M/S. INDUS AIRWAYS PVT. LTD. & ORS.versusM/S. MAGNUM AVIATION PVT. LTD. & ANR.

                          [2014] 5 S.C.R. 56


A            MIS. INDUS AIRWAYS PVT. LTD. & ORS.
                                 v.
            M/S. MAGNUM AVIATION PVT. LTD. & ANR.
                 (Criminal Appeal No. 830 of 2014)
                            APRIL 7, 2014
B
          [R.M. LODHA AND SHIVA KIRTI SINGH, JJ.]

         Negotiable Instruments Act, 1881 - s. 138 - Post-dated
    cheques issued by purchasers as advance payment in
C   respect of purchase orders - If could be considered in
    discharge of legally enforceable debt or other liability, and, if
    so, whether dishonour of such cheques amounts to offence
    u/s. 138 - Held: For a criminal liability to be made out u/s.138,
    there should be legally enforceable debt or other liability
D   subsisting on the date of drawal of the cheque - Payment by
    cheque in the nature of advance payment indicates that at the
    time of drawal of cheque, there was no existing liability - 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
E   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, the cheque cannot be
    said to have been drawn for an existing debt or liability - View
    of the High Court that the issuance of cheque towards
F   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 uls. 138 cannot be accepted.

      The question which arose for consideration in this
  appeal was whether the post-dated cheques issued by
G the appellants-purchasers as 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

H                                  56
  INDUS AIRWAYS PVT. LTD. & ORS. v. MAGNUM              57
           AVIATION PVT. LTD. & ANR.
amounts to an offence under Section 138 of the               A
Negotiable Instruments Act, 1881.
    Allowing the appeal, the Court
     HELO: 1.1. The interpretation of the expression 'for
                                                              8
discharge of any debt or other liability' occurring in
Section 138 of the Negotiable Instruments Act, 1881 is
significant and decisive of the matter. 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 C
enforceable debt or other liability. Section 138 treats
dishonoured cheq1.1e as an offence, if the cheque has
been issued in discharge of any debt or other liability.
The explanation leaves no manner of doubt th~t to attract
an offence under Section 138, there .should be legally D
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. The payment by cheque in the nature of E
advance payment indicates that at the time of drawal of
cheque, there was no existing liability. [Paras 12, 13] [62·.
C-E, G]
                  a
     1.2. There is fine distinction between civil liability, F
and criminal liability under Section 138 of the Negotiable
Instruments Act, 1881. 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 G
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
                                                             H
    58       SUPREME COURT REPORTS               [2014] 5 S.C.R.


A  the cheque. The view of the 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
B eannot be accepted. The 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
c and orders are cancelled. 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, the cheque cannot
0
    be said to have been drawn for an existing debt or
    liability. [Paras 19] [65-G-H; 66-A-E]

         Mis. Swastik Coaters Pvt. Ltd v. Mis. Deepak Brothers
    and others; [1997 Cri. L.J. 1942 (AP)]; Shanku Concretes
E   Pvt. Ltd. and others v. State of Gujarat and another 2000 Cri.
    L.J.1988 (Guj.); Mis. Balaji Seafoods Exports (India) Ltd. and
    another v. Mac Industries Ltd. 1999 (1) CTC 6 and U//as
    Supply House, Represented by Managing Partner v. Ullas,
    Proprietor Bright Agencies and another 2006 Cri. L.J. 4330
F   (Kerala) - approved.

         Mis. Mojj Engineering Systems Limited and others v. Ml
    s. A.B. Sugars Ltd. [154 (2008) Delhi Law Times 579] -
    referred to.
G                        Case Law Reference:
         154 (2008) DLT 579             referred to    Para 10
         1997 Cri. L.J. 1942 (AP)      approved        Para 14

H        2000 Cri. L.J.1988 (Guj.)      approved       Para 15
   INDUS AIRWAYS PVT. LTD. & ORS. v. MAGNUM                  59
            AVIATION PVT. LTD. & ANR.

    1999 (1) CTC 6                   approved        Para 15      A

    2006 Cri. L.J. 4330 (Kerala) approved            Para 17

    CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 830 of 2014.
                                                                  B
    From the Judgment and Order dated 27.08.2010 of the
High Court of Delhi in CRLMC No. 244 of 2009.

    S.N. Bhat, M.L. Mahajan, Gaurav Mahajan for the
Appellants.
                                                                  c
   Ashim Vachher,         Subramonium        Prasad for the
Respondents.

