SAMPELLY SATYANARAYANA RAOversusINDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LIMITED

                           [2016] 6 S:C.R. 531


                  SAMPELLY SATYANARAYANA RAO                                   A
                               v.
                  · INDIANRENEWABLEENERGY.
                  DEVELOPMENT AGENCY LIMITED
                   (Criminal Appeal No. 867 of2016)
                                                                               B
                          SEPTEMBER 19, 2016
        [DIPAK MISRA AND ADARSH KUMAR GOEL, JJ.]
        Negotiable Jnsn•uments Act, 1881 : s. 138- Dishonour ofpost-dated
 cheques given for repayment ofloan installment and described as "security"
 in loan agreement, if covered uls. 138 - Held: ·Applicability of s.138 c
 depends on whether the cheque represents discharge ofexisting enforceable
 debt/liability or it represents advance payment without there being-subsisting
 debt or liability-Thus. i/bJJ the date ofthe cht;que. liability or debt exists ,
'or the ainount becomes legally recoverable, s.138 is attracted and not
 otherwise.:_ In the instant case, loan was disbursed prioi· io the date ofthe
 cheques - Though, the word ;.security" is used in the loan agreement, it, D
 however refers to the c7ieques towards repayment ofinstallments ofloan -
 Ther(ore, once the loan was advanced and the installment hadfallen due
 on the date ofthe cheque as per the agreement. dishonour ofsuch cheques
 would-fall u_uder s.138.                                     ·•
       Criminal law - Quashing ofcomplaint'- Held: While dealing with          E
a quashing petition, the Court has ordinarily to proceed on the basis of
averments in complaint-'- Defence ofaccused cannot be considered at this
stage - Court considering the prayer for quashing does not adjudicate
upon a disputed question offad.
       Dismissing the appeal, the Court                                        F
      HELD: 1.1 The question whether a post-dated cheque is for
"discharge of. debt. or liability" depends on the nature of the
transaction. If on the date of the cheque, liability or debt exists or
the amount has become legally recoverable, the Section is attracted
and not otherwise. [Para·lO] (536-F]
                                                                               G
      1.2 Reference to the ·racts of the present case· clearly shows ·
that though the word "security" is used in clause 3.l(iii) of the
agreement, the said expression refers to the cheques being towards
repayment of installments. The repayment becomes due under the
agreement, the moment the loan is advanced and the installment
                                                                               H
                                    531
532            SUPREME COURT REPORTS                         [2016] 6 S.C.R.


A     falls due. It is undisputed that the loan was duly disbursed prior to
      the date of the cheques. Once the loan was disbursed and installments
      have fallen due on the date of the cheque as per the agreement,
      dishonour of such cheques would fall under Section 138 of the Act.
      The cheques undoubtedly represent the outstanding liability. [Para
      11] (536-G; 537-A-B] _
B
             1.3 Crucial question to determine applicability of s.138 of the
      Act is whether the cheque represents discharge of existing enforceable
      debt or liability or whether it represents advance payment without
      there being subsisting debt or liability. (Para 13] [537-G]
             2. In the present case, reference to the complaint shows that
c     as per the case of complainant, the cheques which were subject ma_tter
      of the said complaint were towards the partial repayment of the dues
      under the loan agreement. It is well settled that while dealing with a
      quashing petition, the Court has ordinarily to proceed on the basis of
      averments in the complaint. The defence of the accused cannot be
D     considered at this stage. The court considering the prayerfor quashing
      does not adjudicate upon a disputed question of fact. [Paras 16 and
      17] [540-B-C]                                            .
            HMT Watches Ltd. v. M.A. Abida (2015) 11 SCC 776: 2015
            (3) SCR 719; Rangappa v. Sri Mohan (2010) 11 SCC 441 :
E           2010 (6) SCR 507; Goaplast (P) Ltd. v. Chico Ursula 'D ·
            Souza (2003) 3 SCC 232: 2003 (2) SCR 712 - relied on.
            Indus Airways Private Limited v. Mag,;um Aviation Private
          "° Limited
                   - (2014) 12 SCC 539; Balaji Seafoods Exports (India)
            Ltd. v. Mac Industries Ltd. (1999) 1 CTC 6 (Mad) -
            distinguished.
 F
            Swastik Coaters (P) Ltd. v. Deepak Bros. (1997) Cr!. LJ
            1942 (AP); Shan/at Concretes (P) Ltd. v. State of Gujarat
            (2000) Crl LJ 1~88 (Guj); Supply House v. Ullas (2006)
            Crl. LJ 4330 (Ker); Magnum Aviation (P) Ltd. v. State
            (2010) 172 DLT 91 : (2010) 118 DRJ 505; Mojj Engg.
G           Systems Ltd. v. A.B. Sugars Ltd. (2008) 154 DLT 579 -
            referred to.
                               Case Law Reference
            (1997) Crl. LJ 1942 (AP)           referred to      Para 9
            (2000) Cr! LJ 1988 (Guj)           referred to      Para 9
H
   SAMPELLY SATYANARAYANA RAO v. INDIAN RENE»-'ABLE                              533
         ENERGY DEVELOPMENT AGENCY LIMITED

