The Relevant Date For Determining The Existence Of A Legally Enforceable Debt Under Section 138 Of The Negotiable Instruments Act Is The Date When The Cheque Is Presented, Not The Date When It Is Issued: Rajasthan High Court

CASE NAME:

Paul Mitra vs State of Rajasthan

CASE DATE:

3rd May, 2024

PARTIES INVOLVED:-

• Petitioner:-

1. Paul Mitra
2. Akash
3. Lokesh Kumar
4. Sanjay Kumar Singhal
5. Brijesh Jindal
6. Piyush Maheshwari

• Respondent:-

1. The State of Rajasthan
2. M/s Vibrant Academy I Pvt. Ltd.

BENCH/JUDGE:

Justice Anil Kumar Upman

IMPORTANT PROVISIONS:-

1.    Section 138 of the Negotiable Instruments Act, 1881:- 

Deals with the dishonour of cheques due to insufficient funds or other reasons.

SUBJECT:-

The petitioners, the former employees of Vibrant Academy issued undated cheques to secure their contracts. Upon the breach of contracts, the respondent tried to cash the cheques, which bounced. As a result, Section 138 cases were filed against the petitioner. The court dismissed the petition and urged for a swift trial, highlighting the importance of debt existence at the time of cheque presentation, not issuance.

OVERVIEW:-

• M/s Vibrant Academy (I) Pvt. Ltd., an IIT JEE coaching institute, hired the petitioners as faculty members under specific terms and conditions, obtaining undated security cheques from them to indemnify the company against any future losses due to breach of contract. 
• The petitioners later resigned, prompting the respondent to allege a breach of contract. In response, the respondent presented the security cheques for encashment, which were subsequently dishonoured. 
• The respondent issued multiple legal notices to the petitioners for the breach and filed criminal complaints under Section 138 of the Negotiable Instruments Act for the dishonoured cheques. 
• These events led to the ongoing criminal proceedings, which the petitioners are now seeking to quash.

ISSUES RAISED BEFORE THE COURT:-

• Whether the entire criminal proceedings of the complaint cases under Section 138 of the NIA against the petitioners should be quashed? 
• Whether there was a legally enforceable debt or other liability on the date the cheques were issued?
• Whether the contract between the petitioner and respondent was competent and specific enough to enforce the security cheques as per the terms agreed upon by the parties?

CONTENTIONS RAISED ON BEHALF OF THE PETITIONER:-

• The learned counsel for the petitioners, Mr. Dushyant Singh, argued that there was no legally enforceable debt or liability existing at the time the cheques were issued. The cheques were provided merely as security, not for discharging any existing debt or liability.
• He contended that the cheques in question were undated at the time they were issued, intended only as indemnity for any potential future losses, which may or may not occur. Therefore, they cannot be considered valid under Section 138 of the N.I. Act.
• The petitioners contended that the contract under which the liability allegedly arose was vague and non-competent. As a result, the cheques issued as part of this contract cannot be enforced under the N.I. Act.

CONTENTIONS RAISED ON BEHALF OF THE RESPONDENT:-

• The learned counsel for the respondent, Mr. Manish K. Saini, argued that the trial court had rightly taken cognizance of the offence under Section 138 of the Act based on the material available on record.
• The respondent contended that the cheques issued by the petitioners were dishonored upon presentation, which triggered the initiation of criminal proceedings under the N.I. Act.
• They contended that the admission of signatures on the cheques by the petitioners creates a presumption of a legally enforceable debt in favor of the holder of the cheque, regardless of whether the cheques were initially undated.
• The respondent argued that even if the cheques were undated at issuance, once presented, the date on the cheque becomes relevant and the cheque is deemed to have been drawn on that date for the purpose of the N.I. Act.

COURT’S ANALYSIS:-

• The court emphasized the importance of determining the existence of a legally enforceable debt or liability at the time of cheque presentation, rather than at the time of issuance.
• Rejected the petitioners’ argument that no legally enforceable debt existed at the time of cheque issuance as grounds for quashing the Section 138 proceedings.

JUDGMENT:-

The court dismissed the miscellaneous petitions filed by the former employees of Vibrant Academy seeking to quash the criminal proceedings under Section 138 of the Negotiable Instruments Act. It emphasized that the crucial factor in determining the applicability of Section 138 is the existence of a legally enforceable debt or liability at the time of cheque presentation, not issuance. 

CONCLUSION:-

The Hon’ble court directed the trial court to expedite the proceedings, noting the substantial time elapsed since the initiation of the cases in 2017. Thus, the court upheld the validity of the proceedings under Section 138 and denied the petitioners’ plea to quash them.