Y.Venkateswarlu vs The State Of A.P And Another
2022 Latest Caselaw 2132 AP

                                1




  THE HON'BLE SRI JUSTICE K. SREENIVASA REDDY
           CRIMINAL PETITION NO.8922 OF 2018
ORDER :

This Criminal Petition, under Section 482 of the Code

of Criminal Procedure, 1973 (for short "Cr.P.C."), is filed

quash the proceedings in C.C. No.114 of 2018 on the file of

the I Special Metropolitan Magistrate, Vijayawada.

2. 2nd respondent herein/complainant filed a

private complaint against the petitioner/accused for the

offences punishable under Sections 138 of the Negotiable

Instruments Act, 1881 (for short, 'the Act, 1881'). The

allegations, in brief, of the complaint may be stated as

follows:

Complainant devasthanam issued a paper Notification

dated 18.05.2016 proposing to conduct public auction and

inviting applications under e-procurement system and also

sealed tenders for license rights for spot photos at Up Hills

of Indrakeeladri for a period of two years commending from

01.06.2016 to 31.05.2018. Public auction was conducted

on 26.05.2016 and the petitioner/accused was declared as

the highest bidder for an amount of Rs.36,06,000/- per

year for license rights for spot photos at Up Hills of

Indrakeeladri for first year from 01.06.2016 to 31.05.2017

and on enhancement of 10% on the said annual amount for

the second year commencing from 01.06.2017 to

31.05.2018, and the petitioner/accused paid the annual

rent amount for the first year.

According to auction conditions, the petitioner/

accused has to pay half of the annual license fee for the

second year commencing from 01.06.2017 to 31.05.2018,

in advance, by way of postdated cheques and accordingly

he issued a postdated cheque bearing No.811302 for

Rs.19,83,300/- dated 30.04.2017 drawn on Syndicate

Bank (Main), Vijayawada-1. As per the assurance of the

petitioner/accused, the complainant presented the said

cheque in its Banker viz. YES Bank Limited, Vijayawada-10

on 10.05.2017, but the same was returned under a return

Memo dated 11.05.2017 with endorsement 'funds

insufficient'. After issuing statutory notice as contemplated

under Section 138 (b) of the Act, 1881, as the petitioner/

accused failed to pay the amount covered under the

dishonoued cheque within the time stipulated under the

provisions of the Act, 1881, the present complaint came to

be filed.

3. Heard the learned counsel for the petitioner and

the learned Additional Public Prosecutor for 1st respondent-

State.

4. Applications were invited by Sri Durga

Malleswara Swamy Varla Devasthanam under E-

procurement system and also sealed tenders for license

rights for spot photos at Up Hills of Indrakeeladri for a

period of two years commending from 01.06.2016 to

31.05.2018, through a paper Notification dated

18.05.2016. E.M.D. of Rs.5,00,000/- was fixed by the

Devasthanam. Thereafter, the petitioner/accused was

declared as the highest bidder for an amount of

Rs.36,06,000/- per year. Accordingly, the petitioner/

accused paid annual rent of Rs.36,06,000/- for the period

commencing from 01.06.2016 to 31.05.2017 by virtue of

six demand drafts. Thereafter, towards half of the annual

license fee payable in advance for the second year

commencing from 01.06.2017 to 31.05.2018, the

petitioner/accused issued post dated cheque bearing

No.811302 for Rs.19,83,300/- dated 30.04.2017 drawn on

Syndicate Bank (Main), Vijayawada-1, with an assurance

that the said cheque will be honoured on presentation of

the same. The complainant presented the said cheque in

its Banker viz. YES Bank Limited, Vijayawada-10 on

10.05.2017, but the same was returned with a return

Memo dated 11.05.2017 with endorsement 'funds

insufficient'. Thereafter, the complainant, after complying

with the essential conditions as contemplated under

Section 138 of the Act, 1881, filed the present complaint.

5. Learned counsel for the petitioner contends that

the present complaint has to be quashed for the reason

that there is no legally enforceable debt; that even as per

the complaint, the subject cheque was issued as a security;

that as is evident from the complaint, the subject cheque is

postdated cheque and the same was issued to pay annual

license fee in advance for the second year commencing from

01.06.2017 to 31.05.2018, and hence, continuation of the

impugned proceedings is nothing but abuse of process of

Court.

Learned counsel for the petitioner relied on a decision

in Indus Airways Private Limited & others v. Magnum

Aviation Private Limited and others 1 in support of his

contention.