      (200?) Crl: LJ 4330 (Ker)             referred to       Para9              A
      (2010) 118 DRJ 505                    referred to       Para9
      02008) 154 DLT 579                     referred to      Para9
      2014 (12) sec 539                     'distinguished    Para 12
      (1999) 1 CTC 6 (Mad)                  distinguished     Para 14             B
      2015 (3) SCR 719                      relied on         Para 15
      2010 (6) SCR 507                      relied on         Para 18
      2003 (2) SCR 712                      relied on         Para 18
     CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 867
                                                                                  c
6f2016.
       From the Judgment and Order dated 08.05.2014 of the High Court
of Delhi in Writ Petition (Criminal) No. 1170of2011.
       Vikas Singh, Sr. Adv., Vivek Singh, Deepika, K., Lakshmi Raman
Singh, Advs. for the Appellant.                                                   D
       Siddharth-Luthra, Sr. Adv., Annam D. N. Rao, Abhishek Agarwal,
Viraj Gandhi, Sameer Gandhi, Ad vs. forthe Respondent.
       The Judgment of the Court was delivered by
       ADARSH KUMAR GOEL, J. I. This appeal has been preferred
against the judgment and order dated 81h May, 2014 passed by the High             E
Court of Delhi at New Delhi in Writ Petition (Criminal) No.1170 of201 l.
       2. Question for consideration is whether in the facts of the present
case, the dishonour of a post-dated cheque given for repayment of loan
installment which is also described as "security" in the loan agreement is ,
covered by Section 138 of the Negotiable Instruments Act; 1881 ("the F
Act").                                              .
        3. The appellant is Director of the company whose cheques have
been dishonoured and who is also the co-accused. The company is engaged
in the field of power generation. The respondent is engaged in development
of renewable energy and is a Government of India ~nterprise. Vide the
                                                                                  G
loan agreement dated l S h March, 200 I, the respondent agreed to advance
                          1


loan of Rs.11.50 crores for setting up of 4.00 MW B,iomass based Power
Project in the State ofAndhra Pradesh. The agreement recorded that post-
dated cheques towards payment of installment of loan (principal and
interest) were given by way of security. The text ofthis part of the agreement
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534             SUPREME COURT REPORTS                            [2016] 6 S.C.R.


A     is quoted in the later part of this order. The cheques carried different dates
      depending on the dates when the installments were due and upon dishonour ~
      thereof, c<;>mplaints including the one dated 27'h September, 2002 were
      filed by the respondent in the court of the concerned Magistrate at New
      Delhi.
B             4. The appellant approached the High Court to seek quashing of the
      complaints arising out of 18 cheques of the value ofabout Rs. I0.3 crores.
      Contention of the appellant in support of his 'case was that the cheques
      wer-e given by way of security as mentioned in the agreement and that on
      the date the cheques were issued, no debt or liability was due. Thus,
      dishonour of post-dated cheques given by way of security did not fall
c     m1der Section 13_8 of the Act. Reliance was placed on clause 3.1 (iii) of
      the agreement to the effect that depQsit of post-dated cheques toward
      repayment of installments was by way of "security''. Even the first
      inst11llment as per the agreement became.due subsequent to the handing
      over of the post-dated cheque. Thus, contended the appellant, it was not
      towards discharge of debt or liability in presenti but for the amount payable
D
      in future.
             5. The High Court did not accept the above contention and held :-
             "J 0. In the present case when the post-dated cheques were
             issued. the loan had been sanctioned and hence the same fall
·E           in the first categ01y that is they were cheque issuedfor a debt '"'"'
             in present but payable in future. Hence, I find no reason to
             quash the complaints. However, these observations are only
             prima facie in nature and it will be open for the party to
             prove to the contrary during trial. "
             6. We have heard learned counsel for the parties.
 F
             7. It will be appropriate to reproduce the statutory provision in
      question which is as follows :
           · '" 138. Dlslto11our ofcltequefor lnsuffeclency, etc., offunds
              111 tlte accou11t. - Where any cheque drall'n by a person on an
             account maintained by him with a banker forpayment ofany
 G
             amount ofmoney to another person from out ofthat 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 ofmoney standing to the credit ofthat account is
             insiifficient to honour the cheque or that it exceeds the amount
 H
SAMPELLY SATYANARAYANA RAOv. IND!AN RENEWABLE ENERGY                    535
   DEVELOPMENT AGENCY LIMITED [ADARSH KUMAR GOEL, J.]


