IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26TH DAY OF APRIL 2019 BEFORE THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA WRIT PETITION NOS.14820-22 OF 2015(GM-RES) BETWEEN:
1. M/S SERVE & VOLLEY OUTDOOR ADVERTISING PVT LTD., # 110, ANDREWS BUILDING M G ROAD BANGALORE-560 001 REPRESENTED BY ITS BRANCH HEAD MR RAGHUVEER B T S/O THIRUMALAI AGED ABOUT 60 YEARS 2. MR NITESH SHETTY S/O MR P V SHETTY AGED 33 YEARS # 110, ANDREWS BUILDING M G ROAD, BANGALORE-560 001 3. MR VARGHESE EAPAN S/O LATE MR THOMAS VARGHESE AGED 57 YEARS R/AT 203, B, DDA LIG FLATS, MOTIA KHAN NEW DELHI-110 055 ... PETITIONERS (BY SRI: RAVI B.NAIK, SR.ADVOCATE A/W SRI: K.B.MONESH KUMAR, ADVOCATE) AND:
M/S TIMES INNOVATIVE MEDIA LTD 4TH FLOOR,"A" WING MATULYA CENTRE, SENAPATI BAPAT MARG, LOWER PAREL (W) MUMBAI-400013 REPRESENTED BY ITS ASSISTANT VICE PRESIDENT, MR CHANNAMALLIKARJUN B ... RESPONDENT (BY Ms: MANEESHA KONGOVI, ADVOCATE) THESE WRIT PETITIONS ARE FILED UNDER ARTICLE 226 AND 227 OF CONSTITUTION OF INDIA, R/W SECTION 482 OF THE CRIMINAL PROCEDURE CODE, 1973 PRAYING TO QUASH THE COMPLAINT DTD.1.9.2010 BEARING P.C.R.NO.9479/2010 IN CC NO.35669/2010 PENDING ON THE FILE OF THE HON'BLE XIV ADDL. CHIEF METROPOLITAN MAGISTRATE, MAYOHALL, BANGALORE FILED BY R-1 AGAINST THE PETITIONER UNDER SECTION 200 OF THE CRIMINAL PROCEDURE CODE FOR THE OFFENCE PUNISHABLE UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT (ANNEX-A) AND QUASH THE ORDER OF SUMMONS/PROCESS DTD.15.3.2011, PASSED BY THE HON'BLE XIV ADDL. CHIEF METROPOLITAN MAGISTRATE, MAYOHALL, BANGALORE AND FURTHER PROCEEDINGS IN MATTER P.C.R.NO.9479/2010 IN CC NO.35669/2010 FILED BY THE COMPLAINANT / RESPONDENT HEREIN UNDER SECTION 200 OF THE CRIMINAL PROCEDURE CODE, 1973 READ WITH 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 (ANNEX-B).
THESE WRIT PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 08.03.2019 AND COMING ON FOR PRONOUNCEMENT THIS DAY, JOHN MICHAEL CUNHA. J, MADE THE FOLLOWING:-
O R D E R Petitioner No.1 M/s.Serve & Volley Outdoor Advertising Pvt. Ltd., is a Company registered under the Companies Act, 1956 carrying on the business of outdoor advertising across the country. On 31.12.2005, petitioner No.1 Company entered into a License Agreement with Delhi Metro Rail Corporation Limited (DMRC) granting the petitioner advertising licenses in relation to advertising on the display panels inside 21 metro stations. Pursuant to this agreement, a payment as security deposit of Rs.5,51,65,837/- was made by the petitioner to DMRC. As the respondent herein M/s.Times Innovative Media Ltd., was involved in the business of out of home media, the petitioner No.1 Company executed a back-to-back Exclusive Marketing Services Agreement (EMS) with the respondent on 25.06.2008 for marketing the advertisement spaces which had been licensed to it under the DMRC Agreement. This agreement contained the following clauses:
a. Clause 5.1: Consideration to be paid by the Respondent to the Petitioner as per Schedule 2 to the Agreement, which was to be paid on advance invoices on or before the 27th day of the previous month for a continuous period from 30.06.2008 to 30.12.2010.
