IMPORTANT POINT
When cheques were issued not in discharge of existing debt or liability but as collateral security for repayment of an amount in future, offence under Section 138 of Negotiable Instruments Act would not be attracted on dishonour of cheque.

Headnote:Negotiable Instruments Act, 1881 - Section 138 - Prosecution for offence of dishonour of cheque Quashing petition on ground that cheques were issued by petitioner company only as collateral security Expression that cheque was issued "for discharge, in whole or in part, of any debt or other liability" Petitioner - company borrowed Rs 15 "Lacs from' complainant and entered into an agreement to repay amount within six months - To ensure due performance of terms seven cheques were issued of due dates and necessary averment was made in agreement even cheques were delivered there was no liability on part of accused to discharge debt - Cheques were not issued to discharge any existing debt - Offence under Section 138 of the Act was not attracted - Proceedings were liable to be quashed. (Paras 10 to 14 at 17)
Result: Petition allowed.

JUDGMENT

J.R. Vora, J. - Rule. Learned APP Mr. K.P. Raval waives service of rule on behalf of respondent No. 1 and learned counsel Mr. D.O. Vyas waives service of rule on behalf of respondent No. 2. With the consent of the learned Advocates appearing for the parties, the matter is finally heard and decided today.

2. This application is lied by the petitioners under Sec. 482 of the Criminal Procedure Code to quash a criminal complaint. The extent of criminal liability, which arises under Sec. 138 of the Negotiable Instruments Act, 1881 is the real controversy, which is the crux of the matter, requires to be adjudicated. The transactions, which are otherwise exclusively commercial and subject to civil jurisdiction, now by enacting Sec. 138 of the Negotiable Instruments Act, attaches criminal liability against the persons involved in such transactions. A careful judicial scrutiny and a deep probe is necessary to set at, rest the battle arising from the commercial transaction.

3. Looking to the brief facts of the case it is revealed that one Shanku Concretes Pvt. Ltd., Halol. District Panchmahals, a company incorporated through its Managing Director Mr. Jaidev Kotak, residing at Bombay, obtained advance of Rs. 15 lacs from one Balbhadrasinh lndrasinh Zala, residing at Surendranagar. It appears that vide an agreement dated 5th June. 1995, the company Shanku Concretes Pvt. Ltd. through its Managing Director Mr. Jaidev Kotak entered into a contract with the abovesaid Balbhadrasinh Indrasinh Zala and obtained advances byway of a debt of Rs. 15 lacs to promote the production of the company. On that day, the amount of Rs. 15 lacs were paid to Mr. Jaidev Kotak, Managing Director. The agreement termed that the amount was to be returned after six months and during that period Managing Director Mr. Jaidev Kotak, as per the arrangement between the parties, issued seven cheques of due dates with a stipulation that if cheques are bounced. Balbhadrasinh lndrasinh Zala may take action against the company. Then, thereafter, a Criminal Case No. 132 of 1996 came to be filed by said Balbhadrasinh lndrasinh Zala in the Court of Judicial Magistrate. First Class, at Lakhtar, against two accused - (1) Shanku Concretes Pvt. Ltd. and (2) Mr. Jaidev Kotak, under Sec. 138 of the, Negotiable Instruments Act, It was alleged in the complaint by the complainant that the accused No. 2 induced the complainant to believe that the post-dated cheques referred to above, will be accepted by Bank and that the complainant would get the amount of the cheques. Out of those cheques, the complainant deposited two cheques to the account of the Union Bank of India, which were bounced with an endorsement that the fund was insufficient in the account of the accused and, therefore the complaint. The complainant gave notice to the accused in 6th May, 1996, but within the statutory period of 5 days, the accused did not pay the amount. Learned Judicial Magistrate. First Class. Lakhtar, was pleased to issue process in the abovesaid complaint against the accused. Summons was served on accused No.2, but he did not appear before the learned Magistrate and, therefore, the necessary procedure is being followed by the learned Judicial Magistrate.

4. During the pendency of the abovesaid criminal case, the original complainant preferred an application before the Judicial Magistrate, First Class, Lakhtar, with a prayer to implead- (1) Mr. Sandip Jaidev Kotak, and (2) Mr. Kunal Jaidev Kotak as accused in the abovesaid criminal case who are petitioners Nos. 2 and 3 in this petition. Learned Judicial Magistrate was pleased to issue notices to the abovesaid Mr. Sandip Jaidev Kotak and Mr. Kunal Jaidev Kotak.

5. Now, this petition is filed by- (1)

Shanku Concretes Pvt. Ltd., (ii) Sandip Jaidev Kotak, and (iii) Kunal Jaidev Kotak, against (1) State of Gujarat, and (ii) Balbhadrasinh Indrasinh Zala - original complainant. It is urged that the Criminal Case No. 132 of 1996 be quashed because the che

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Judicial Analysis

SupremeToday

IMPORTANT POINTWhen cheques were issued not in discharge of existing debt or liability but as collateral security for repayment of an amount in future, offence under Section 138 of Negotiable Instruments Act would not be attracted on dishonour of cheque.

Cases Referred (4)

Judicial Analysis

IMPORTANT POINT
When cheques were issued not in discharge of existing debt or liability but as collateral security for repayment of an amount in future, offence under Section 138 of Negotiable Instruments Act would not be attracted on dishonour of cheque.