    arranged to be paidfi·om that accourrt by an agreement made         A
    with that bank, such person shall be deemed to have committed
    an offence and sliall, without prejudice to any other previsions.
    ofthis 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 ofthe cheque, or with both:
                                                                         B
                Provided that nothing contained in this section shall
   , apply uri!ess_~
        (a) the cheque has been presented to the bank within
           a period ofsix months from the date on which it is
           drawn or within the period ofits validity, whiehever
           is earlier;
                                                                         c
        (b) the payee or the holder in due course ofthe cheque,
           as the case may be, makes a demand for the
           payment ofthe said amount ofmoney by giving a
           notice in writing, to the drawer of the cheque,
           within thirty days ofthe receipt ofinformation by             D.
           him from the btmk regarding the 'return of the
           cheque as unpaid; and
         (c) the.drawer of such cheque fails to make the
           payment ofthe said amount ofmoney to the payee
           01; as the case may be, to the holder in due course
           ofthe cheque, within fifteen days ofthe receipt of·
           the said notice.                    ·
    Explanation. - For the purposes ofthis section, "debt or other
    liability" means a legally enforceable debt or other liability. "
   · 8. Clause 3.1 (iii) of the agreement may also be noted :-           F
                "3.1    SECURITY FOR THE LOAN
            - The loan together with the interest, interest tax,
    liquidated damages, commitment fee, up front fee prima on
    repayment or ori redemption, costs, expenses and other
    monies shall be secured by ;                                         G ~
    (i) xxxxx
    (ii)xxxxx
    (iii) Deposit of Post dated cheques towards repayment of
    installments of principal of loan amount in accordance with
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536               SUPREME COURT REPORTS                            [2016] 6 S.C.R.


A              agreed repayment schedule and installments of interest payable
               thereon."
             9. Reference may now be made to the decision of this Court in
      lndusAirways PrivateLimfied versus Magnum Aviation Private Limited',
      on which strong reliance has been placed by learned counsel for the appellant.
B     The question therein was whether post-dated cheque fasued by way of
      advance payment for a purchase order could be considered for discharge
      of legally enforceable debt. The cheque was issued by way of advance
      payment for the purchase order but the purchase order was cancelled and
      payment of the cheque was stopped. This Court held that while the
      purchaser may be liable for breach of the co-ntract,_when a contract provides
c     that the purchaser has to pay in advance and cheque towards advance
      payment is dishonoured, it will not give rise to criminal liability under Section
      138 of the Act. Issuance of cheque towards advance payment could not
      be considered as discharge of any subsisting liability. View to this effect
      of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. versus
      Deepak Bros. 1 , Madras High Court in Bala.ii Seafoods Exports (India)
D
      Ltd. versus Mac Industries Ltd.·', Gujarat High Court in Slu111ku .Co11cretes
      (P) Ltd. versus State ofGujarat and Kerala High Court in Supply House
      versus Ulla!>-' was held to be correct view as against the view of Delhi High
      Court in Mag11umAviatio11 (P) Ltd. versus State6 and Mojj Engg. Systems
      Ltd. versusA.B. Sugars Lttl.7 which was disapproved.
E             10. We have given due consideration to th~ submission advanced
      on behalf of the appellant as well as the observations of this Court in llldus
      Airways (supra) with reference to the 'explanation to Section 138 of the
      Act and the expression "for discharge of any debt or other liability"
      occurring in Section 138 of the Act. We are of the view that th~ question
r     whether a post-dated cheque is for "discharge of debt or liability" depends
      on the nature of the transaction. Ifon the date of the cheque liability or
      debt exists or the amount has become legally recoverable, the Section vis
      attracted and not otherwise.               ·
               11. Reference to the facts of the present case clearly shows that
G     1
          (2014) 12 sec 539
      2 ( 1997) Crl. LJ 1942 (AP)

      3
         ( 1999) I CTC 6 (Mad)
      4
         (2000) Cr! LJ 1988 (Guj)
      ' (2006) Cr!. LJ 4330 (Ker)
       '(2010) 172 DLT 91: (2010) 118 DRJ 505
H      ; (2008) 154 DLT 579
SAMPELLY SATYANARAYANA RAOv.INDIAN RENEWABLE ENERGY                               537
   DEVELOPMENT AGENCY LIMlTED [ADARSH KUMAR GOEL, J.]