b. Clause 5.1.2: The Respondent to indemnify the Petitioner in the event of a loss or damage caused to it on account of a breach by the Respondent.
c. Clause 6.1: The exact same amount of Rs.5,51,65,837/- to be paid as Security Deposit to the Petitioner by the Respondent.
d. Clause 6.2: The Petitioner would not be liable to refund the Security Deposit in the event of a termination of the DMRC for reasons attributable to the Respondent.
e. Clause 11: A Corporate Guarantee for the value of the Security Deposit would be furnished by Serve and Volley Media Private Limited (sister concern of the Petitioner), to be enforced by the Respondent in accordance with the terms of this Agreement.
f. Clause 19(viii): All disputes to be resolved by arbitration as per the Arbitration and Conciliation Act, 1996.
2. In terms of Clause No.6.1 above, petitioner No.1 Company issued an undated cheque bearing No.518073 drawn on Corporation Bank, M.G.Road Branch, Bengaluru for an amount of Rs.5,51,65,837/- as security along with side letter in favour of the respondent. It is averred that right from the commencement of the agreement, respondent consistently delayed and defrauded in making payments as per Schedule 2 to the EMS Agreement dated 25.06.2008. The petitioner – Company time and again called upon the respondent to clear its dues. On 26.04.2010, petitioner No.1 – Company addressed a letter to the respondent to pay the dues immediately to avoid termination of the License Agreement by DMRC. The respondent sent a reply dated 03.05.2010 requesting the petitioner to return the security deposit after adjusting the consideration which was required to be paid by the respondent during the term of the EMS Agreement. Petitioner No.1 – Company issued a “stop payment” order on 04.05.2010 to its banker in view of the breach of EMS Agreement by the respondent. According to the petitioners, this was a conscious decision of the petitioner No.1 – Company in view of the fact that there was no legally enforceable debt against the petitioners.
3. Due to the default by the petitioner No.1 – Company occasioned by the non-payment of dues by the respondent, the DMRC terminated the License Agreement with the petitioners on 07.05.2010. As disputes arose between the parties, petitioner No.1 – Company invoked the arbitral clause. Despite arbitration having commenced, respondent filed a complaint on 1.09.2010 before the XIV Addl. CMM, Bengaluru to initiate proceedings under section 138 of Negotiable Instruments Act against the petitioners. Learned Magistrate having taken cognizance of the offences, issued summons to the petitioners in C.C.No.35669/2010. The petitioners filed Criminal Petition No.6997/2011 under section 482 Cr.P.C., seeking to quash the complaint in C.C.No.35669/2010 and the order dated 15.11.2010 taking cognizance of the same. By judgment dated 9.2.2012, this court dismissed the Criminal Petition No.6997/2011 on the ground that, whether the cheque is supported by consideration or whether the cheque is not issued for recovery of legal movable debt or liability has to be decided by the trial court. Aggrieved by the said order, the petitioner No.1 - Company preferred S.L.P. (Crl.) No.2744/2012 before the Hon’ble Supreme Court and by order dated 08.07.2014, the SLP was also dismissed. After dismissal of the SLP, the Arbitral Tribunal passed its final award, determining the dues of the petitioners and declared that the petitioners were obliged to pay only an amount of Rs.18,36,164/- to the respondent. In compliance of the said award dated 24.07.2014, petitioner No.1 - Company issued a cheque for a sum of Rs.18,36,164/- along with a covering letter dated 01.08.2014 to the respondent. The respondent refused to accept the said amount and returned the same vide letter dated 18.08.2014. Aggrieved by the award of the Arbitral Tribunal, respondent herein filed an application under section 34 of the Arbitration and Conciliation Act, 1996 before the High Court of Delhi and the same is pending consideration.
