MANU/GJ/0663/2017

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

Criminal Misc. Application (for Quashing & Set Aside FIR/Order) No. 24863 of 2016
and Criminal Misc. Application No. 24868 of 2016
Decided On: 04.04.2017
Appellants: Triton Ratial Private Limited and Ors.
Vs.
Respondent: State of Gujarat and Ors.
Hon'ble Judges/Coram:
J.B. Pardiwala, J.
Counsels:
For Appellant/Petitioner/Plaintiff: R.S. Sanjanwala, Senior Advocate assisted by Sahil
M. Shah, Advocate
For Respondents/Defendant: Nisha Thakore, APP
Case Note:
Criminal - Validity of proceedings - Section 138 of Negotiable Instruments
Act, 1881 - Petitions filed for quashing of criminal proceedings initiating
under Section 138 of Act for dishonour of cheques - Whether Petitioners
made out case for quashing of criminal proceedings - Held, possession of
premises handed over to complainant by terminating lease agreement at an
early stage, would not absolve accused from their liability incurred under
agreement - Cheques issued in favour of complainant in discharge of a
legally enforceable debt - After taking cognizance, Magistrate need not
refer issue of drawing of cheque in discharge of a legally enforceable debt
or other liability to a competent civil Court and await its decision to proceed
with trial - No case made out for quashing of complaints - Petitions
rejected. [32] and[36]
JUDGMENT
J.B. Pardiwala, J.
1. Since the issues raised in both the captioned applications are the same, the parties
are same and the questions of law raised also being the same, those were heard
analogously and are being disposed of by this common judgment and order.
2 . By these two applications under Section 482 of the Code of Criminal Procedure,
1973, the applicants - original accused Nos. 1, 4 and 5 seek to invoke the inherent
powers of this Court, praying for quashing of the proceedings of the Criminal Cases
Nos. 1213 of 2016 and 341 of 2016 respectively filed in the Court of the learned
Additional Chief Metropolitan Magistrate (N.I. Act) at Ahmedabad arising from the
two complaints filed under Section 138 of the Negotiable Instruments Act for the
dishonour of the cheques.
3 . The Criminal Miscellaneous Application No. 24863 of 2016 is treated as the lead
matter.
4 . The respondent No. 2 herein - original complainant lodged a complaint in the
Court of the Additional Chief Metropolitan Magistrate (N.I. Act) at Ahmedabad

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 culminating in the Criminal Case No. 1213 of 2016 for the offence punishable under
Section 138 of the Negotiable Instruments Act. The complaint reads as under:
"2. That accused No. 1 is a Company Registered under the Company's Act,
1956, under Registration No. U52100TN2010PTC074515, having Registered
Office at 2/1, Subrayyan Street, Nungambakkam, Chennai. Accused No. 2 to
6 are directors of No. 1 company who are looking after the day to day
routine and financial business activity of the company. Accused No. 7 is also
company incorporated under Company Act having its Registered office
address mention hereinabove. Accused No. 8 to 10 are directors of No. 7
company who are looking after the day to day routine and financial business
activity looking after the day to day routine and financial business activity of
the company, all accused are jointly and severally responsible and liable for
the Act of the company. That both the companies are related with each other,
as such both companies are responsible and liable for the transactions
entered with complainant, therefore their directors are also equally
responsible as such they are arraigned as accused in this complaint.
3 . That accused No. 7, Pavers England wanted to open its exclusive show
room in Ahmedabad, as such inquired and approached complainant for
leasing his property, CEO and Managing Director Mr. Utsav Seth accused No.
9, of Pavers England has negotiated and finalized the terms and conditions of
the lease agreement with complainant, after finalization of the terms and
conditions and lease amount accused No. 1 entered to execute the agreement
being franchise of pavers England accordingly lease agreement dated
09/08/2012 was executed, which is registered with the Sub-Registrar of
Ahmedabad - 3(Memnagar) under Serial Number : 4603 dated 09/08/2012,
with consent and permissible of Pavers England Ltd. who is also jointly and
severely responsible and liable. As such agreement executed is also binding
on accused No. 7 i.e. Pavers England Ltd.
4 . It is the say of complainant that as per the lease agreement executed
between accused and complainant initial period of 9 (Nine) Years starting
from 15/08/2012 was fixed with lock in period of Five (5) years at the
monthly licence fee of Rs. 3,00,000/- (Rupees Three Lacs Only) excluding all
taxes, maintenance charges and all other levies and electricity charges. That
complainant has handed over the possession of the above office to Pavers
England Ltd. for commercial purpose only.
5 . That for the purpose of licence fee months starts from 1st date of each
English Calendar month and ends on the last day of the same month.
6 . That as per the clause 5 of the agreement lock in period is five years,
during this period neither party has right to terminate the agreement and in
any case same is determined for any reason or terminated by any party then
also accused are liable and responsible to pay the licence fee for the full lock
in period.
7 . That accused have informed complainant vide their email dated
20/07/2015, that showroom will be under renovation as the showroom has
completed 3 years time, as such its need to be renovated. Accused have
made the payment of the licence fee up to August 2015. Thereafter for the
month of September, October and November cheques issued by accused
towards licence fee have been dishonoured, complainant has filed criminal
complaint u/s. 138 of Negotiable Instruments Act. Accused are in arrears of

