S.138 NI Act | Relevant Date For Determining 'Legally Enforceable Debt' Is Date Of Presentation/ Maturity Of Cheque: Rajasthan High Court

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10 Jun 2024 10:00 AM GMT

  • S.138 NI Act | Relevant Date For Determining Legally Enforceable Debt Is Date Of Presentation/ Maturity Of Cheque: Rajasthan High Court

    The Rajasthan High Court has held that the relevant date for ascertaining existence of a "legally enforceable debt or liability" under the Negotiable Instruments Act is the date of presentation/maturity of the cheque.A bench of Justice Anil Kumar Upman said the drawer of a cheque cannot shirk their liability to pay the cheque amount by taking plea that there was no legally enforceable debt...

    The Rajasthan High Court has held that the relevant date for ascertaining existence of a "legally enforceable debt or liability" under the Negotiable Instruments Act is the date of presentation/maturity of the cheque.

    A bench of Justice Anil Kumar Upman said the drawer of a cheque cannot shirk their liability to pay the cheque amount by taking plea that there was no legally enforceable debt or liability subsisting on the date of issuance/drawl. It observed,

    "If there subsists any legally enforceable debt or liability on the date of presentation of cheque; the cheque gets dishonoured and the drawer fails to make payment of the cheque amount within the stipulated time period, after serving legal notice, the drawer of the cheque in question has to face trial under the N.I. Act."

    The petitioners in this case entered into employment contracts with the respondent-academy as faculty members. The respondent obtained un-dated cheques from the petitioners as indemnity for any future losses in case of any violation of the contract. It was agreed between the parties that in the event of any breach of the contract, the respondent could encash the cheques. The petitioners resigned and were issued multiple legal notices by the respondent for breach of contract. The cheques were also presented for encashment which got dishonoured leading to criminal complaints and subsequently trial under Section 138 NI Act. The High Court was seized with quashing petitions filed by the petitioners against these criminal proceedings.

    The counsel for the petitioners contended that, as admitted by the respondent, there was no legal debt or other liability when the contract came into being. The undated cheques were also drawn on the same date merely as an indemnity bond to secure future losses (if any). The counsel relied on the Supreme Court case of Indus Airways Pvt. Ltd. & Ors. v Magnum Aviation Pvt. Ltd. & Anr. wherein a distinction between civil and criminal liability under Section 138 was given. It was held that criminal liability under Section 138 was attracted on existence of an enforceable debt or other liability on the date of issuance of the cheque. Relying on this, the Counsel contended that since no debt or other liabilities existed on the date of issuance of the cheques, no offence existed under Section 138.

    As opposed to this, counsel for the respondent relied on the case of I.C.D.S Ltd. v Beena Shabeer wherein the Supreme Court held that security cheques were covered under Section 138. It was further ruled that if a liability existed on the date of presentation of cheques and the security cheques were dishonoured, the accused could not escape liability.

    HC Analysis and Verdict

    After rearing to both the sides, the Court took note of the admitted fact that there was no debt or other liability on the date of drawal of the cheques. At the onset, the Court distinguished Indus Airways on facts and ruled out its applicability in the present case. Moving forward, the Court referred to the case of Dashrathbhai Trikambhai Patel v Hitesh Mahendrabhai Patel & Anr. in which the Supreme Court had taken into account the ruling in Indus Airways. The Supreme Court held that the offence under Section 138 NI Act was made out on existence of a legally enforceable debt on the date of maturity or presentation of the cheque. It observed that even though a post-dated cheque was drawn to represent a legally enforceable debt at the time of drawing, for an offence under Section 138, the debt must be present at the time of encashment. If there was no legally enforceable debt at the time of maturity, then no offence was made out under Section 138.

    The Court mentioned another case of Sunil Todi v State of Gujarat which elaborated on the phrase “debt and other liabilities” in Section 138 and differentiated between the two. It observed that previous cases had ruled that “debt” included only the amount owed on the date of issuance. However, “other liabilities” was different from “debt” and hence, liability arising on the date of maturity was also covered under Section 138.

    After analysing the legal position, the Court dismissed the quashing petition.

    Title: Paul Mitra v State of Rajasthan

    Click Here To Read/Download Order

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