4. Respondent has filed a detailed statement of objections inter alia contending that as per the terms of EMS Agreement, the respondent was to provide an interest free, refundable security deposit of Rs.5,51,65,837/- to the petitioners. The said security deposit was duly furnished by the respondent to the petitioners. As a security towards the said deposit, the petitioners provided an undated cheque bearing No.518073 for an amount of Rs.5,51,65,837/-. The liability to pay the security deposit to the respondent arose on termination of the License Agreement dated 7.5.2010 between the petitioners and the DMRC. After the petitioners communicated to the respondent about the termination of the License Agreement by DMRC, respondent claimed reimbursement of its losses and refund of the security deposit within fifteen business days failing which the respondent warned that it would deposit the said undated cheque. Since the petitioners in reply refused the liability to refund the security deposit, the respondent proceeded to date and deposit the cheque with its banker i.e., HDFC Bank Ltd., New Delhi. The cheque was dishonoured and returned with the advice “payment stopped by the drawer”. The respondent issued a legal notice dated 20.07.2010 to which petitioner issued an untenable reply and hence, the respondent filed a complaint in C.C.No.35669/2010 under section 138 of Negotiable Instruments Act. The petitioners sought to quash the said proceedings in Criminal Petition No.6997/2011. The said petition came to be dismissed on 9.2.2012. Even the SLP filed by the petitioners against the said order came to be dismissed by the Hon’ble Supreme Court by order dated 08.07.2014. The proceedings in C.C.NO.35669/2010 are impugned yet again in the instant writ petitions and therefore, the petitions are barred in law and equity. Award passed by the Arbitral Tribunal is challenged by the respondent under section 34 of the Arbitration and Conciliation Act, 1966 and hence, the matter is sub judice as on date. The findings in the arbitral award by itself cannot lend the petitioners a ground for quashing the criminal proceedings. Thus, contending that the petitioners are not entitled for any relief before this Court, the respondent has sought for dismissal of the petition.
5. Learned Senior Counsel appearing on behalf of the learned counsel for the petitioners and the learned counsel appearing for the respondent have submitted their arguments in line with the contentions urged by the respective parties.
6. In support of his submissions, learned Senior Counsel appearing for the petitioners has placed reliance on the following decisions:-
1. Indus Airways Private Limited & others Vs Magnum Aviation Private Limited & another, (2014) 12 SCC 539;
2. M/s Swastik Coaters Pvt. Ltd. Vs. M/s Deepak Brothers & Another, 1997 (1) A.P.L.J. 423 (HC);
3. M/s Balaji Seafoods Exports (India) Ltd., Rep by its Director, Chalapathy and another Vs Mac Industries Ltd., S.Pichalah, Managing Director, Rep by its Authorised Person U. Vijayakumar, 1999 (I) CTC 6;
4. M/s Vempati Balaji and others Vs D.Vijaya Gopala Reddi and another, 1998 SCC OnLine AP 396;
5. Shanku Concretes Pvt. Ltd. And others Vs State of Gujarat and another, 1999 SCC OnLine Guj 366; and 6. M/s Supply House Vs Ullas & another, 2006 Cri L J 4330 7. The sum and substance of the argument of the learned counsel for the petitioners is that as on the date of issuance of the cheque, no liability had arisen and hence, there was no cause of action for initiation of proceedings against the petitioner. The cheque in question was issued as a security in terms of the EMS Agreement between the petitioner No.1 – Company and the respondent. In view of the disruption of the contract, the parties had referred the dispute for resolution by the Arbitral Tribunal. Before the Arbitral Tribunal, the petitioners as well as the respondent laid their claims and counter claims. The dispute regarding the refund of the security deposit was also one of the disputes referred for resolution of the Arbitral Tribunal.
8. Referring to the relevant portion of the award passed by the Arbitral Tribunal, learned Senior Counsel has emphasized that the forfeiture of security deposit of Rs.5,59,54,746/- was one of the claim referred to and considered by the Arbitral Tribunal. The said claim is answered in para 114 of the award. The relevant part thereof reads as under:
“3. Whether the claimant’s non-compliance with the conditions of the License Agreement, including non-payment of License Fee by the Claimant to DMRC resulted in the termination of the License Agreement? If so, its consequences?