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 licence fee and the said amount is due and payable since September 2015 till
March 2016 for period of 7 months. For the present complaint cheques are
presented for December 2015 and January and February 2016 for 3 months
that works out to Rs. 9,00,000 @ 3,00,000 p.m. + 18% interest P.A. on
delay payment as per agreed terms and conditions. Accused have not paid
the Licence fee from September 2015. Complainant submits that accused are
in terms of Licence free for continuously for Seven months.
8 . That as per the agreed terms and condition accused have issued post
dated cheques towards the monthly licence fee, which is legal dues and
complainant, in part of the following description, the cheques were issued
along with service tax amount.

That complainant have to recover from accused a total amount of Rs.

9,21,240/- (Rupees Nine Lacs Twenty One Thousand Two Hundred forty
Only) against the licence fee due and payable by accused. Complainant has
several time demanded the above said amount from accused but they have
avoided to pay the amount on the one or other pretext, at the time of issuing
the cheques accused have assured complainant that the cheques will be
honour as and when will be presented for encashment on its due date.
9 . That on the due dates of cheques complainant has deposited 2 cheques
with his banker but same were returned unpaid, complainant immediately
contacted accused and informed them about the dishonoured of cheques.
Accused are avoiding legal dues of complainant, accused are bound by the
agreed terms and condition of agreement executed between them as such
complainant is legally entitle to recover its dues.
10. That on 10/02/106 complainant has sent the above said 3 cheques for
clearing i.e. cheque No. 998041 dated 10/12/2015 for Rs. 3,07/080/-,
cheque No. 998042 dated 10/01/2016 for Rs. 3,07,080/- and cheque No.
998043 dated 10/02/2016 for Rs. 3,07,080/- aggregating an amount of Rs.
9,21,240/- (Rupees Nine Lacs Twenty One Thousand Two Hundred Forty
Only) all cheques drawn on HDFC Bank Ltd., Mylapore Branch, Chennai,
through his banker Indusind Bank, C.G. Road Branch, Ahmedabad. But
complainant was surprised and shocked to see the bank advice dated
11/02/2016 that the cheques have been return uncashed and it has been
dishonoured by accused banker with remarks on it "ACCOUNT BLOCKED"
which means there has been no sufficient amount in accused account to
honoured the cheques.
1 1 . That after the return of the said uncashed and dishonoured cheques
complainant has made several telephone calls for pay of the amount and
complainant requested accused also to make the arrangement of the amount
to be paid by them, that accused have avoided and failed to pay amount
under the returned cheque. The facts and circumstances thus show that
accused induce complainant with dishonest and deceitful representation to
part with a sum of Rs. 9,21,240/- (Rupees Nine Lacs Twenty One Thousand
Two Hundred Forty Only) and accused have no intention to repaying the

