Ram Gupta vs State of Kerala and another

Thomas P. Joseph, J.—This petition is filed u/s 482 of the Code of Criminal Procedure (for short, "the Cr.P.C.") to quash the cognizance taken, Annexure-VIII - complaint and all proceedings thereto pending against petitioner in the court of learned Additional Chief Judicial Magistrate, Ernakulam as C.C. No. 2348 of 2009 and to pass such other consequential orders and directions on the facts and circumstances of the case. Petitioner is the accused in C.C. No. 2348 of 2009, facing trial for offence punishable u/s 138 of the Negotiable Instruments Act (for short, "the Act"). That case arose on a private complaint preferred by respondent No. 2, a Private Limited Company. Respondent No. 2 alleged in the complaint that petitioner was its Managing Director. Respondent No. 2 started construction of a Hotel at Ernakulam. Petitioner and others committed financial irregularity causing huge loss to respondent No. 2. Respondent No. 2 filed a complaint against petitioner and others to the Commissioner of Police, Kochi on 06.04.2009. Police registered a case against petitioner and others for offences punishable under Sections 406,420 and 120B read with Section 34 of the Indian Penal Code. It is the further case of respondent No. 2 that while so, a settlement was reached between itself, petitioner and other accused which resulted in Annexure-1, agreement dated 06.04.2009 as per which petitioner and others agreed to refund the sum of Rupees Six Crores due to respondent No. 2 by way of loss caused to it and as security for due repayment of the said amount by petitioner and other accused, petitioner issued cheque dated 06.06.2009 for the said sum of Rupees Six Crores drawn on the ICICI Bank, Andheri branch Mumbai. Petitioner had undertaken to pay the said sum of Six Crores before the due date (06.06.2009). As per the agreement between petitioner, respondent No. 2 and other accused, the said cheque was to be (treated as) null and void and was to be returned to the petitioner when payment was made. Petitioner issued the cheque and guaranteed payment of Rupees Six Crores but there was no payment before 06.06.2009 as agreed. According to respondent No. 2, the cheque was issued for the discharge of the said liability. It presented the cheque for encashment but the cheque was returned as payment was stopped. There was also no sufficient funds in the account of petitioner. Respondent No. 2 alleged that part of the cause of action for the complaint (under Sec. 138 of the Act) arose within the local limits of Town South Police Station, Ernakulam and accordingly, complaint was preferred in the court of learned Additional Chief Judicial Magistrate, Ernakulam. Based on that complaint learned Additional Chief Judicial Magistrate took cognizance against petitioner for offence under Sec. 138 of the Act. That complaint, cognizance and subsequent proceedings are sought to be quashed. Learned Senior Advocate appearing for petitioner has contended that the complaint itself is not maintainable since even as per the averments in the complaint and the agreement allegedly entered into between petitioner, respondent No. 2 and others there was no legally enforceable debt or liability due from petitioner to respondent No. 2 as on the day (06.04.2009) the cheque bearing date 06.06.2009 was allegedly drawn by the petitioner. Learned Senior Advocate contended that Sec. 138 of the Act has application only in cases where the cheque is drawn for a debt or other liability which is existing and is legally recoverable which is conspicuously absent in the present case even as per averments in the complaint and the agreement. It is contended that at any rate the cheque was got executed under coercion at the police station, is not enforceable and hence the complaint is not sustainable. A further argument learned Senior Advocate has advanced is that Annexures-V and VI, copy of notices show that even before the cheque was presented by respondent No. 2 for encashment, respondent No. 2 was asked not to present the cheque and the drawee bank was asked to stop payment for the reasons stated in Annexures V and VI. In relation to the same matter, a civil suit is pending in the High Court of Delhi as revealed from Annexure-VII. In the circumstances no offence under Sec. 138 of the Act is made out. Reliance is placed on the decisions in M/s. Electronics Trade and Technology Development Corpn. Ltd., Secunderabad Vs. M/s. Indian Technologists and Engineers (Electronics) Pvt. Ltd. and another, and Rangappa v. Mohan 2010 (3) R.C.R. (Cri) 164 : 2010 (3) R.C.R. 197 : 2010 (3) RAJ. 415 : 2010 (2) KLT 682 (SC).

So far as contention that the cheque was obtained under coercion at the police station and hence is not valid is concerned, I am persuaded to think that it is a matter requiring evidence whether drawal of the cheque was voluntary or was the result of coercion. That question is not required to be considered in a proceeding under Sec. 482 of the Cr.P.C. Nor, can the complaint be thrown out on such a contention at this stage. I therefore do not intend to decide that question in this proceeding.

Question is whether the complaint at the threshold has to be thrown out on other grounds urged by the learned Senior Advocate. The thrust of argument is that on 06.04.2009 when the post dated cheque (bearing date 06.06.2009) was drawn, petitioner did not owe any debt or liability to respondent No. 2 and hence there was no legally recoverable debt or liability as on the date of drawal of the cheque to attract Sec. 138 of the Act. Learned Senior Advocate also referred me to Annexure I. agreement to contend that the cheque was given merely as a security for due repayment of the amount.