Answer: The Claimant is entitled to only some of its claims, as also liable to refund a part of the Security Deposit to the Respondent, as detailed above.”
In the final award, the Arbitral Tribunal by working out the claims and counter claims made by the respective parties in Clause (7) has passed an award which reads, “The amounts awarded in favour of the Claimant and payable by the Respondent shall be aggregated. The sum of Rs.2,00,00,000/- together with interest at the rate of 24% per annum from 01.06.2010 till the date of the award, awarded in favour of the Respondent would be adjusted against the aggregated sum awarded in favour of the Claimant. The Claimant shall pay the balance amount of Rs.18,36,164/- to the Respondent within a period of 1 month from the date of this award, failing which the Claimant will pay interest on the said balance amount at the rate of 10% per annum to be calculated from the date of the award till the date of actual payment. (Note: The balance amount payable by the Claimant to the Respondent is rounded off to the nearest rupee.) 9. It is the submission of the learned counsel for the petitioner that the liability of the petitioners arising out of the above contract having been adjudicated and determined by the Arbitral Tribunal at Rs.18,36,164/-, the respondent is not entitled to enforce the said cheque for a liability of Rs.5,51,65,837/-.
10. In view of the submission of the learned Senior Counsel for the petitioners that the petitioner No.1 was always ready and willing to discharge the liability due by it as on the date of the issuance of the cheque and the said liability having been quantified at Rs.18,36,164/- and the same was paid to the respondent towards full and final settlement, but the same having been refused to be received by the respondent, it was suggested as to why the alleged offence could not be compounded in terms of section 147 of the Negotiable Instruments Act? The parties were reminded of the decision of the Hon’ble Supreme Court in METERS AND INSTRUMENTS PRIVATE LIMITED & Others vs. KANCHAN MEHTA, AIR 2017 SC 4594, wherein the Hon’ble Supreme Court has held :
“Where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Code of Criminal Procedure.”
It was also brought to the notice of the parties that in the said decision it was held that, “Though compounding requires consent of both the parties, even in absence of such consent, the Court, in the interest of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused.”
11. The learned counsel for respondent however expressed his reservation to the suggestion and submitted that the directions issued by the Hon’ble Supreme Court in METERS AND INSTRUMENTS PRIVATE LIMITED referred to supra, cannot be applied to the facts of the present case. Placing reliance on the decision in JIK INDUSTRIES LIMITED & Others vs. AMARLAL V. JUMANI & Others reported in AIR 2012 SC 1079 and NATIONAL INSURANCE COMPANY LIMITED vs. PRANAY SETHI & Others reported in AIR 2017 SC 5157, learned counsel built up an argument that while issuing directions in METERS AND INSTRUMENTS PRIVATE LIMITED referred to supra, Hon’ble Supreme Court has failed to consider the ratio laid down in JIK INDUSTRIES LIMITED wherein it is held that pursuant to insertion of section 147 in the Negotiable Instruments Act, even though the offence under the Negotiable Instruments Act which was previously non-compoundable in view of section 320 sub- section (9) of the Code is made compoundable, that does not mean that the effect of section 147 is to obliterate all statutory provisions of section 320 of the Code relating to the mode and manner of compounding of an offence. In para 58 of the above decision it is held that, “Section 147 will only override section 320(9) of the Code in so far as offence under Section 147 of N.I. Act is concerned.”
In concluding para 73 of the said judgment, Hon’ble Supreme Court has observed as under:-
“If this Court upholds the contention of the Appellant that as a result of incorporation of Section 147 in the Negotiable Instruments Act, the entire gamut of procedure of Section 320 of the Code are made inapplicable to compounding of an offence under the N.I. Act, in that case the compounding of offence under Negotiable Instruments Act will be left totally unguided or uncontrolled. Such an interpretation apart from being an absurd or unreasonable one will also be contrary to the provisions of Section 4(2) of the Code, which has been discussed above. There is no other statutory procedure for compounding of offence under N.I. Act. Therefore, Section 147 of the Negotiable Instruments Act must be reasonably construed to mean that as a result of the said Section the offences under N.I. Act are made compoundable, but the main principle of such compounding, namely, the consent of the person aggrieved or the person injured or the complainant cannot be wished away nor can the same be substituted by virtue of Section 147 of N.I. Act.
