business dealings. The issuance of the cheque was followed close
on its heels by the supply of power. To hold that the cheque was not
issued in the context of a liability which was being assumed by the
company to pay for the dues towards power supplied would be to
produce an outcome at odds with the business dealings. If the
company were to fail to provide a satisfactory LC and yet consume
power, the cheques were capable of being presented for the purpose
of meeting the outstanding dues.”
(emphasis supplied)
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16. Thus, in the present case as well, the subject cheque, although, may
have been given at the time of entering into agreement in pursuance of the
aforesaid clause, however, on the date when the said cheque was presented for
drawal, there was a legally enforceable liability towards the petitioner. The
aforesaid email dated 04.01.2019 can also be considered an intimation in terms
of the aforesaid clause for depositing of cheque if payment is not made by
15.01.2019.
17. Insofar as the contention of learned counsel for the petitioner with
respect to disposal of the recovery suits, CS(COMM) 239/2021 and 241/2022
filed by the respondent/company, on account of same being settled and decreed
without the petitioner being arrayed as party respectively, is concerned, it is the
case of the respondent that the disputes have been settled between the merchant
buyers which were represented by the petitioner. However, the
payment/outstanding dues which were partially paid by the said merchant
buyers to the petitioner is still enforceable qua him.
18. Be that as it may, as noted hereinabove, the Hon’ble Supreme Court in
Sunil Todi (supra) had also observed that the issue with respect to any defence
being taken on the ground of cheques issued as a security is a matter of defence
which needs to be taken by the accused during the course of the trial. The
petitioner can during the course of trial demonstrate that there was no money
due towards the respondent and therefore, the subject cheque which was given
as security could not have been presented for encashment. This Court in
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exercise of its jurisdiction under Section 482 of the CrPC cannot decide the
disputed question of facts. In these circumstances, no case grounds for quashing
of the present complaint, CC No. 9656 of 2019, and impugned summoning
order dated 07.01.2020 are made out at this stage.
19. In view thereof, the present petition is dismissed and disposed of
accordingly.
20. Pending applications, if any, also stand disposed of accordingly.
21. Needless to state that, nothing mentioned hereinabove, is an opinion on
the merits of the case or on the pending trial against the present Petitioner and
any observations made herein are only for the purpose of the present petition.
22. Copy of the judgment be sent to the concerned learned Trial Court for
necessary information and compliance.
23. Judgment be uploaded on the website of this Court forthwith.
AMIT SHARMA, J.
AUGUST 18, 2025/bsr/ns
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