Background
In case of a dishonour of a cheque, the payee can file a complaint under section 138 of the Negotiable Instruments Act, if the cheque is issued for discharge of any debt or liability. In the case of Indus Airways Private Limited v/s Magnum Aviation Private Limited, it was held by the Honourable Supreme Court that,- issuance of a post-dated cheque towards advance payment for the purchase order (which got cancelled) could not be considered as discharge of any subsisting liability. The question which recently arose for consideration before the Honourable Supreme Court in the case of Sampelly Satyanarayana Rao v. IREDA Ltd (decision given on 19th September, 2016) was,- whether the dishonour of a post-dated cheque (given as security) for repayment of loan instalment was covered by Section 138 of the Act?
Facts of the Case in brief
The respondent company had advanced a loan to the appellant for setting up of a power project. Post dated cheques towards payment of instalment of loan were given to respondent by way of security. Upon dishonour of said cheques, complaints were filed by the respondent in the Court. The appellant approached the High Court to seek quashing of the complaints and contended that the cheques were given by way of security and that on the date when the cheques were issued, no debt was due and therefore these cheques did not fall under section 138. The High Court however did not accept the said contention of the appellant and the appellant hence appealed to the Supreme Court.
Honorable Supreme Court’s Judgment
The Honorable Court held that the question whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque, liability or debt exists or the amount has become legally recoverable, section 138 is attracted and not otherwise. Crucial question to determine applicability of Section 138 of the Act is whether the cheque represents discharge of existing enforceable debt or liability or whether it represents advance payment without there being subsisting debt or liability. Distinguishing the case from the judgement given in the Indus Airways case (supra), the Court observed that, on the date of the cheque, there was an existing debt in terms of the loan agreement once the loan was disbursed and instalments had fallen due, and resultantly, the dishonour of such cheques would fall under Section 138 of the Act.