(underlining supplied) To buttress this argument, learned counsel has also placed reliance on the decision of the Hon’ble Supreme Court in NATIONAL INSURANCE COMPANY referred to supra and has emphasized that, ““A decision or judgment can be per incuriam any provision in a statute, Rule or Regulation, which was not brought to the notice of the court. A decision or judgment can also be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co-equal or larger Bench.”
Thus it is contended that the ratio laid down in JIK INDUSTRIES LIMITED & Others referred to supra, having not been considered in METERS AND INSTRUMENTS PRIVATE LIMITED & Others referred to supra, respondent cannot be forced to accept Rs.18,36,164/- in lieu of total liability of Rs.5,51,65,837/- in discharge whereof the cheque was issued by the petitioners. Thus the submission of the learned counsel for the respondent is that the Co-ordinate Bench of the Hon’ble Supreme Court which rendered the decision in METERS AND INSTRUMENTS PRIVATE LIMITED & Others referred to supra, having not over-ruled the judgment in JIK INDUSTRIES LIMITED & Others, the only appropriate course for the subsequent Bench was to refer the matter to the Larger Bench.
12. Learned counsel has also raised serious objection to entertain the instant petition in view of the earlier order passed by this Court in Criminal Petition No.6997/2011 wherein this Court has dismissed the petition filed under section 482 of Cr.P.C., holding that to quash the very same proceedings on the ground whether the cheque is supported by consideration or whether the cheque is not issued for recovery of legal movable debt/liability, it is for the accused to establish the same before the trial court. In view of this order, it is contended that the second petition for the same relief under section 482 Cr.P.C., cannot be entertained and the respondent cannot be deprived of the opportunity to substantiate its claim before the trial court. In support of this argument, learned counsel has referred to the order passed by this Court in Criminal Petition No.6613/2011 filed by the petitioners herein seeking to quash the criminal proceedings initiated by the respondent herein based on the same transaction. In the said order, this Court placing reliance on the decision in GURCHARAN SINGH & Another vs. ALLIED MOTORS Ltd. & Another reported in (2005) 10 SCC 626 has held as follows:-
“Passing of the award by the Arbitral Tribunal may be a defence to such a complaint, but to what extent the defence would be valid, shall depend upon the facts and circumstances of each case. Therefore, mere making of the award cannot be a ground to stall or stay the proceedings initiated under Section 138 of N.I. Act.
13. Further, learned counsel submitted that the award passed by the Arbitral Tribunal is under challenge as per section 34 of the Arbitration and Conciliation Act, 1996 before the High Court at Delhi and therefore, there is no ground to quash the proceedings or to permit the petitioners to compound the alleged offences.
14. I have bestowed my anxious thought to the submissions made at the Bar and have carefully scrutinized the material on record and the decisions relied on by the respective counsels.
15. Regarding maintainability of the second petition under Section 482 Cr.P.C. in view of dismissal of the earlier petition filed by the petitioners under Section 482 Cr.P.C. is concerned, suffice it to refer to the law expounded by the Hon’ble Supreme Court in SUPERINTENDENT AND REMEMBRANCER OF LEGAL AFFAIRS, WEST BENGAL vs. MOHAN SINGH AND OTHERS reported in (1975) 3 SCC 706.