though the word "security" is used in clause 3.1 (iii) of the agreement, the      A.
said expression refers to the cheques being towards repayment of
install men ts. The repayment becomes due under !he agreement, the moment
the loan is advanced and the installment falls due. It is undisputed that the
loan was duly disbursed on 281h February, 2002 wliich was prior to the
date of the cheques. Once the loan was disbursed and installments have
                                                                                   B
fallen nu;:; on 1h ~ date o{the cheque as per the agreement, dishonour of
such cheques wc>'1ld fall under Section 138 of the Act: The cheques
undoubtedly-represent the outstanding liability.
                                      .                            -
       12. Judgment in Tm/us Airways (supra) is clearly distinguishable.
As already noted, it was held therein that liability arising out of claim for
breach of contract under Section 138, which arises on account of dishonour c
of cheque issued was not by itself at par with criminal liability towards
discharge of acknowledged and admitted debt under a loan transaction.
Dishonour of cheque issued for discharge oflater liability is clearly covered
by the statute in question. Admittedly, on the date of the cheque there was
a debt/liability in presenti in terms of the lofilTagreement, as against the
                                                                              D
case of bu/us Airways (supra) where the purchase order had been cancelled
and cheque issued towards advance payment for the purchase order was
dishonoured. In that case, it was found that the cheque had not been
issued f<>_r, discharge of liability but as advance for the purchase order
which was cancelled. Keeping in mind this fine but real distinction, the ~
said judgment cannot be applied to a case of present nature where the E
cheque was for repayment ofloan installment which had fallen due though
such deposit of cheques towards repayment of installments. was also
described as "security'' in the loan agreement. In applying the judgment in
l~dus '1irways (supra), one cannot fose sight of the difference between a
transaction of purchase order which is cancelled and that of a loaf!
transaction where loan has actually been advanced and its repayment is F
due on the date of the cheque ..
       13. Crucial question to determine applicability of Section 138 of the
Act is whether the cheque represents discharge of existing enforceabie
debt or liability or whether it represents advance payment without there
being subsisting debt or liability. While approving the views of different         G
High Courts noted earlier, this is the underlying principle as can be discerned
from discussion of the said cases in the judgment of this Court.
      14. In Balaji Seafoods (supra), the High Court noted that the
cheque was not handed over with the intention of discharging the subsisting
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538              SUPREME COURT REPORTS                           [2016] 6 S.C.R.



A     liability or debt. There is, thus, no similarity in the facts of that case
      simply because in that case also loan was advanced. It was noticed
      speCifically therein - as was the admitted case of the parties - that the
      cheque was issued as "security" for the advance and was not intended to
      be in dis_charge of the liability, as in the prese[lt case.

B              I 5. In HMT W"tches Ltd. versus M.A. Abi</(18 , relied upon on behalf
      _of the respondent, this Court dealt with the contention that the proceedings
       under Section 138 were liable to be quashed as the cheques were given as
       "security" as per defence of the accused. Negativing the contention, this
       Court held :-
                '.'10. Having heard the learned counsel for the parties, we ·
c            are ofthe view that the accused (Respondent l) challenged
             the proceedings ofcriminal complaint cases before the High
             Court, taking/actual dejences. Whether the chequeswere given
             as security or not, or whether there was outstanding liability
             or not is a questio11 offact which could have been determined
D            only by the trial court after recording evidence ofthe parties.
             Jn our opinion, the High Court should not have expressed its
             view on the disputed questions offact in a petition under
             Section 482 ofthe Code ofCriminal Procedure, to come to a
             conclusion thatthe offence isnot made ouCThe High Court
             has erred in law in going into the factual aspects ·ofthe matter
E            which were not admitted between the partie.i. The High Court
             further erred in observing that Section J38(b) ofthe NJ Act
             stood uncomplied with, even though Respondent 1 (accuse9)
             had admitted that he replied to the notice issued by the
             complainant. Also, the fact, as to whether the signatory of
             demand notice was authorised by the complainant company
             or not, could not have been examined by the High Court in
             its jurisdiction under Section 482 of the Code of Criminal
             Procedure when such plea was controverted by the complainant
             before it.
             II. In Swyalakshmi Cotton Mills Ltd. v. Rajvir Industries
G            Ltd. [(2008) 13 SCC 6'78], this Court has made the following
             observations explaining the parameters o.fjurisdiction ofthe
             High Courtin exercising its jurisdiction under Section 482 of
             the Code ofCriminal Procedure: (SCC pp. 685-87. paras 17
             & 22)
H     . • (2015) 11 sec 776
SAMPELLY SATYANARAYANA RAO v. INDIAN RENEWABLE ENERGY                    539
   DEVELOPMENT AGENCY LIMITED [ADARSH KUMAR GOEL, J.]


