This article is written by Shivani Nair, from Manipal University, Jaipur. This is an exhaustive article which deals with the topic of the rulings of the Supreme Court in the case of cheque reviews.

Introduction

In a cheque review case, where an accused is prosecuted, the complainant gets persecuted. Quite a few times, in the hope of recovery by the prosecution, the person who was the complainant loses civil remedy due to the reason of bar of the limitation to file a recovery suit. The result at the end would be a sense of frustration to the one who was the receiver of the cheque, which, at the complainant regards has lost all of its credibility as a negotiable instrument. As regards to the dishonoured payee, the complainant loses his efficacy. 

Security Cheque Reviews

There are a few factors that need to be considered in this. This is written to give the readers an introduction about the problem of what conveniently is used as a security cheque, a stock defence of dishonour of cheque in the prosecution cases. 

Is the security cheque review defence tenable?

There are many case laws of the Hon’ble Supreme Court that list out the details about cheque reviews, and the decisions made by the court is what we shall be reading about in this article.

Two of the Latest Rulings

These two cases are for quashing the petition under Section 482 under the Code of Criminal Procedure, 1973. In one of the cases it succeeds, while in the other, it fails at the apex court.

Case of security check review not being enforceable

In the case of Indus Airways P Ltd v. Magnum Aviation P Ltd, 2014, held in paragraph number 9 that the cheque had to be withdrawn in the “discharge of existing or adjudicated liability of the past” in order to attract the offence under Section 138 of Negotiable Instruments Act. 

Facts of this case

The facts of this case are presented below in bullet points. They are:

• The purchaser was Indus Airways.
• The supplier was Magnum Aviation.
• For the purchase order of supply of certain parts of the aircraft, cheques were issued in advance to the given persons. 
• The supplier had stated that these parts that were demanded by the purchaser had to be brought from abroad to India so that they could be given to the purchaser and for that very purpose they required to advance money.
• The cheques were dated 15-03-07 and 20-03-07 for the purchase orders which were dated as 19-02-07 and 26-02-07. 
• By the virtue of a letter dated 22-03-07, the Indus Airways had cancelled the order of purchase and had asked for the return of the cheques. 

It can be stated that after the due dates of the cheques, the purchase order was cancelled. Although the exact date of the instruction for stopping payment has not been found in the facts, one can state that it does record the fact that the cheques were reviewed by the Indus stopping its payment. There have been no statements of the banks showing that the Indus Airways did not have funds to honour the cheques. 

On the said facts, a criminal proceeding for quashing of the cheques took place before the apex court. 

Issue of the case

The question that arose was whether the cheques which have been post-dated issued by the appellant, as a purchaser, as an advance payment for those orders in the purchase could be considered as cheque issued in discharge of the debt which is legally enforceable or other liability, and if so, whether this cheque dishonour amounts to an offence under section 138 of Negotiable Instruments Act. 

Decision and Reasoning of the court

The paragraph 8 of the ruling of the Supreme Court talked about the expression “discharge of any debt or other liability” that has occurred in section 138 of Negotiable Instruments Act is important and decisive of the current matter. The court goes on to conclude stating that when a cheque is issued as an advance payment, there would not be any liability. 

The decision of the High Court of Delhi was challenged before the Supreme Court. The Supreme Court has stated that the reasoning given by the High Court of Delhi that the delivery of cheque as a condition mentioned in the contract of purchase of goods, is a valid liability to issue the cheque, is flawed. This is because of the fact that the Supreme Court believes that there is a fine line between “civil and criminal” liability under section 138 of the Negotiable Instruments Act.

According to the Apex court, the seller has a claim for damages against the buyer in the case where there has been a breach of contract. However, this is only a civil liability and it would not create a criminal liability under the said section under the Negotiable Instruments Act. it was stated that the reasoning given by the Delhi High Court, goes far beyond the ambit of the Act’s mentioned section. 

Why does the reason require reconsideration?

Section 138 speaks of liability or debt. Also, the concept of debt of liability should be “legally enforceable”. If any cheque is issued for the advance payment of any supply of goods, it is a legally enforceable liability. 

One should never get confused between the concept of legally enforceable liability and consideration for a negotiable instrument. 

Section 43 of the said Act existed from the beginning of the enactment dealing with negotiable instruments made without fear. 

If the legislature had intended to bring about only the consideration given under section 138 of the Act to the cheques, then a separate definition of debt or any other liability was not required to be given in that provision. While Section 43 applies to all the negotiable instruments, Section 138 is confined only to the cheques. 