In the said case, the question debated before the Hon’ble Supreme Court was whether the High Court had jurisdiction to make the order dated April 7th 1970 quashing the proceeding against respondent Nos.1, 2 and 3 therein, when on an earlier application made by the first respondent, the High Court had by its order dated December 12th, 1968 refused to quash the proceedings before the Hon’ble Supreme Court. Various views held by different High Courts were canvassed as to the scope and ambit of the inherent power of the High Court under Section 561A vis-a-vis an earlier order made by it. Dealing with the said issue, the Hon’ble Supreme Court held that Section 561A (corresponding to Section 482 Cr.P.C of 1973) preserves the inherent power of the High Court to make such orders as it deems fit to prevent abuse of the process of Court or to secure ends of justice and the High Court must, therefore, exercise its inherent powers having regard to the situation prevailed at a particular point of time when its inherent jurisdiction is sought to be invoked.` Further, the Hon’ble Supreme Court held that the High Court was, in the circumstances, entitled to entertain the subsequent application of respondent Nos.1 and 2 and consider whether on the facts and circumstances then obtaining the continuance of the proceeding against the respondents constituted an abuse of process of Court or its quashing was necessary to secure the ends of justice. In the instant case, even though the earlier petition filed by the petitioners in Cr.P.No.6997/2011 was dismissed by this Court on the ground that whether the cheque is supported by consideration or whether the cheque is not issued for recovery of legal debt or liability is required to be established by the accused before the trial court, since then, the quantum of debt or liability due by the accused having been determined by the Arbitrator and the same having been confirmed by the High Court of Delhi, this Court is not precluded to exercise its inherent powers based on the prevailing situation to decide as to whether in the changed circumstances, the continuation of proceeding against the petitioners amount to abuse of process of Court or its quashing is necessary to secure the ends of justice. In that view of the matter, the first contention urged by the petitioners regarding maintainability of the instant petition is liable to be rejected and is accordingly rejected.
16. Coming to the question of sustainability of prosecution instituted against the petitioners/accused for the alleged offence punishable under section 138 of N.I. Act is concerned, the very case of the complainant is that the cheque in question was issued as security in terms of the EMS agreement. The terms of the contract detailed above clearly indicate that at the time of issuance of cheque, no liability had arisen. Complainant has admitted the factual position that the cheque was issued as security and that “in consideration of its obligation and liability to refund the security deposit under the EMS agreement of the said letter, accused No.1 handed over to the complainant undated Cheque bearing No.518073 drawn on Corporation Bank, M.G. Road Branch, Bengaluru for Rs.5,51,65,837/-.”
17. In identical situation relying on the ruling rendered by the High Court of Madras, Gujarat High Court in SHANKU CONCRETES PVT. LTD., AND OTHERS VS. STATE OF GUJARAT AND ANOTHER, 1999 SCC ONLINE GUJ 366 has observed as under :
This court relies on the decision cited by Mr. Majmudar of the High Court of Madras (supra), (1999 Cur Cri R 424), wherein a principle is laid down that to attract Sec.138 of the Negotiable Instruments Act, it must be pointed out that there was subsisting liability or debt on the date when the contract was entered into. In that given case before the High Court of Madras, the contract expressly made it clear that the cheques were handed over as security. In this case, it is clear from the agreement entered into between the parties that after borrowing the money, making a statement to repay the same at some future date, the cheques were issued for due performance. Therefore, the transaction from its very nature or from the intention of the parties, as reflected in the agreement executed between the parties, is purely of a civil nature, for which a civil suit has already been filed. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques, will take the case out of the purview of the Section 138 of the Negotiable Instruments Act.”