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 cheques amount and it is also clear the cheques are dishonoured because of
insufficiency of funds in accused account with the said Bank i.e. HDFC Bank.
Accused have thus rendered themselves liable to prosecution for the offences
under Section 138 of Negotiable Instruments Act, in addition to prosecution
for other offences under the Indian Penal Code and other Laws.
12. That as per the agreed terms and conditions accused have no legal rights
to stop the payment of cheques or block the account as matter of facts and
terms and conditions of agreement fix lock in period was agreed for 5 years
and if any issues arises and matter is referred to the arbitrator in that case
also accused required to make the payment of licence free as such accused
action of blocking the account if illegal cannot be sustained as such both
companies and all the directors are jointly and severely responsible for the
dishonoured of the cheques which attract the Penal provisions of Negotiable
Instruments Act.
1 3 . It is humbly further submitted that, as accused have issued cheques
towards the licence fee, which are legal dues as such complainant will
deposit the remaining cheques at the end of the month on its due date, and if
the said cheques are also dishonour in the event complainant reserves his
right to initiate appropriate legal action available to him.
14. Complainant thereafter address notice dated 20/02/2016 to accused as
required u/s. 138 of Negotiable Instrument Act proviso B calling upon
accused to pay the amount of the dishonoured cheque i.e. Rs. 9,21,240/-
(Rupees Nine Lacs Twenty One Thousand Two Hundred Forty Only).
15. Complainant further humbly submits before the Hon'ble Court that the
notice was posted to the accused by the advocate of complainant by Speed
Post at accused registered office address and to each individual directors at
their respective addresses, as such notice is duly served upon the accused.
1 6 . Thus, after receiving the notice, the accused have neither replied the
said notice or acted as per the notice issued by the complainant in his notice,
even accused has neither complied with a notice provision nor paid the
amount till to-date.
17. The accused the drawer of the cheque has failed to make the payment of
their dishonoured cheques within 15 days from the date of receipt of the said
notice as required by the provision of clause (C) of the proviso to section
138 of N.I. Act.
18. That the accused have not complied as per the notice of the complainant
nor made the payment of the amount of Rs. 9,21,240/- (Rupees Nine Lacs
Twenty One Thousand Two Hundred Forty only) to the complainant, within a
period of 15 days from the date of receipt of the notice by them or till today.
The accused have committed the offence punishable under Section 138 of
Negotiable Instruments Act.
19. The above offence under Section 138 of N.I. Act has been committed
within the jurisdiction of this Hon'ble Court and at the office of the
complainant and other places. It is therefore prayed that this complaint be
registered and process be issued against the accused for the offence under
Section 138 of Negotiable Instruments Act."
5. Thus, it appears on plain reading of the averments made in the complaint that the

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 accused persons herein entered into a lease agreement with the complainant with
respect to the premises in question. At this stage, let me look into the terms of the
agreement. The lease agreement is dated 9th August 2012 duly signed by the parties.
The Clause 4 of the lease deed is with respect to the 'tenure'. It reads as under:
"Tenure: a) The duration of this Deed shall be initially for a term of 9(Nine)
years starting from 15th AUG 2012 subject to earlier termination and/or
determination as mentioned herein (herein referred to as "The Period").
b) The Lessee will be permitted to carry out fit outs and furniture after the
Lessee have paid to the Lessor, deposits and all other monies under the
terms hereof as stated in Clause 8 of this Deed.
c) The payment of Lease rent and other payments will start from 15th AUG
2012 (hereinafter referred to as "THE EFFECTIVE DATE").
d) The tenure of the lease shall end on close of business hours on
completion of 9 (Nine) years from the effective date and/or earlier
termination thereof."
6. The Clause 5 provides with the minimum lock-in-period. It reads as under;
"MINIMUM LOCK IN PERIOD: The initial period of 5 (five) years (from the
date of commencement of Lease rent) of the tenure of lease shall be
minimum lock in period. During such period the Lessee is not entitled to
terminate this Deed for any reason/s whatsoever. During such period the
Lessor ceases his rights to terminate/determinate this Deed for any reason
whatsoever. During such period if this Deed is terminated and or determined
for any reason whatsoever, whether by the Lessee, the Lessee shall pay to
the Lessor compensation and all other monies payable under the terms and
conditions hereof, for the unpaid tenure of the minimum lock in period. In
such event the Lessor shall be entitled to forfeit deposits and credits (limited
to the extent of monies payable) lying with it. If the value of such
deposits/credits is less than the monies payable, then the Lessor shall have
lien on the equipment and stocks, inventories etc, lying in the said premises.
The extent of this lien will be limited in the amount recoverable. For this
purpose, the value of such equipment and stocks, inventories etc. lying in
the said counter will be the actual price realized by the Lessor of the same."
7. The Clause 17 is with regard to the jurisdiction. It reads as under:
"JURISDICTION: All matters requiring any reference in the Court pursuant to
the provisions of the Arbitration any Conciliation Act, 1996 whether prior to
the commencement of arbitration, during the arbitration proceedings or
thereafter, shall be subject to the exclusive jurisdiction of the High Court of
Gujarat Ahmedabad."
8. The Clause 20 is for termination of the Lease Agreement. It reads as under:
"TERMINATION : a) If any of the P.D.C. Dishonour, within the lock-in-period,
then, the Lessee shall pay to the Lessor compensation and all other monies
payable under the terms and conditions hereof, for the unexpired tenure of
the minimum lock-in-period. If such type of event occurs after lock-in-
period, in such case, the Lessor may at its sole option terminate the
arrangement herein contained by giving 15 days notice. In such event the
Lessor shall be entitled to forfeit deposits and credits (limited to the extent