Therefore, the concept of Section 43 would not be considerable or relevant for the purpose of Section 138. 

The cheques which have been issued by the advance payment shall be covered by the way of “other liabilities” found in the said section. Therefore, quashing the complaint at threshold was not permissible. The accused could prove that there was a justification in the case of stopping the payment of cheques and therefore get the complaint dismissed on trial itself. 

Case of security check review being enforceable

In the case of Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited, 2016 the cheques which were post-dated were issued to meet the obligations to pay future instalments of the amount repayable as per the agreement between the parties. 

In the context, it was held that:

The court was of the view that the question of whether a post-dated cheque was for discharge or liability depends upon the transaction’s nature. If the amount has become legally recoverable on the date of the cheque liability, or the debt exists, the section is into the picture or else it is not considered. 

Indus Airways case Distinguished

With reference to the Indus Airways case, it was held under this case that:

The Judgement in the Indus Airways case was clearly distinguishable. At it had been noted earlier, it was held that the liability arising out of the claim for the breach of the contract under the Section 138, which arose on the review and dishonour of the cheque issued was not at par with the criminal liability by itself, towards the discharge of the acknowledged and admitted debt under the transaction of a loan. 

The review or dishonour of a cheque which is issued for a discharge of the liability later is completely and clearly covered in the statute in the question. Admittedly, against the order of the judgement given above in Indus Airways, it was found that the cheque had not been issued for the discharge of liability but as an advance for the purchase order that was cancelled. 

Keeping this in mind, the real distinction that comes into the picture is that the said judgement cannot be applied to the present case where there was repayment of the loans to be made which had fallen due. Although, such deposits where these deposits of cheques towards the repayment of the instalments were also called as “security” in the loan agreement. While applying the judgement of the case above, one cannot ignore the fact that there is a difference between a transaction of the purchase order that gets cancelled, and that of a transaction of a loan that has actually been advanced and the repayment of the loan is due on the date of the cheque.

Irrelevance of the Security Cheque 

The provision of Section 138 of the Negotiable Instruments Act is examined as under:

As stated many times above, Section 138 of the Negotiable Instruments Act, uses the phrase “debt or liability”. The disjunctive “or” has been used as a word that distinguishes the term “debt” and “liability” from each other and covers them in their own individual aspect. The term ‘liability’ has a wider connotation. 

Other cases

There are a few cases that talk about the widened scope of the term “liability” under Section 138 of the Negotiable Instruments Act. 

In the case of First National Bank Ltd., v. Seth Sant Lal, 1959, in the context of the liability of the shareholders to pay the calls on the shares this concept was examined. And thus, it was stated that:

“Liability was the state of being bound or obliged in justice or law”. According to the dictionary of Anderson for Law, one can state the meaning of the term liability, which is stated as the state of being obliged under the law to do something or make someone pay something or legal responsibility. 

The term liability is of a big and comprehensive significance and when it is construed in its usual and prudent sense, in which it has been commonly employed, it expresses the sense of obliging to the legal matters. 

In the case of W. W. Joshi v. State of Bombay, 1959, it was holding something similar to the cases that we have seen above, and the ruling has provided for the fact that:

“According to the Oxford English Dictionary, – the condition of being held liable by the authorities or the condition of being answerable to the law and equity.”

In the case of Klen and Marshalls v. Ishar Alloy Steels Ltd., 2009, the Supreme Court had agreed with the decision of the Karnataka stating that, the cheque that is issued either for the discharge of any sort of debt or the security cheque reviews that makes a little distinction in law. 

It states that the review and the dishonour in both the provisions attracts a valid provision of Section 138 of the said Act. Stating this exact ruling, it was also held that the legal position would especially be so in the case where the cheque offered as a security review has become enforceable substantially on the account that there was a default that was committed or any failure of the performance of the contract between two parties, in respect of which this kind of security is furnished. 

So long as there is a liability, a cheque review can be done under the section stated above. 

Conclusion

Bereft of the case laws, if one has this in their minds that there are certain objects and reasons of the supreme court rulings in the case of cheque reviews, that the intention of the legislature is to enable any complaint to be filed if there is a dishonour of the cheque within the parameters laid down under Section 138 of the Negotiable Instruments Act. In light of such a view, the security cheque review is popularly known as the cheque for the discharge of a liability. Such a kind of liability shall be present or delivered on the date of the contingent of the delivery to the payee, of the cheque. In the interest of the transactions, a fresh look is required regarding this field of security cheque review. 

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