2021 Supreme(SC) 630

SUPREME COURT OF INDIA
M.R. SHAH, A.S. BOPANNA, JJ.
SRIPATI SINGH (SINCE DECEASED) THROUGH HIS SON GAURAV SINGH – APPELLANTS
VERSUS
THE STATE OF JHARKHAND & ANR. - RESPONDENTS
CRIMINAL APPEAL NOS. 1269-1270 OF 2021 (ARISING OUT OF SLP(CRIMINAL) NO.252-253 of 2020)
DECIDED ON : 28-10-2021

IMPORTANT POINTS
(1) Cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance.
(2) When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to loan or instalment maturing for repayment towards which such cheque is issued as security.
(3) Mere dishonourment of cheque cannot be construed as an act on part of Drawer with a deliberate intention to cheat and mens rea in that regard cannot be gathered from the point amount had been received.

Headnote:

(A) Indian Penal Code, 1860 – Section 420 – Negotiable Instruments Act, 1881 – Section 138 – Criminal Procedure Code, 1973 – Section 227 – Dishonour of cheque – Rejection of application seeking discharge from criminal case – Even as per case of appellant amount advanced by appellant is towards business transaction and a loan agreement had been entered into between parties and cheque had been issued to ensure repayment – Mere dishonourment of cheque cannot be construed as an act on part of respondent No.2 with a deliberate intention to cheat and mens rea in that regard cannot be gathered from the point amount had been received – There is no sufficient evidence to indicate offence under Section 420 IPC is made out and there is no reason to interfere with conclusion reached by High Court – However, when High Court itself has accepted fact that it is a case of non-refunding of loan amount, first aspect that there is legally recoverable debt from respondent No.2 to appellant is prima facie established. (Paras 11 and 12)

(B) Negotiable Instruments Act, 1881 – Section 138 – Dishonour of cheque – A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance – ‘Security’ in its true sense is the state of being safe and security given for a loan is something given as a pledge of payment – It is given, deposited or pledged to make certain fulfilment of an obligation to which parties to the transaction are bound – If in a transaction, loan is advanced and borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if loan amount is not repaid in any other form before due date or if there is no other understanding or agreement between parties to defer payment of amount, cheque which is issued as security would mature for presentation and drawee of cheque would be entitled to present the same – On such presentation, if same is dishonoured, consequences contemplated under Section 138 and other provisions of N.I. Act would flow. (Para 16)

(C) Negotiable Instruments Act, 1881 – Section 138 – Dishonour of cheque – When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to loan or instalment maturing for repayment towards which such cheque is issued as security – Prior discharge of loan or there being an altered situation due to which there would be understanding between parties is a sine qua non to not present the cheque which was issued as security – There cannot be a hard and fast rule that a cheque which is issued as security can never be presented by drawee of cheque – If such is 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 statute – When a cheque is issued even though as ‘security’ consequence flowing therefrom is also known to drawer of cheque and if cheque is presented and dishonoured, holder of cheque/drawee would have option of initiating civil proceedings for recovery or criminal proceedings for punishment in fact situation, but in any event, it is not for drawer of cheque to dictate terms with regard to nature of litigation. (Paras 16 and 17)

(D) Negotiable Instruments Act, 1881 – Section 138 – Indian Penal Code, 1860 – Section 420 – Criminal Procedure Code, 1973 – Section 227 – Dishonour of cheque – Rejection of application seeking discharge from criminal case – Appellant cannot be non-suited for proceeding with complaint filed under Section 138 of N.I. Act merely due to fact that cheques presented and dishonoured are shown to have been issued as security, as indicated in loan agreement – As on date of presentation of cheque for realisation repayment of amount as agreed under loan agreement had matured and amount had become due and payable – To contend that cheque should be held as security even after amount had become due and payable is not sustainable – On such cheque being dishonoured, cause of action had arisen for issuing a notice and presenting criminal complaint under Section 138 of N.I. Act on payment not being made – Though a criminal complaint under Section 420 IPC was not sustainable in facts and circumstances of instant case, complaint under Section 138 of N.I Act was maintainable and all contentions and defence were to be considered during course of trial – Order of High Court set aside and complaint restored. (Paras 19, 22 and 23)

Facts of the case:

Appellant is assailing the order dated 17.12.2019 passed by the High Court of Jharkhand at Ranchi in Criminal M.P. No.2635 of 2017 and Criminal M.P. No.2655 of 2017. Through the said order, the High Court has allowed the said Crl. Miscellaneous Petitions and has set aside the orders dated 04.07.2016 and 13.06.2019 passed by the Judicial Magistrate First Class, Palamau in Complaint Case No.1833 of 2015. Judicial Magistrate by the order dated 04.07.2016 had taken cognizance of the offence alleged against the respondent No.2 herein. By the order dated 13.06.2019 Judicial Magistrate had rejected the petition filed by respondent No.2 seeking discharge in the said criminal complaint. The question which would also arise for consideration is as to whether complaint filed by the appellant should be limited to a proceeding under Section 138 of N.I. Act or on the facts involved, whether the invoking of Section 420 IPC was also justified.

Findings of Court:

Order dated 17.12.2019 passed by High Court of Jharkhand in Cr.M.P No.2635 of 2017 with Cr.M.P No.2655 of 2017 are set aside. Consequently, order dated 04.07.2016 and 13.06.2019 passed by Judicial Magistrate are restored. The complaint bearing C.C. No.1839 of 2015 and 1833 of 2015 are restored to the file of Judicial Magistrate, limited to complaint under Section 138 of N.I. Act to be proceeded in accordance with law.

Result : Appeals allowed in part.