        "17. The parameters a/jurisdiction ofthe High Court in           A
        exercising itsjurisdiction under Section 482 ofthe Code
        pfCriminal Procedure is now wel! settled. Although it is
        ofwide amplitude. a great deal ofcaution is also required
        in its exercise. What is required is application ofthe well-
        known legal principles involved in the matter.
                                                                          B
                                 ***
        22. Ordinarily, a defence ofan accused although appears
        to be plausible should not be taken into consideration
        for exercise ofthesardjurisdiction. Yet again, the High
       .Court at that stage would npt ordinarily enter into a             c
        disputed question offact. it, however, does not mean that
        documents of unimpeachable character should not be
        taken into consideration at any cost for the pitrpose ·of
        finding out as to whether continuance of the criminal
        proceedings would amount to an abuse ofprocess ofcourt
        or that the complaint petition ii filed for causing mere         -o
        harassment to the accused. While we are not oblivious of
        the fact that although a large number ofdisputes should
        ordinarily be determine_d only by the civil courts, but ·
        criminal cases ale flied only for achieving the ultimate
        goal, namely, to force the accused to pay the amount due
                                                                          E
        to the complainant immediately. The courts on the one
        hand should 11.ot encourage such a practice; but, ·an the
        othe1; cannot also travel beyond its jurisdiction to inte1fere
        with the proceeding which is othenvise genuine. T'he cou;ts
        cannot also lose sight ofthe fact that in certain matters,
        both civil proceedings and criminal proceedings would             F
        be maintainable. "             -
    12. In Rallis India Ltd. v. Poduru Vidya Bhushan [(2011) 13
    SCC 88), this Court expressed its views on this point as under:
    (SCC p. 93, para 12)
         ''.12. At the threshold, the High Court should not have          G
        interfered with the cognizance ofthe complaints having
        been taken by the trial court. Tlie High Court could not
        have discharged the respondents of the said liability"at
        the threshold. Unless the parties are given opportunit)i to
540 •.'          SUPREME COURT-REPORTS                              [2016] 6 S.C.R .


 A               . l?ad evidence. it. is not possible to come to a definite
                   conclusion as to what was"the date ·when the earlier
                   partnership was dissolv~d and since what date the
                   respondents ceased to be the.partners ofthe firm."
              16. We are in respectfuiagreement with the above observations.
 B     In the present case, reference to the complaint (a copy of which is
       Annexures P-7) shows that as per the case of the complainant, the cheques
       Which were subject rhatter.9Jthe said complaint were towards the partial
       repayment of the dues under the loan agreement (para 5 of the complaint) ..
                J 7. As is clear from the above observations of this Court, it is well
       ·settled that while dealing with a quashing petition, the Court fias ordinarily
 c      td proceed on the basis ofaverments in the compfaint. The defence of the
        accused cannot be con~idered at this stage. The court considering the -
        prayer for quashing does not adjudicate upon a disputed question of fact.
               18. In R"ng"ppti versus Sri Mo/um~, this Court held that once
        issuance of a cheque and signature thereon are admitted,' presumption of a
 D      legally enforceable debt io favour of the holder of the cheque arises. his
       .for the accused to rebut the said presumption, though accused need not
        adduce his own evidence and can rely upon tlie material submitted by the.
        complainant. However, mere statement of the accused may_ not be sufficient
        to rebut the said presumption. A post dat~ cl'\eque .is a well recognized .
 E      mode ofpaymentio.
               19. Thus,the question has to be answered in favourofthe respondent
       and against the appellant. Dishonour of cheque· in the present case being
       for discharge of existing liabtlity is covered by Section 138 of the Act, as
       rightly held by the High Court.                  ~
               20. Accordingly, w.e do not find any merit in t~is appeal and the .
       same is dismissed. Since we have only gone into-the questiop whethcr on
       admitted facts, case for quashing has not been made.put, the appellant will
       be at liberty to~contest the matter in trial court in accordance With law.


.. G   Divya Pandey                                                   Appeal dismissed .
                                                                       .         '




        '(2010) 11sec441
 H      "'Goaplast (P) tut. versus Chico Ursula o· Souza (2003) 3 SCC 232