Any Offence Under Section 138 Of The Ni Act Will Be Maintainable For Cheques Given For Enforceable Debt And Not Security: CM Smith And Sons Ltd Vs State Of Gujarat

DATE OF JUDGEMENT:
10/02/2022

BENCH:
JUSTICE MS GITA GOPI

PARTIES:
PETITIONER: CM SMITH AND SONS LTD.
RESPONDENT: STATE OF GUJARAT

SUBJECT

Justice Gita Gopi Observed That An Offence Under Section 138 Of The NI Act Will Be Considered Maintainable If The Cheques Issued Are For An Enforceeable Act And Not For Security.

OVERVIEW

1. Parties traded for a long period. Worried about the quality of components given by respondent No.2 to applicant No.1, they sued in 2014. The petitioners argued that since the No.2 created defective components that were delivered to Original Equipment Manufacturers, thousands of damaged automobiles were documented.
2. This resulted in a substantial financial loss and ruined the applicant No.1 Company's reputation. On behalf of the applicant No.1 Company, respondent No.2 filed Special Summary Suit No.23 of 2014 before the learned 4th Additional Senior Civil Judge in Rajkot, seeking recovery of Rs.1,12,26,500 from the applicant-defendant for work completed and commodities provided.
3. Request for Leave to Defend filed by No. 1 Company denied. As well, on May 7, 2015, the 4th Additional Senior Civil Judge in Rajkot decided Special Summary Suit No. 23 of 2014 in favour of the respondent-plaintiff and ordered the corporation to pay Rs.1,1226,500 plus 6% interest. The applicant No.1 Company filed an appeal with this Court, docketed as First Appeal No.1730 of 2015.
4. A stay of execution of the judgement and decree dated 07.05.2015 was granted to petitioner No.1 Company on 29.01.2016, subject to the company depositing Rs.43,40,061/- with the civil Court within the given term and providing acceptable security for the remaining amount. Because No. 1 didn't make them.
5. It then filed Execution Petition No.10 of 2019, which was renamed Special Execution Petition No.24 of 2015. A warrant to attach applicant No.1 Company's property was requested by the respondent-plaintiff in Exhibit-11. Exhibit-15 is the respondent-second plaintiff's application for the same remedy.
6. The civil court in Rajkot seemed to have ex parte granted Exhibit-15. Due to the lack of a response from applicant No.1 Company and the relevant orders previously recorded in application Exhibit-15, the civil Court rejected application Exhibit-11. An attachment Warrant was granted by the learned Principal Senior Civil Judge in Rajkot on March 31, 2016. Applicant No.1 Company in District: Nadiad claims that the respondent complainant arrived with a few employees and began moving items, equipment, and other transportable property onto trucks.
7. This included any apparatus or equipment that impedes productivity. In this case, the second applicant sought to rescue the situation by chatting to the complainant. They signed on Rs.100/- Stamp Paper a Deed of Undertaking named "Bahedaari Karar" dated 07.04.2016. This was a summary suit filed in Rajkot civil court, according to the undertaking. For Rs.1,23,13,879, the Court below issued a Warrant of Attachment. The parties traveled to C.M. Smith's factory in Nadiad to serve the Warrant. A security check issued by Standard Chartered Bank, Mithakali Six Roads Branch, Ahmedabad, with serial number 807621 is kept.
8. A decision respecting the aforementioned cheque offered as security was taken after careful thought and discussion with C.M. Smith if the First Appeal is rejected. A respondent may deposit the check if C.M. Smith cannot pay within two years. The parties allegedly signed the Deed of Undertaking voluntarily and without compulsion. Poverty-employed workers have been declining for over 30 years. Despite the 2008 financial crisis and worldwide recession, this remains true.
9. Between 1991 and 2015, the middle class in emerging countries expanded to 34%. Despite this, the global economy is stagnating, and job growth is slowing. From 2000 to 2007, employment growth averaged 0.9 percent. Over 60% of employees had no formal contract. SDG 8 encouraged all employees, regardless of origin, country, or gender. To accomplish so, the government concentrated on high-value, labor-intensive industries. It was written by Standard Chartered Bank, Mithakali Six Roads Branch in Ahmedabad. The cheque was returned the same day for "Drawer’s signature not in compliance."
10. The applicants received a Notice dated 10.10.2019 from the complainant. The applicants responded on 11.11.2019. the 13th Additional Senior Civil Judge & A.C.J.M., Rajkot, under the number 16873 of 2019. In response to the foregoing complaint, the Court below issued the contested order dated 18.11.2019 (Exhibit-1). So the current application was chosen.

ISSUES

Whether the proceedings of Section 138 of NI Act would lie in respect of any 'enforceable debt?

LEGAL PROVISIONS

• Sec 428 of CrPC
• Section 204 of CrPC
• Section 138 of NI ACT

JUDGMENT ANALYSIS

1. This case included a loan of Rs.5 Lacs from M/s. Mediline India (P) Ltd. On the aforementioned debt, the complainant received two cheques for Rs.3 Lacs and Rs.2 Lacs. Both checks bounced due to "insufficient funds." Consequently, a complaint was filed under Section 138 of the N.I. Act. The appellants claimed they did not sign the checks and had resigned as directors of the company on the day they were issued.
2. During the case's pendency, the parties appeared to have agreed that a cheque for Rs.5,02,050 would dismiss the lawsuit. A cheque for that amount, dated 29.07.2000, was issued in the complainant's favor, however, it was returned due to "insufficient funds." The complainant filed a second complaint, this time against the previous Directors as well as the present appellants.
3. Accordingly, the Apex Court concluded that the second check dated 29.07.2000 was issued in compliance with the compromise criteria and did not create additional responsibility, and so could not be claimed as a debt fulfillment even if the compromise failed.
4. Like in this case, the check issued was clearly supplied as "security" and not to meet any "enforceable obligations" due to respondent-complainant by application No.1. According to paragraph 1 of the complaint filed under Section 138 of the NI Act, the disputed check was issued according to the parties' agreement.
5. According to the complainant, the cheque was not issued for any "enforceable obligation" owing to the respondent-complainant by application No.1-Company. Given the aforesaid circumstances and the principle established in Lalit Kumar Sharma (above), the NI Act proceedings were quashed.
6. The executing Court issued appropriate decisions reimbursing the applicants for cheque amounts realized when executing the order dated 22.03.2016, as well as for unrealized cheques, if the applications Exhibits 11 and 15 were determined in their favour.
7. The respondent complainant's possession of the cheque in issue in connection with the proceedings under Section 138 of the NI Act was unconstitutional and the decision dated 20.08.2019 of the Court of learned Principal Senior Civil Judge, Rajkot had been thrown aside by the Division Bench of this Court.
8. The complainant-respondent had returned the disputed cheque to applicant No.1-Company instead of depositing it. Allowing the N.I. Act lawsuits to continue would result in a major miscarriage of justice and misuse of the legal process, the Court determined.
9. The request was approved for the reasons given. Both the impugned judgement of the learned 13th Additional Chief Judicial Magistrate, Rajkot in Criminal Case No.16873 of 2019, and the complaint submitted by respondent No.2 under section 138 of the NI Act were set aside.
10. The ruling was final. This court ruled that both civil petitions be dismissed.

CONCLUSION

Justice Ms Gita Gopi noted that the third respondent had to return the cheque to the applicant rather than depositing it. Therefore, it came to notice that the proceedings under the NI Act was completely miscalculated and that the applicant must be dropped off of all the criminal charges set against him