Dishonour of a cheque issued as security against loan would attract offence u/s 138 of NI Act: SC

Case Details: Sripati Singh v. State of Jharkhand - [2022] 134 taxmann.com 80 (SC)

Judiciary and Counsel Details

• • M.R. Shah and A.S. Bopanna, JJ.
  • Gaurav Dhingra, AOR for the Appellant.
  • Raj Kishor Choudhary, AOR, Rajiv Singh, Vishnu Sharma, Advs. and Abhishek, AOR for the Respondent.

Facts of the Case

In the instant case, the appellant and respondent No. 2 (R2) were known to each other. R2 had approached the appellant and sought financial assistance to the tune of Rs. 2 crore.

The R2 assured that the amount would be returned during June/July 2015. Towards the same, three cheques amounting to Rs. 1 crore was handed over to the appellant. Thereafter, three more cheques for Rs. 1 crore was also given. When the appellant presented the cheques for realization, said cheques were returned due to ‘insufficient funds’ in the bank account of R2.

The appellant, therefore, got issued a legal notice as contemplated under section 138. Since the R2 had taken the money on the assurance that the same would be returned but had deceived the appellant, the appellant contended that the R2 had cheated him and accordingly the complaint was filed both under section 420 of IPC as also section 13. The appellant had submitted the sworn statement of himself and witnesses. The Judicial Magistrate took cognizance and issued summons to the R2.

The R2 on appearance filed a miscellaneous petition seeking discharge from the criminal proceeding on the ground that offence under section 138 was not made out as the dishonourment alleged was of the cheques which were issued by way of ‘security’ and not towards discharge of any debt. The High Court by impugned order allowed the petition.

Supreme Court Held

On appeal, the Apex Court observed that where a loan is advanced and the borrower agrees to repay the amount in a specified time frame and issues a cheque as security to secure such repayment, if the loan amount is not repaid before the due date or if there is no other understanding or agreement between parties to defer payment of the amount, cheque which is issued as security would mature for presentation and drawee of the cheque would be entitled to present same. On such presentation, if same is dishonoured, consequences contemplated under section 138 and other provisions of N.I. Act would flow. Prior discharge of loan or there being an altered situation due to which there would be an understanding between parties is a sine qua non to not present cheque which was issued as security.

Case Review

• • Order of High Court in Cr. M.P. No. 2635 of 2017, dated 17-12-2019 (para 23) reversed.

List of Cases Referred to

• • Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd. [2016] 74 taxmann.com 68/138 SCL 73 (SC) (para 7)
  • Womb Laboratory (P.) Ltd. v. Vijay Ahuja [Criminal Appeal Nos. 1382-1383 of 2019, dated 11-9-2019] (para 7)
  • Sudhir Kumar Bhalla v. Jagdish Chand [2008] 7 SCC 137 (para 7) and Indus Airways (P.) Ltd. v. Magnum Aviation (P.) Ltd. [2014] 12 SCC 539 (para 14).