Cri. RC No.1922 of 2002

10th January, 2003

Petitioner Counsel: Mr. P. KESAVA RAO
Respondent Counsel: Mr. K.S. GOPALAKRISHNA, Public Prosecutor

Cases Cited:
Swastik Coaters Pvt. Ltd. Vs. M/s. Deepak Brothers, 1997 Cri.LJ 1942 [Para 4,7,8]
Vempati Balaji Vs. D. Vijaya Gopala Reddy, 1999(2) ALD 669 [Para 5,7,8]
M.M.T.C. Ltd. Vs. Medchl Chemicals & Pharma (P) Ltd., 2002 ALL MR (Cri) 230 (S.C.)=(2002)1 SCC 234 [Para 6,9,11]
Maruti Udyog Ltd. Vs. Narender, (1999)1 SCC 113 [Para 6,10,11]

JUDGMENT

JUDGMENT :- This criminal revision case is directed against the order, dated 8.11.2002, in Cri. M.P. No.8059/2002 in C.C. No.640/1999 on the file of the IV Metropolitan Magistrate, Hyderabad, dismissing the petition filed by the petitioners to discharge them for the offence punishable under Section 138 of the Negotiable Instruments Act (for short, 'the Act').

2. The brief facts that are necessary for disposal of the present revision case are that the 1st respondent-complainant filed a complaint under Section 138 of the Act against the petitioners alleging that the accused and the complainant entered into a memorandum of understanding in respect of export of castor oil derivatives, that the accused committed default in fulfilling the terms of the M.O.U. as there were discrepancies in the documents of shipping, that the goods shipped were of inferior quality which resulted in the rejection of the material by the buyer, that in view of the defaults committed by the accused in the matter of handling export, three cheques for a total value of Rs.20 lakhs were given to the complainant as security on 17.11.1998, that in the month of January 1999 the accused pleaded cash crunch and issued seven cheques for a total sum of Rs.18 lakhs in lieu of the cheques given earlier, that when the amounts payable by the accused had farther gone up he issued cheques which are the subject matter of the complaint, that when they were presented in the bank, they were returned for insufficiency of funds, and that the complainant issued a legal notice to the accused who managed to evade receipt of the legal notice and, therefore, the complainant filed the complaint before the trial Court. The accused filed a petition seeking to discharge them from the main case, as the averments in the complaint did not disclose the offence punishable under Section 138 of the Act. The said petition was dismissed on the ground that some disputed questions of fact and mixed questions of fact and law have to be decided in a full-fledged trial. Aggrieved by the dismissal of the said petition, the accused filed the present revision case questioning the legality and correctness of the order of the trial Court.

3. Learned counsel for the petitioners vehemently contended that the cheques were given as security and that there was no existing liability or debt and, therefore, prima facie the ingredients under Section 138 of the Act are not made out and, hence, he prays to allow the revision and discharge the accused. Learned counsel for the 1st respondent contended that the cheques were given in pursuance of the Memo of understanding and, therefore, he prays to dismiss the criminal revision case. Both sides relied upon some decisions, which will be referred at appropriate places.

4. As seen from the allegations in the complaint, originally the accused gave three cheques for a total value of Rs.20 lakhs to the complainant as security. On 21.1.1999 the accused pleaded cash crunch and gave seven cheques for a total sum of Rs.18 lakhs in lieu of the earlier three cheques. Learned counsel for the petitioners contended that by the date of issuance of the seven cheques, there was no existing liability and hence the accused should be discharged. He relied upon a decision in Swastik Coaters Pvt. Ltd. v. M/s. Deepak Brothers, 1997 Cri.LJ 1942, wherein it is held as follows:

"In these circumstances, the contention of the complainant that what was agreed to be supplied was Grade-II is not correct. From these circumstances, the finding recorded by the Court below that the complainant taking undue advantage of the situation that he has received the entire amount either by way of a Cheque or a Demand Draft has sent the substandard material. This finding also being as per the evidence on record cannot be said to be improper. Having regard to these findings the conclusion arrived at by the Court below that ultimately it is a matter of Civil dispute and no offence is constituted under Section 138 of the Negotiable Instruments Act is quite reasonable. At any rate, as I have already noted above the cheque was a post-dated cheque and as on the date of the issuing of the cheque there was no existing enforceable debt or liability and having regard to these circumstances no offence is constituted under Section 138 of the Negotiable Instruments Act."