(underlining supplied) 18. The same view is taken by Kerala High Court which is approved by the Hon’ble Supreme Court in INDUS AIRWAYS PRIVATE LIMITED AND OTHERS vs. MAGNUM AVIATION PRIVATE LIMITED AND ANOTHER reported in (2014) 12 SCC 539, in para 13 whereof it is held as under:-
The Kerala High Court in SUPPLY HOUSE vs. Ullas, 2006, Cri LJ 4330 had an occasion to consider Section 138 of the N.I. Act. In that case, the post-dated cheque was issued by the accused along with the order for supply of goods. The supply of goods was not made by the complainant. The accused first instructed the bank to stop payment against the cheque and then requested the complainant not to present the cheque as he had not supplied the goods. The cheque was dishonoured. The single Judge of the Kerala High Court held, “………Ext.P1 cheque cannot be stated to be one issued in discharge of the liability to the tune of the amount covered by it, which was really issued, as is revealed by Ext. D1, as the price amount for 28 numbers of mixies, which the complainant had not supplied ”
19. This view was dissented by the Delhi High Court on the reasoning that the issuance of the cheque at the time of signing of such contract has to be considered against the liability as the amount written in the cheque is payable on the date mentioned in the cheque. The Delhi High Court was of the view that if the liability is not construed in that manner, the whole purpose of making dishonour of the cheque as an offence stands defeated. But the reasoning of the High Court of Delhi did not find favour with the Hon’ble Supreme Court and in para 15 of the decision in Indus Airways Private Limited and Others, the Hon’ble Supreme Court has observed thus:-
The above reasoning of the Delhi High Court is clearly flawed inasmuch as it failed to keep in mind the fine distinction between civil liability and criminal liability under Section 138 of the N.I. Act. If at the time of entering into a contract, it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is breach of such condition then purchaser may have to make good the loss that might have occasioned to the seller but that does not create a criminal liability under Section 138. For a criminal liability to be made out under Section 138, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. We are unable to accept the view of the Delhi High Court that the issuance of cheque towards advance payment at the time of signing such contract has to be considered as subsisting liability and dishonour of such cheque amounts to an offence under Section 138 of the N.I. Act. The Delhi High Court has traveled beyond the scope of Section 138 of the N.I. Act by holding that the purpose of enacting Section 138 of the N.I. Act would stand defeated if after placing orders and giving advance payments, the instructions for stop payments are issued and orders are cancelled. In what we have discussed above, if a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, in our considered view, the cheque cannot be said to have been drawn for an existing debt or liability.
20. The Hon’ble Supreme Court further held that the view taken by the Andhra High Court in M/s. SWASTIK COATERS PVT. LTD., vs. M/S. DEEPAK BROTHERS AND ANOTHER, 1997 (1) A.P.L.J. 432 (HC), Madras High Court in M/s BALAJI SEAFOODS EXPORTS (INDIA) LTD., REP. BY ITS DIRECTOR, CHALAPATHY AND ANOTHER vs. MAC INDUSTRIES LTD., S. PICHALAH, MANAGING DIRECTOR, 153, MOUNT ROAD, MADRAS 15, REP. BY ITS AUTHORISED PERSON U. VIJAYAKUMAR, 1999 (I) CTC 6, Gujarat High Court in SHANKU CONCRETES PVT. LTD., AND OTHERS vs. STATE OF GUJARAT AND ANOTHER, 1999 SCC ONLINE GUJ. 366 is the correct view and in consonance with the scheme of Section 138 of N.I. Act.
21. The above principle squarely applies to the facts of the present case. As already discussed above, the cheque in question was issued by the petitioners as security for the performance of the terms and conditions of the EMS agreement entered into between the parties. It was not intended to be encashed until the liability to enforce the security had arisen. Apparently for this reason, the cheque was not dated. Therefore, it cannot be said that the cheque in question was issued in discharge of the debt or liability amounting to Rs.5,51,65,837/- as contended by the respondent. Undeniably, the liability to enforce the security deposit arose only on cancellation of the licence agreement between the petitioners and DMRC i.e., on 07.05.2010. It is only thereafter, respondent claimed refund of the security deposit and since the petitioners disputed the liability, respondent proceeded to date and deposit the cheque with his banker. These facts, therefore, make it evident that the respondent was entitled to enforce the security only to the extent of the debt/liability due and payable by the petitioners as on date and not for the entire security amount. The dispute with regard to the actual liability due and payable by the petitioners arising out of the EMS agreement having been determined by the Arbitrator, it stands concluded that the petitioners were liable to refund only an amount of Rs.18,36,164/-, and not the amount shown in the subject cheque.
