IMPORTANT POINT
Where a cheque was issued by guarantor in a loan in favour of bank but liability was contingent upon the principles debtor not paying a complainant making a demand on guarantor, in absence of demand made, presentation cheque and its bouncing would not make guarantors liable for prosecution under Section 138 of Negotiable Instruments Act.

D.G. Karnik J.—Rule. By consent, Rule is made returnable forthwith.

2. Heard counsel for the parties.

3. An order dated 19th October, 2006 passed by the 30th Metropolitan Magistrate Court issuing process in Criminal Case No. 1694/SS/2007 is challenged by the applicants, who are co-accused, by these two applications. Hence, both the applications are disposed of by this common order.

4. There is no dispute between the parties regarding the basic facts which are as follows. The H.D.F.C. Bank Ltd. (hereinafter referred to as “the complainant”) filed a complaint, bearing Criminal Case No.1650/ 2006 (renumbered as Criminal Case No.1694/SS/2007) against Rajesh Sharma (hereinafter referred to as “Rajesh”), his son Kartik Sharma (hereinafter referred to as “Kartik”) and wife Neelam Sharma (hereinafter referred to as “Neelam”) for an offence punishable under section 138 of the Negotiable Instruments Act. The complaint states that under a loan agreement dated 22nd November, 2005, the complainant granted a loan of Rs,1. 50,00,000 to M/s Silverline Motors Pvt. Ltd, (for short ‘the Company’) on the terms and conditions recorded in the agreement. Under the loan agreement, the Company had agreed to provide personal guarantee of Rajesh or a corporate guarantee of M/s. Neelam India Pvt. Ltd. for repayment of the loan. Accordingly, M/s Neelam India Pvt. Ltd. issued a corporate guarantee on 30th November, 2005. Rajesh, his Son Kartik and wife Neelam also executed three separate deeds of guarantee on 22nd and 30th November, 2005 guaranteeing the repayment of the loan with interest. The Company was unable to repay the loan as per the terms and conditions of the loan agreement. Hence, as a comfort to the complainant, Rajesh sent to the complainant a cheque bearing No. 631151 dated 10th May, 2006 for Rs. 1,40,00,000 from a joint account of the applicants maintained with ICIC Bank, New Delhi Branch. The said cheque was to be held as a security and/or additional comfort as is clear from the letter dated 3lst May, 2006 sent by Rajesh. The letter states:

“Further for the sheer purpose of providing an Additional Level of Comfort, as also strongly suggested by your goodselves, we are also enclosing a cheque drawn from the personal account of Mr. Rajesh Sharma. maintained with ICICI Bank, Saket, New Delhi, bearing cheque No. 631151, for the same amount in lieu of the above.”

On 10th July, 2006, the complainant without notice to Rajesh, Kartik or Neelam sought to encash the cheque. On 17th July, 2006, the cheque was dishonoured on its presentation and was returned to the complainant by ICICI Bank on 25th July, 2006. Demand notice dated 2nd August, 2006 issued by the complainant to Rajesh. Kartik and Neelam yielded no response. The complainant, therefore, filed the complaint with the learned Magistrate who issued the process. That order is impugned by these applications.

5. Relying upon a judgment of the Supreme Court rendered in M.S. Narayana Menon v. State of Kerala1 learned counsel for the applicants submitted that as the cheque was issued only by way of a security of the loan by the Company, they were not liable under Section 138 of the Negotiable Instruments Act (for short “the Act”), the applicants were not indebted to the complainant. The cheque was not issued towards the discharge of any debt or liability and therefore the case would not fall within the purview of Section 138 of the Act.

6. Per contra, referring to a decision if the Supreme Court in ICDS Ltd. v. Beena Shabeer2 learned counsel for the complainant bank submitted that a complaint under Section 138 of the Negotiable Instruments Act was maintainable against a guarantor. Since the applicants were guarantors to the loan borrowed by the Company, the complaint under Section 138 of the Negotiable Instruments Act was maintainable.

7. In M.S. Narayana v. State of Kerala (supra) relied upon by the applicants, the Supreme Court has observed:

“57. We in the facts and circumstances of