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 of monies payable) lying with it. If the value of such deposits/credits is less
than the monies payable then the Lessor shall have lien on the equipment,
stocks, inventories, furnitures etc. lying in the said leased premises. The
extent of this lien will be limited to the amount recoverable. For this
purpose, the value of such equipment, stocks, inventions, furniture, fixtures,
etc lying in the said leased premises will be as per the fair market value of
the same.
b) In case of breach of any of the term and/or condition by either party, the
other party shall give written notice of not less than one month requiring the
defaulting party to cure the same. In case the defaulting party fails to remedy
the breach, the non-defaulting party may at its sole discretion be entitled to
terminate this Deed by giving two months notice in writing. It is clarified that
no specific notice and or intimating is requiring to be given by the Lessor in
respect of all kinds of payments to be made by the Lessee.
c) In case the services being provided by the association are not satisfactory
and no attempt is made by the association to rectify the services after
receiving such intimating from the Lessee for such deficiency, the Lessee
may withhold/deduct the common maintenance charges till such defects are
rectified.
d) Upon the termination of this Deed, the Lessee shall have the leased
premises in as good condition as it was at the beginning of this arrangement,
except for reasonable wear and tear. The Lessee hereby undertakes to the
Lessor that on termination of this Deed it shall remove their employees,
agents belonging and its articles from the leased premises and vacates and
give charge of the leased premises together with the fixtures and fittings
(loft, shutters and glass doors) belonging to Lessor, if any, in the same
status and condition in which it was at the beginning of this Deed.
e) In the event of the Lessee failing to leave the leased premises on the date
as may be mentioned in this deed upon termination of this Deed or earlier
determination thereof, the Lessor shall be entitled to remove the Lessee from
the leased premises and prevent them and/or their employees, agents and
suppliers from entering in the building and/or the leased premises. The
Lessor shall be at liberty to remove the goods, articles, and other things
belonging to the Lessee and lying in the leased premises and to store the
same at any other place or dispose off the same at the risk and cost of the
Lessee.
f) Neither the termination nor the premature determination of this Deed shall
release either party from its obligations to pay any sums then owning to the
other party or from the obligation to perform or discharge any liability that
had been incurred on or prior to the date of such termination and/or
determination.
g) After completion of the lock in period the Lessee is entitled to terminate
this Deed by giving 6 months notice thereof.
h) Upon the Deed determined by lapse of time, and/or termination of this
Deed, out of total deposit amount of Rs. 30,00,000/- (Rupees Thirty Lacs
only), a sum of Rs. 18,00,000/- (Rupees Eighteen Lacs Only) will be
adjusted for 6 months notice period and remaining balance will be return
back to the Lessee after deducting any arrears in property tax, electricity bill,
telephone bill and maintenance charges, immediately. However, in any event,