6. Per contra, the learned Additional Public

Prosecutor contended that the contention raised by the

petitioner/accused is a question of fact, which has to be

decided during the course of trial and the same cannot be a

ground to quash the impugned proceedings. He relied

upon a decision in Sunil Todi and others v. State of Gujarat

and others2.

1. In Indus Airways Private Limited & others v.

Magnum Aviation Private Limited and others (1 supra),

(2014) 12 SCC 539

AIR 2022 SC 147

relied on by the learned counsel for the petitioner, it is held

thus: (paragraph No.19).

"The 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 NI 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 amount in advance and there is breach of such condition then purchaser may 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 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 under Section 138 of the NI Act. The Delhi High Court has travelled beyond the scope of Section 138 of the NI Act by holding that the purpose of enacting Section 138 of the NI Act would stand defeated if after placing orders and giving advance payments, the instructions for stop payments are issued and 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 not supplied by the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or liability."

A perusal of the above judgment goes to show that the

cheque is issued as advance payment for the purchase of

goods and for any reason the purchase order is not carried

to its logical conclusion either because of its cancellation or

otherwise, it is observed that the cheque cannot be said to

have been drawn for an existing debt or liability.

7. In Sunil Todi and others v. State of Gujarat and

others (2 supra), relied on by the learned Additional Public

Prosecutor, it is held thus: (paragraph18).

"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 Private Limited v. Magnum Aviation Private Limited. The issue in that case was whether the post-dated 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 dishonor 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 post-dated 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 482 CrPC and set aside the order issuing process by construing the expression "discharge of any debt or other liability" in Section 138 holding that there must be a liability at the time of issuing the cheque. In appeal, Justice

R M Lodha writing for a two-Judge Bench allowed the appeal observing:

"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 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."

It is further held in paragraph No.20 of the aforesaid

judgment as under:

"20. A later judgment of a two judge Bench in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited { (2016) 10 SCC 458}, considered the decision in Indus Airways (1 supra). In Sampelly, the appellant was the Director of a company which was engaged in power generation, while the respondent was a government enterprise engaged in renewable energy. The respondent agreed to advance a loan for setting up a power project and the agreement

envisaged that post-dated cheques towards payment of installments of the loans would be given by way of security. The cheques having been dishonored, complaints were instituted under Section 138 which led to quashing petitions filed before the High Court. The submission which was urged before this Court was that dishonor of the post-dated cheques given by way of security did not amount to a legally enforceable debt or liability under Section 138 in presentia. This Court held, after adverting to the decision in Indus Airways 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 was distinguished in Sampelly (supra) 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, the cheque was for the repayment of a loan installment which had fallen due. The Court noted that though the deposit of cheques towards the repayment of installments 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."

8. A perusal of Section 138 of the Act, 1881 goes to

show that the expression 'debt or liability' means a legally

enforceable debt or other liability. If the cheque has been

issued in discharge of any debt or liability, presumption

under Section 139 of the Act, 1881 would come into

operation. In other words, when once a cheque has been

issued, the presumption has to be drawn to the effect that

the cheque has been issued to discharge a legally

enforceable debt or other liability.

9. It is evident from the record that there is a

contract between 2nd respondent/complainant and the

petitioner/ accused. In terms of the said contract, the

subject cheque has been issued. By any stretch of

imagination, it is too premature for this court to come to a

conclusion that the subject cheque was issued for the

purpose of security. Whether the subject cheque was

issued as a security or not would constitute a defence and

the same has to be established in the course of trial.

10. When a cheque has been issued, there cannot

be any hard and fast rule that the cheque which is issued

as a 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. Therefore, when a cheque has been issued as a

security, the consequences flowing therefrom is also known

to the drawer of the cheque, and in the circumstances, if

the cheque is presented and dishonoured, the holder of the

cheque/drawee would have the option to initiate civil

proceedings for recovery or criminal proceedings for

punishment in a 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.

11. The defences that are raised by the learned

counsel for the petitioner are all questions of fact that have

to be decided in the course of trial. This is too premature

stage where this Court cannot go into the disputed

questions of fact. In view of the same, there are no merits

in the present Criminal Petition.

12. The Criminal Petition is, accordingly, dismissed.

Consequently, miscellaneous applications pending, if

any, shall stand closed.

____________________________ K.SREENIVASA REDDY, J .04.2022 DRK

THE HON'BLE SRI JUSTICE K. SREENIVASA REDDY

CRIMINAL PETITION NO.8922 OF 2018

.04.2022

DRK