    The Judgment of the Court was delivered by

    R.M. LODHA, J. 1. Leave granted.
                                                                  D

      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 E
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.                F

     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, Mis.
Magnum Aviation Pvt. Ltd. (hereinafter referred to as 'supplier'). G
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 H
    60        SUPREME COURT REPORTS                 [2014] 5 S.C.R.


A   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 dishonoured when they were
    presented on the ground that the purchasers had stopped
8
    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.
c
         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
0   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
E and issued summons tq 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
F   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 Ma'gistrate.
       9. The supplier challenged the order of the Additional
  Sessions Judge in a petition under Section 482 of the Code
G before the High Court. The High Court allowed the petition, set
  asido the order of the Additional Sessions Judge and restored
  the order of the Additional Chief Metropolitan Magistrate
  issuing process to the purchasers.
H        10. The Delhi High Court following its earlier decision in
     INDUS AIRWAYS PVT. LTD. & ORS. v. MAGNUM                             61
      AVIATION PVT. LTD. & ANR. [R.M. LODHA, J.]
Mojj Engineering 1 held that the issuance of a cheque at the A
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:
                                                                                 B
      "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 anot~er person from
      out of that account for the discharge, in whole or in part,                C
      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                     D
      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:                           E

            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                 F
      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 giving1a notice in writing, to G
      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           '<

1.   Mis. Nojj Engineering Systems Limited and Others v. Mis. A.B. Sugars Ltd.
     [154 (2008) Delhi Law Times 579.                                            H
    62          SUPREME COURT REPORTS                       [2014] 5 S.C.R.


A         (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
B
          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.
C 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
0 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
E 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 Sectiqn 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
F 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
G drawal of cheque, there was no existing liability.

        14. In Swastik Coaters2, the single Judge of the Andhra
    Pradesh High Court while considering the explanation to
    2.   Mis. Swastik Coaters Pvt. Ltd. v. M/s. Deepak Brothers and Others; (1997
H        Crli. LJ. 1942 (AP)]
     INDUS AIRWAYS PVT. LTD. & ORS. v. MAGNUM                                 63
      AVIATION PVT. LTD. & ANR. [R.M. LODHA, J.]

Section 138 held:                                                                    A

      " ........ 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                    8
      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 3 dealing
with Section 138 of the N.I. Act held that to attract Section 138                    C
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.                    D
While holding so, Gujarat High Court followed a decision of the
Madras High Court in Ba/aji Seafoods'+.

      16. In Balaji Seafoods4, the Madras High Court held:

      "Section 138 of the Negotiable Instruments Act makes it E
      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 F
      because o~ the amount of money standing to the creqit 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 G
      138 of the Act. The explanation reads that for the purposes
3.   Shanku Concretes Pvt. ltd. and Others v. State of Gujarat and another;
     (200 Cri. L.J. 1988 (Guj.))
4.   Mis. Balaji Seafoods Exports (India) ltd. and another v. Mac Industries ltd.;
     [1999 (1) CTC 6).                                                               H
    64          SUPREME COURT REPORTS                      (2014] 5 S.C.R.


A         of this section, 'debt or other liability' means a legally
          enforceable debt or liability."

         17. The Kerala High Court in Ullas5 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
8
    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
c   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. 01, as the price amount for 28 numbers of
    mixies, which the complainant had not supplied ......"
D
        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
E         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
F         later on retract and refuse to take the goods either
          manufactured for him or procured for him. Payment ~f 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
G         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
    5.   Supply House, Represented by Managing Partner v. Ullas, Pmprietor Bright
H        Agencies and another; [2006 Cri. L.J. 4330 (Kerala)].
   INDUS AIRWAYS PVT. LTD. & ORS. v. MAGNUM                        65
    AVIATION PVT. LTD. & ANR. [R.M. LODHA, J.]
     has to be considered against a liability as the amount               A
     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      B
     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                    c
     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              D
     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             E
     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           F
     defeated if after placing orders and giving ~dvance
     payments, the stop payments are issued and orders are
     cancelled on the ground of pricing of the goods as was
     done in this case."
                                                                          G
     19. T~e 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          H
    66        SUPREME COURT REPORTS               (2014] 5 S.C.R.

A amount in advance and there is breach of such condition then
  purchaser may have to make good the 1oss 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
B 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
c 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
D 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
E 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 2 , Madras High Court in Balaji
F Seafoods 4 , Gujarat High Court in Shanku Concretes 3 and
  Kerala High Court in U/las5 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
G 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.

H   Bibhuti Bhushan Bose                              Appeal allowed.