Section 138 b of n.i act
jitender
(Querist) 29 August 2011
This query is : Resolved
dear members,
i require your advice on a case where my client gave loan of Rs ten lacs to Mr Ram now Ram in order to pay back his loan gave 4 cheques of Rs. 2.5 lakhs each all dated 17 july 2011 and he wrote on back side of the cheques that these are security cheques and the amount will be sent to you by pay order earlier than the date of cheque , now Ram payed 3.5 lakhs back to my client but the balance is still unpaid,my client presented the 4 cheques all were returned unpaid for insufficient funds,
i issued a notice to ram demanding the money but he replied that since cheques were given as security no liability under 138 b is made out, and also that he has already paid 3.5 lakhs back
My query is that 1.can a complaint under 138 b filed before magistrate? as i am confused coz in ICDS Vs Beena Shabeer the sc has held that security cheques are covered , but there are also judgements to the contrary .
2. can a case be still filed for those 4 cheques when he has partly paid the amount ?
kindly suggest relevant case laws to suuport my case..
thanks in anticipation!
ajay sethi
(Expert) 29 August 2011
Cheque issued as security cannot be termed as issued in discharge of any legally enforceable debt, and therefore any dishonour of such a cheque cannot attract the provisions of Sec. 138 N.I. Act.
better file a summary suit
jitender
(Querist) 29 August 2011
@ajay sethi
sir i knw that but the judegement of sc i quoted very clearly says it can be enforced under 138 b and also K.S Bakshi vs state of DHC also says it can be enforced.....
Raj Kumar Makkad
(Expert) 29 August 2011
It can be enforced especially when accused himself admits that he has made part payment in cash. Had there not be any liability and cheques were solely for security then why did such accused made a big payment of Rs. 3.5 lakh to the complainant?
You take both pleas in your complaint and file it within limitation. You shall be successful.
R.Ramachandran
(Expert) 29 August 2011
Dear Mr. Jitender,
I am sorry to say that Beena Shabeer case does not say that a complaint under sec. 138 N.I. is maintainable against a security cheque. On the contrary, it was held that the cheque was issued in discharge of part of liability.
Therefore, as rightly pointed out by Mr. Sethi, a complaint u/s. 138 N.I. would not lie against a cheque issued as security.
ajay sethi
(Expert) 29 August 2011
The Bombay High Court has held that if a blank post-dated cheque — which has been issued only as a “collateral security” for a loan — bounces, the debtor can not be prosecuted under the Negotiable Instruments (NI) Act.
Very often banks accept blank post-dated cheques from borrowers as a security for repayment. Criminal case under NI Act can not be lodged if such cheques bounced, Justice P R Borkar held in his judgement last week. The judgement was passed on a petition filed by Ramkrishna Urban Cooperative Credit Society (RUCCS) in Ahmednagar district.
RUCCS had given a loan of Rs 2 lakh to a person named Rajendra Varma in 2000. Varma had issued 10 blank post-dated cheques at the time as a security for repayment. One of these cheques, dated January 2008, bounced following which RUCCS filed criminal complaint against Varma.
However, the magistrate’s court held that Varma was not guilty under the NI Act and acquitted him. The Society filed an application in Aurangabad bench of High Court seeking its permission to file appeal in sessions court.
The High Court noted that NI Act was intended to give more credibility to cheque as a financial instrument; “however, the object was not to provide effective and speedy remedy for recovery of loans,” it said.
“Law makers must not have intended or imagined that money lenders or banks would obtain blank or post dated cheques while sanctioning/disbursing loans as securities and would use them to make debtors/borrowers to repay loan under threat of prosecution and punishment under Section 138 of NI Act,” Justice Borkar held dismissing the application.
ajay sethi
(Expert) 29 August 2011
It is doubtful if provisions of Section 138 attracted to a case in which a blank or post dated cheque is obtained by a bank or money lender before or while sanctioning or disbursing loan amount as security for the loan,” the judge said.
“In this case the accused respondent issued the cheque in question as security for loan before loan amount was disbursed. So, cheque was not towards any existing debt or liability (which is a requirement under section 138),” the High Court observed confirming the order of acquittal.
jitender
(Querist) 29 August 2011
@ajay sethi
yes but in my case cheques were issued when the money was already due to him and for the repayment he issued cheques as security and wrote that, amount will be sent earlier by demand draft , and he accepts that he has to pay that money to my client, more over in this case i think since the default has already taken place the security cheques became due as exisiting debt and hence may be covered under 138 b ,
jitender
(Querist) 29 August 2011
@rama chandran
sir it has a mention of security cheques , also and sc says specifically that if even on default the security cheques cannot be presented than there would be no meaning of security at all....
R.Ramachandran
(Expert) 29 August 2011
Dear Mr. Jitender,
I leave it to your wisdom.
prabhakar singh
(Expert) 29 August 2011
I agree with author of query that Apex court
has held that 138 applies to every cheque in view of following ratio cited from I.C.D.S. Ltd vs Beena Shabeer & Anr on 12 August, 2002 DATE OF JUDGMENT: 12/08/2002
BENCH: Umesh C. Banerjee & Y.K. Sabharwa
"The issue as regards the co-extensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of Section 138 of the Act, neither the same calls for any discussion therein. The language of the Statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of Section 138 of the Act: 'Any cheque' and 'other liability' are the two key expressions which stands as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the Statute. Any contra interpretation would defeat the intent of the legislature. The High Court, it seems, got carried away by the issue of guarantee and guarantor's liability and thus has overlooked the true intent and purport of Section 138 of the Act. The judgments recorded in the order of the High Court do not have any relevance in the contextual facts and the same thus does not lend any assistance to the contentions raised by the respondents."
......................................................In our view, the High Court fell into a manifest error and as such the judgment impugned cannot obtain our concurrence. The appeal succeeds and is thus allowed.
prabhakar singh
(Expert) 29 August 2011
i opine that you can enforce the remedy as provided by section 138 of N.I.Act and agree
to side you as well as Mr. Makkad.
ajay sethi
(Expert) 29 August 2011
The cheques which were given only as security to cover future debts that may arise in the course of business are not covered by Section 138 as per the Supreme Court Judgment - Narayana Menon Vs. State of Kerala Cr App.No.1022 of 1999.
ajay sethi
(Expert) 29 August 2011
in view of conflicting judgements of various courts why dont you file a summary suit?
Dr Anil Kumar Singh
(Expert) 29 August 2011
You must file summary suit as suggested by expert Ajay Sethi taking frounds as suggested by various experts. However, it is clear that the cheque issued purely for the purpose of security deposit can not come under NI Act until and unless by default and liability arises and it is put to recover the liability with consent of the drawer either in the agreement previous or new.
prabhakar singh
(Expert) 29 August 2011
Astonishingly,the judgement passed in I.C.D.S. Ltd vs Beena Shabeer & Anr on 12 August, 2002 DATE OF JUDGMENT: 12/08/2002
was NOT considered nor was cited in M.S. Narayana Menon @ Mani vs State Of Kerala & Anr on 4 July, 2006
going with both i find that the in earlier case the Apex court was too technical in interpretation of s.138 of N.I.Act but view taken in Menon @ Mani vs State Of Kerala is based on consideration of several enactments and provisions in a more comprehensive and equitable way.
Hence i get amended to lean towards view of Mr. Ajay Sethi and Dr Anil Kumar Singh.
