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SUPREME COURT OF INDIA
R.M. LODHA & SHIVA KIRTI SINGH, JJ.
M/s. Indus Airways Pvt. Ltd. & Others – Appellants
Versus
M/s. Magnum Aviation Pvt. Ltd. & Another – Respondents
Criminal Appeal No. 830 of 2014 (Arising out of SLP (Crl.) No. 9752 of 2010)
Decided On : 07-04-2014
(b) Negotiable Instruments Act, 1881 – Section 138 – Civil and criminal liability – Breach of condition of advance payment for purchase putting the seller to loss may create civil liability, but not criminal liability – For a criminal liability there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque – Issue of cheque for advance payment at the time of signing the contract – Does not create criminal liability – Dishonour of such cheque – Does not constitute offence u/s 138. (Para 19)
1997 Cri.L.J. 1942(AP); 2000 Cri. L.J.1988 (Guj); 1999 (1) CTC 6; 2006 Cri. L.J. 4330 (Kerala) – Cited with approval
154 (2008) Delhi Law Times 579 – Overruled impliedly
Facts of the case:
The question arising for consideration in this appeal is, whether the post-dated cheques issued by the purchasers as an 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 amounts to an offence under Section 138 of the N.I. Act. The Delhi High Court in the impugned order has held that to be so.
The purchasers placed two purchase orders for supply of certain aircraft parts with respondent No.1, M/s. Magnum Aviation Pvt. Ltd. (‘supplier’). 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 supplier in advance. The supplier says that the advance payment was made by the purchasers as it had to procure the parts from abroad.
These cheques got dishonoured when they were presented on the ground that the purchasers had stopped payment because they had cancelled the purchase order and requested the supplier to return the cheques.
The supplier sent a notice to the purchasers and then filed a complaint against the purchasers under Section 138 of the N.I. Act.
The concerned Additional Chief Metropolitan Magistrate took cognizance of the alleged offence and issued summons to the purchasers.
The purchasers challenged the order issuing summons in a revision petition which was allowed.
The supplier challenged the order of the Additional Sessions Judge before the High Court which was allowed.
Finding of the Court:
Impugned judgment cannot be sustained.
Result: Criminal appeal allowed.
The key legal principle established by this judgment is that a cheque issued for the purpose of an advance payment at the time of signing a contract does not constitute an offence under Section 138 of the Negotiable Instruments Act if the cheque is dishonoured. This is because, at the time of issuing such a cheque, there is no legally enforceable debt or liability existing.
For Section 138 to apply, there must be a subsisting, enforceable debt or liability on the date the cheque is drawn. If the cheque is given as an advance payment, and the purchase order is subsequently canceled or the goods are not supplied, the cheque cannot be considered as drawn in discharge of an existing debt or liability (!) (!) .
Furthermore, the act of issuing a cheque for advance payment, without an existing enforceable debt, does not amount to a criminal offence if the cheque is dishonoured due to the cancellation of the contract or non-supply of goods. Civil liability may arise from breach of contract or loss incurred due to such cancellation, but this does not translate into criminal liability under Section 138 (!) (!) .
Therefore, dishonour of such cheques, issued solely as advance payments at the signing of a contract, does not automatically constitute an offence under Section 138 of the Negotiable Instruments Act. The criminal liability under this section is contingent upon the existence of a legally enforceable debt or liability at the time the cheque is issued.
JUDGMENT
R.M. Lodha, J. –
Leave granted.
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 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.
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, M/s. Magnum Aviation Pvt. Ltd. (hereinafter referred to as ‘supplier’). 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 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 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.
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 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 and issued summons to 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 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 Magistrate.
9. The supplier challenged the order of the Additional Sessions Judge in a petition under Section 482 of the Code before the High Court. The High Court allowed the petition, set aside the order of the Additional Sessions Judge and restored the order of the Additional Chief Metropolitan Magistrate issuing process to the purchasers.
10. The Delhi High Court following its earlier decision in Mojj Engineering [M/s. Mojj Engineering Systems Limited and others v. M/s. A.B. Sugars Ltd. [154 (2008) Delhi Law Times 579]] held that the issuance of a cheque at the 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:
“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 provisions of this Act, be punished with imprisonment for a term which may be extended to two
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