22. Though in the objection statement, respondent has taken up a plea that the award rendered by the Hon’ble Arbitrator was challenged before the High Court of Delhi, yet, after conclusion of arguments, learned counsel for the petitioners has produced copy of the final order passed by the High Court of Delhi dated 15.03.2019 which shows that the High Court of Delhi has upheld the award passed by the Arbitrator. Insofar as the liability of the petitioners to refund the security deposit is concerned, in para 34 of the above judgment, Hon’ble High Court of Delhi has held that “applying the principles held in Associate Builders(supra), considering the nature of the disputes and the findings arrived at by the Arbitral Tribunal, no interference is called for. The argument of Mr. Mehta that since the Tribunal had awarded the payment of the outstanding amount along with interest, part forfeiture of the security deposit is contrary to the agreement, is not tenable. It is too simplistic to argue that the breach has been compensated with payment of interest.”
23. The above finding conclusively sets at rest the controversy raised in the instant case that on the date of drawal of the cheque, the petitioner No.1 was liable to pay only Rs.18,36,164/- and not Rs.5,51,65,837/- shown in the cheque. Under the said circumstances, the respondent/complainant was not entitled to present the said cheque for encashment.
24. Law is now well settled that for a criminal liability to be made out for an offence under Section 138 of the Act, there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque. The unimpeachable documents discussed above clingingly point out that as on the date of drawal of the cheque i.e., as on 10.6.2010, petitioner No.1 did not owe any debt or liability to the complainant to the extent of Rs.5,51,65,837/-. That apart, the respondent/complainant being the holder of an undated cheque, no doubt, had authority in terms of Section 20 of the N.I.Act to complete the instrument by filling the date therein so as to make it negotiable, but, under no circumstances, he had an authority or power to recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder. That exactly is the consequence flowing from an inchoate instrument dealt in Section 20 of N.I. Act. To be precise, Section 20 of N.I Act lays down that ‘Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in [India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount; provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder’..
25. In addition to the above provision, the explanation appended to Section 138 of N.I. Act leaves no manner of doubt that in order to constitute an offence under Section 138 of N.I. Act, there should be legally enforceable debt or other liability subsisting as on the date of drawal of the cheque. In other words, drawal of the cheque towards discharge of an existing debt or a quantified liability and the consequent dishonour thereof for insufficient funds is sine qua non for making out an offence under Section 138 of N.I. Act. In the case in hand, though the cheque in question was delivered to the respondent on the date of execution of the EMS agreement on 25.6.2008 yet, for the purpose of Section 138 of N.I.Act, the cheque in question is deemed to have been drawn only when the date was filled and the instrument was presented for encashment on 22.06.2010. Since the material on record manifest that as on that date only a sum of Rs.18,36,164/- was due and payable to the complainant/respondent, the petitioner No.1 was well within its rights to issue a mandate to the banker to stop payment of the aforesaid cheque which was not intended to be paid for Rs.5,51,65,837/-. As a result, no offence is committed by the petitioners either on account of the mandate issued to the banker to stop payment of the aforesaid cheque, or on account of the dishonour of the aforesaid cheque. Consequently, it has to be held that the prosecution instituted against the petitioners for dishonour of the subject cheque being contrary to the provision of Section 138 of N.I. Act is illegal and abuse of process of court and therefore, is liable to be quashed in entirety.
However, as petitioner No.1 has come forward to pay the liability due by it and in fact, had offered to pay Rs.18,13,164/- to respondent as stated in the petition, and the same has been refused by the respondent, in order to put an end to the lis between the parties, in exercise of the inherent jurisdiction under Section 482 Cr.P.C. and in order to prevent abuse of process of court and to secure ends of justice, the petitioner No.1 is directed to deposit the said amount together with interest, if any, before the trial court, within 30 days from the date of this order, in which event, the proceedings initiated against the petitioners for the alleged dishonour of cheque in C.C.No.35669/2010(arising out of PCR No.9479/2010) on the file of XIV Addl. Chief Metropolitan Magistrate, Bengaluru shall stand quashed.
Petitions stand allowed in the aforesaid terms.
Sd/- JUDGE Bss/mn/-