The validity of a cheque under S.138 is contingent on the existence of a legally enforceable debt.

1. Aggrieved by the judgment of III Additional Metropolitan Sessions Judge, Hyderabad, in Cri. Appeal No. 415 of 1997 the present appeal is preferred.

2. The appellant is the complainant in C.C. No. 124 of 1996 on the file of the V Metropolitan Magistrate, Hyderabad. The 2nd respondent is the accused.

3. The trial Court convicted the accused for an offence under S.138 of Negotiable Instruments Act , 1881 (for short 'the Act').

4. Aggrieved by the same, the accused preferred an appeal before the III Metropolitan Sessions Judge, Hyderabad the learned Judge acquitted the accused by reason of the impugned judgment.

5. The facts leading to the case are that the appellant is a financial company and provided finances to the accused to an extent of Rs. 31,50,000/- and the accused - company has issued three post dated cheques for a total amount of Rs. 34,65,000/- which includes interest on Rs. 31,50,000/-.

6. The contents of the complaint also disclose that the accused - company has issued 3,15,000 equity shares worth Rs. 10/- each to the appellant - company by way of additional security and the accused - company has agreed to buy back those equity shares at the rate of Rs. 12.40 and Rs. 13.20 per share by 10-2-1995 and 18-3-1996 respectively. It is also stated that out of the amount covered by three cheques the accused - company paid an amount of Rs. 11,00,000/- covering one cheque. While so the other two cheques were dishonoured when they were presented to the accused - banker for want of sufficient funds and also as the drawer directed the banker to stop payment. Soon after the dishonour, the statutory notice was issued on 20-10-1995 which was received by the accused on 22-12-1995 and the accused issued a reply on 2-1-1996 and the litigation ultimately has landed in the Criminal Court by way of filing a complaint under S.138 of the Act by the appellant herein against the accused.

7. PWs. 1 to 3 were examined and Exs. P1 to P16 were marked. DW 1 was examined and Exs. D1 to D3 were marked on behalf of the defence.

8. Heard the arguments of the learned counsel appearing for both sides.

9. The judgment of the learned Additional Metropolitan Sessions Judge is attacked on the ground that the observations of the learned Judge to the effect that the transaction is illegal is not correct. It is contended that the only question to be considered by the Court whether the cheques have been issued in discharge of a debt and not whether the transaction is legal or illegal. It is also contended that the transaction between both the parties is a loan transaction and the shares were given as security for the loan and the cheques were also issued for recovering the loan in case of default. Hence, the first appellate Court ought not to have gone into the details of shares and legalities of the transaction. The learned counsel for the respondent - accused contended that there is no legally enforceable debt and in the non existence of such requirement the appellant cannot invoke the provisions of S.138 of the Act.

10. The point before me is whether the accused has committed an offence under S.138 of the Act?
POINT
S.138 of the Act is as follows :
'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 ins