In short the case of respondent No. 2 is that there was financial irregularity committed by petitioner in his capacity as Managing Director of respondent No. 2 and certain other persons causing loss to respondent No. 2 to the tune of Rupees Six Crores concerning which respondent No. 2 preferred the complaint to the police, a case was registered against petitioner and others as first above stated and while so, the dispute between the parties was settled which resulted in Annexure-I, agreement dated 06.04.2009. In Annexure-I, agreement (to which petitioner is also a party) it is stated, after referring to the settlement between petitioner, respondent No. 2 and others that parties of the second part (including petitioner), the accused in the criminal complaint agreed to refund the sum of Rupees Six Crores to the party of first part (respondent No. 2). Clause 2 states that as security for due repayment of the agreed sum of Rupees Six Crores collectively by parties to the second part, the first among them, Ram Gupta (i.e., petitioner) has issued cheque No. 449165 dated 06.06.2009 for the said amount and drawn on I.C.I.C.I. Bank, Andheri Branch, Mumbai in favour of respondent No. 2. It is further stated in Annexure-I, agreement that the cheque will become null and void and be returned to the petitioner once full and final payment agreed as per the agreement is made. Clause 3 of Annexure-I, agreement states that the parties of the second part (who include petitioner) agreed that before the date (June 6, 2009) referred in the cheque issued by petitioner, the parties of the second part (including petitioner) will pay the full amount of Rupees Six Crores to respondent No. 2. Clause 4 states that parties agreed and confirmed that the amount of Rupees Six Crores will be in full and final settlement of the claims between and among all the parties to Annexure-I, agreement. Clause 6 states that parties 3 to 7 of the second part (accused in the police case other than petitioner) agreed and confirmed that "they will not pursue any legal claims in view of the settlement arrived at between the parties and parties of the second part herein." Clause 8 states that payment of Rupees Six Crores agreed by the parties of the second part (who include petitioner) will be issued by parties 3 to 7 among the second part in 8 cheques of Rupees Seventy five lakhs each starting from 6th April 2009 and ending with 6th June, 2009 at equal intervals.

It is from the above clauses in Annexure-I, agreement that learned Senior Advocate contended that there was no liability for petitioner to pay any amount to respondent No. 2, instead, liability was on the part of party Nos. 3 to 7 of the second part in Annexure-I, agreement who does not include the petitioner. It is the further contention of learned Senior Advocate that as on 06.04.2009 when the post dated cheque (06.06.2009) was drawn there was no liability at all.

True, going by Annexure-I, agreement and the averments in the complaint, it was a post dated cheque bearing the date ''06.06.2009'' issued on 06.04.2009 but the cheque was issued pursuant to Annexure-I, agreement. No doubt, clause 8 of Annexure-I, agreement states that parties 3 to 7 among the second part (who does not include petitioner) had issued eight cheques of Rupees Seventy five lakhs each (for payment) starting from 6th April, 2009 and ending with 6th June, 2009. But clause 1 of Annexure-I, agreement states that the compromise was between parties of the second part (who include petitioner) whereby they agreed to refund the sum of Rupees Six Crores. It is stated in clause 2 that once payment of the said sum of Rupees Six Crores is made, the cheque issued by petitioner will become null and void and was to be returned to the petitioner. That means, if payment was not made in full before 06.06.2009 the cheque dated (06.06.2009) was to be valid and not to be returned to the petitioner, i.e., it was meant to be presented for the amount due if the amount was not paid before 06.06.2009.

Another argument is that as per Annexure-I there was no amount due from petitioner on 06.04.2009. When the post dated cheque was drawn on 06.04.2009, agreement between the parties had already been reached (going by the averments in the complaint and Annexure-I, agreement) as referred to above. Hence it is not as if as on 06.04.2009 no amount was due to respondent No. 2. Position is settled that a post dated cheque is only a bill of exchange until the due date mentioned in the cheque. Hence the post dated cheque in the present case become a cheque encashable and negotiable as provided under the Act only on 06.06.2009. It was merely a security, in the sense it was a bill of exchange till 06.06.2009. But it assumed negotiability and the character of a cheque on 06.06.2009. As per the averments in the complaint and terms of Annexure-I - agreement, that cheque was to be presented on or after 06.06.2009 in case the amount agreed to be paid to respondent No. 2 was not paid by the parties of the second part (who include petitioner). Assuming that parties 3 to 7 of the second part were to pay the amount, petitioner took up the responsibility to ensure payment by them and guaranteeing that payment, issued the cheque. Even when a cheque is issued guaranteeing payment of the amount on behalf of another, Sec. 138 of the Act would apply as held in I.C.D.S. Ltd v. Beena Shabeer, 2002 (4) R.C.R. (Cri) 74 : 2002 (3) KLT 218. For the mere use of the word "security" in the complaint, the case cannot be thrown out at the threshold see Asoo Hajee v. K.I. Abut Latheef & Another, 2004 (2) KLJ 556. Once execution of the cheque is admitted or proved the payee or holder in due course is entitled to rely on the presumption under Sec. 139 of the Act. It is for petitioner to rebut that presumption by appropriate means. I am therefore unable to accept the contention of learned Senior Advocate that there was no liability on petitioner and hence the cheque dated 06.06.2009, issued on 06.04.2009, presented on 08.06.2009 and dishonoured does not attract offence punishable under Sec. 138 of the Act.