5. In another decision in Vempati Balaji v. D. Vijaya Gopala Reddy, 1999(2) ALD 669, on which the learned counsel for the petitioners relied, it is held as follows:

"Thus it is clear that the cheque should be issued by the drawer in discharge of the fulll or part of the debt or liability and if the said cheque was dishonoured due to insufficient funds etc., then only Section 138 of the Act gets attracted, if other conditions are complied with. On a perusal of the averments of the complaint, there is no averment that the cheque was issued by the petitioner in discharge of any legally enforceable debt or other liability. I am fortified in my conclusion by a decision of Division Bench of this Court in B. Mohan Krishna v. Union of India, 1995(1) ALT (Cri.) 332 = 1995(1) ALT 468 (DB), wherein this Court in para 51 of its judgment observed as under:

"Where a cheque is issued not for the purpose of discharge of any debt or other liability, the maker of the cheque is not liable for prosecution. For example, if the cheque is given by way of a gift or present and if it is dishonoured by the bank, the maker of the cheque is not liable for prosecution. Unless the two conditions set out in Section 138 are satisfied, no criminal liability can be fastened..."

Therefore, in the light of the foregoing discussion, I hold that the complaint is not maintainable and the petitioners are entitled to quash the proceedings."

6. On the other hand, learned counsel for the 1st respondent relied upon a decision in M.M.T.C. Ltd. v. Medchl Chemicals & Pharma (P) Ltd., (2002)1 SCC 234 : (2002 ALL MR (Cri) 230 (S.C.)), wherein their Lordships referred to a decision in Maruti Udyog Ltd. v. Narender, (1999)1 SCC 113, and held in paragraph 13 as follows:

"The learned Judge has next gone into facts and arrived at a conclusion that the cheques were issued as security and not for any debt or liability existing on the date they were issued. In so doing the learned Judge has ignored the well-settled law that the power of quashing criminal proceedings should be exercised very stringently and with circumspection. It is settled law that at this stage the Court is not justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the complaint. The inherent powers do not confer an arbitrary jurisdiction on the Court to act according to its whim or caprice. At this stage the Court could not have gone into merits and/or come to a conclusion that there was no existing debt or liability."

7. In the case of Swastik Coaters (supra), the cheque in question was post-dated and as on the date of issuing it, there was no existing enforceable debt or liability. In the case of Vempati Balaji (supra) it was held that there was no averment in the complaint that the cheque was issued in the discharge of any legally enforceable debt or liability.

8. In the case on hand, the memorandum of understanding was entered into between the parties on 21.1.1999. After entering into it, the accused were alleged to have admitted the defaults committed by them to a tune of Rs.20 lakhs and thereafter the cheques in question were issued. Whether those cheques were given in pursuance of the memorandum of understanding for the defaults alleged to have been committed by the accused or those cheques were given in lieu of the three cheques which were already given towards security, is a question of fact to be decided after taking evidence. Moreover, the complaint clearly asserts that the cheques in question were issued for the discharge of an existing liability. Therefore, the decisions in Swastik Coaters and Vempati Balaji (supra) are distinguishable on facts and have thus no application to the facts of the present case.

9. On the other hand, in the case of M.M.T.C. Ltd. (supra), the appellant therein entered into a memorandum of understanding, dated 1.6.1994, it was slightly altered, in pursuance of the memorandum of the understanding two cheques were given, when the cheques were dishonoured the complainant therein filed a case in the Magistrate Court, thereafter the accused therein filed a petition to discharge it, the learned Magistrate accepted the same and discharged the accused, and whereupon the complainant preferred the matter to the High Court wherein the order of the learned Magistrate was set aside. Under those circumstances, the Supreme Court held that the Court was not justified in embarking upon an enquiry as to the reliability, genuineness or otherwise of the allegations made in the complaint.

10. In Maruti Udyog Ltd. (supra), the Apex Court has held that by virtue of Section 139 of the Act, the Court has to draw a presumption that the holder of the cheque received it for discharge of a debt or liability until the contrary is proved and at the initial stage of the proceedings, the High Court is not justified in entertaining and accepting a plea that there was no debt or liability.

11. As already stated supra, in the present case, whether the cheques were given in pursuance of the memorandum of understanding for the defaults alleged to have been committed by the accused or were given in lieu of the three cheques which were already given towards security, is a question of fact to be decided after taking evidence. Therefore, relying on the decisions in M.M.T.C. Ltd. and Maruti Udyog Ltd. (supra), I hold that, at this stage there are absolutely no grounds to interfere with the impugned order under revision.

12. In the result, the criminal revision case is dismissed.

Revision dismissed.