The cheque was dishonoured as payment was stopped. According to respondent No. 2, there was also no sufficient funds in the account of petitioner. Learned Senior Advocate argued, relying on Annexures-IV and V that since the cheque was presented after notice was given to respondent No. . 2 not to present the cheque and to the drawee bank not to make payment, no offence under Sec. 138 of the Act is made out. Annexure-V shows that on 02.05.2009 (even before the instrument assumed negotiability and the character of a cheque on 06.06.2009) petitioner issued notice to respondent No. 2 stating the circumstances under which according to him the cheque happened to be issued and requesting that the cheque shall not be presented for encashment. By Annexure- V. letter dated 16th May, 2009. petitioner issued stop payment memo to the Bank.

In M/s, Electronics Trade & Technology Development Corpn. Ltd Secunderabad v. M/s. Indian Technologists & Engineers (Electronics) Pvt. Ltd & Another (supra) the Supreme Court observed in paragraph 7 that if any instructions are issued to the Bank for non-payment and the cheque is returned to the payee with such an endorsement it amounted to dishonour of cheque and it came within the mischief of Sec. 138 of the Act. The Supreme Court put a query and answered it in the following words :

Suppose after the cheque is issued to the payee or to the holder in due course and before it is presented for encashment notice is issued to him not to present the same for encashment and yet the payee or holder in due course presents the cheque to the Bank for payment and when it is returned on instructions Sec. 138 does not get attracted.

Much reliance is placed on the said observation in the decision referred to above. But later decisions have not accepted that view as seen from the decision in Goa Plast (P) Ltd. v. Chico Ursula D''Souza, 2004 (1) R.C.R.(Cri) 179 : 2004 (2) AC 89 : 2004 (3) KLT 93 (SC). There reference was made to the decision in Electronics Trade & Technology Development Corpn. Ltd. v. Indian Technologists & Engineers (Electronics) (P) Ltd and it was held in paragraph 22 that the decision in Electronics Trade & Technology Development Corpn. Ltd. (supra) was overruled (by a larger bench) in Modi Cements Ltd. v. Kuchil Kumar Nandi, 1998 (1) KLT 582 (SC) (wrongly mentioned in Ashok Yeshwant Badave Vs. Surendra Madhavrao Nighojakar and Another, . In Modi Cement''s case it was held in paragraph 16 that the observations in Electronics Trade & Technology Development Corpn. Ltd.''s case as to the consequence of issuing notice before presentation of the cheque (quoted above) "does not fit in with the object and purpose for which the above Chapter has been brought on the Statute Book." Learned Judges in Goa Plast (P) Ltd. (supra) agreed with the said view and held that merely because drawer of the cheque gave notice to the payee or the drawee, bank about stopping payment, action under Sec. 138 of the Act is not precluded. The Supreme Court observed that if stoppage of payment before due date of the cheque is allowed to take the transaction out of the purview of Sec. 138 of the Act it will shake the confidence which a cheque is otherwise intended to inspire regarding payment being available on the due date. In Rangappa v. Mohan (supra) also it was held that Sec. 138 is attracted when a cheque is dishonoured on account of stop payment instruction issued by the accused in respect of a post dated cheque, irrespective of insufficiency of funds. In the light of the above decisions I am unable to accept the argument of learned Senior Advocate based on the decision in Electronics Trade & Technology Development Corpn. Ltd.

It is pointed out by learned Senior Advocate that the alleged transaction is under challenge in the High Court of Delhi as seen from Annexure-VII. The effect of that, is a matter which the trial court has to decided in the course of trial. At this stage merely because of pendency of the civil suit, the complaint under Sec. 138 of the Act cannot be thrown out.

Having heard learned Senior Advocate appearing for petitioner and considered the contentions advanced in the light of the decisions stated supra I find no merit in this petition. Hence the prayer to quash the proceeding cannot be allowed. It is open to the petitioner to contend before the trial court that he had valid reasons to stop payment of the amount. I make it clear that it will be open to the petitioner to raise all relevant contentions in the trial court in the course of trial of the case.

Criminal Miscellaneous Case is dismissed.