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 the refund of deposit will be simultaneous against the Lessee removing itself
and its belongings from the leased premises. For any reason, if the Lessor
commit defaults to return back the balance amount of security deposit, in
such case, the Lessee can continue its business from the leased premises
rent free until the balance amount of security deposit, in such case, the
Lessee can continue its business from the leased premises rent free until the
balance amount of security deposit return back by the Lessor to the Lessee."
9. The Clause 22 provides for resolution of disputes. It reads as under:
"RESOLUTION OF DISPUTES: a) Indian laws shall govern the construction,
validity and performance of this Deed and the High Court at Ahmedabad shall
have an exclusive jurisdiction. If any dispute or difference of any kind
whatsoever, shall arise between the parties in connection with the
interpretation of any of the provisions hereof and/or performance of this
Deed (and whether before or after the termination or breach of this Deed)
the Lessor and the Lessee shall promptly and in good faith negotiate with a
view to reach its amicable resolution and settlement. In case no amicable
resolution or settlement will reach within a period of 30 days from the date
of which the dispute or difference was referred for such settlement then such
dispute and difference shall be referred to the two arbitrators appointed by
the Lessor and Lessee separately. All the charges of the Arbitrators shall be
paid by the Lessor and Lessee separately. All such proceeding shall be
conducted at Ahmedabad in accordance with and subject to the provisions of
the Arbitration and Conciliation Act, 1996 or any other statutory modification
thereof or any other re-enactment for the time being in force.
b) the parties have mutually agreed that in case of any dispute, not settle
mutually by the parties hereto, then and in such an event before referring
such dispute to the arbitration, the Lessee shall have the option either to
hand over the leased premises to the Lessor after bringing the leased
premises in the same State and condition (except normal wear and tear) in
which it was at the beginning of this Deed or to continue conducting the said
Business from the leased premises against the prompt and regular payments
of amounts due to the Lessors as provided herein.
c) It is specifically agreed by the Lessee that in such case before referring
such dispute to the Arbitrator, the Lessee shall pay to the Lessor in respect of
the leased premises as per the terms and conditions hereof for the balance of
the lock in period and can't stop business of the Lessee.
d) And in case if such dispute is referred to the Arbitration after the
completion of the lock in period, such references of dispute to the Arbitration
shall be subject to the condition that the Lessee shall continue to pay all
payments to the Lessor as provided herein, regularly and punctually, till final
award is given the Arbitrator, in case if, the Lessee decides to continue with
the lease hereby granted pending such arbitration. If the Lessee stop its
business from the leased premises, in such case, it will not be liable to pay
lease rent to the Lessor."
10. The Clause 23 is general. It reads as under:
"GENERAL: a) The parties hereto agree that if any condition/s hereof is/are
found to be invalid or unlawful under any enactment or rule of law pertaining
thereto the same shall be to such an extent stand over ridden, whether it be
an entire condition or conditions or some part or parts thereof. And all other

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 terms and conditions hereof shall remain enforceable as if the invalid or
unlawful part or parts had not been included.
b) The parties hereto acknowledge, declare and confirm that this Deed
represents the entire Deed and finally agreed terms and conditions between
them regarding the subject matter hereof and no alternation, addition or
modification hereto shall be valid and binding unless the same are reduced in
writing and signed by the authorized representatives of both parties and for
which Pavers England Limited has given its consent and confined the same.
c) The parties to this Deed also admit, acknowledge, confirm, declare and
say that there are no assurances or representations made by the parties to
one another, either oral or in writing, other than what is recorded in this
Deed.
d) the parties shall be responsible and liable to pay and discharge their
respective income tax and all other tax liability on the incomes and/or
operative from the leased premises arising out of or accruing from this Deed.
e) Neither party shall disclose to any third party any information as to the
business plan/secret/methods relating to conduct or financial affairs, present
or past or future plans or the policy of the other which information is not in
public domain and is not compulsorily disclose able under any statute.
f) The parties further record and confirm that this Deed is their final Deed
and this overrides all other writings and other representations made prior
hereto.
g) Access to the leased premises shall be on all days of the week subject to
relevant prevailing rules of the Government and the Association rules."
11. Mr. R.S. Sanjanwala, the learned senior counsel assisted by Mr. Sahil M. Shah,
the learned counsel appearing for the applicants submitted that the lease agreement
dated 9th August 2012 was terminated by mutual consent in a meeting convened
between the parties on 5th September 2015 in Ahmedabad. It was agreed by the
applicants that they would pay the lease rental for a period of three months from July
2015 by way of compensation for the early termination of the lease agreement. Mr.
Sanjanwala submits that the complainant had unconditionally agreed to the same,
and thereafter, the applicants vacated the premises in question and handed over the
peaceful and vacant possession of the same to the complainant. According to the
learned counsel, the understanding was arrived at in good faith, and therefore, at the
relevant point of time, it was not found necessary to reduce the same in writing. Mr.
Sanjanwala submits that vide letter dated 17th April 2015, the complainant was
informed that in view of the understanding arrived at, the complainant now be
estopped from enforcing his alleged right under the lease agreement and would not
deposit the postdated cheques, which were issued at the time when the lease
agreement was executed.
12. According to Mr. Sanjanwala, the cheques, which were issued by his clients at
the time of the execution of the lease deed dated 9th August 2012 towards rent,
could not have been deposited by the complainant for encashment in view of the
subsequent developments. The complainant could not have used those cheques, as it
cannot be said that he was trying to enforce a legally enforceable debt. According to
the learned counsel, at best, the complainant can file a suit for damages and to
recover an appropriate compensation in terms of the lease deed. No liability can be
fastened under Section 138 of the Negotiable Instrument Act because the debt or the

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 liability cannot be said to be legally enforceable once the lease deed is terminated
and the possession of the premises is handed over to the complainant.
1 3 . Mr. Sanjanwala submitted that even otherwise, the complaints are not
maintainable because in the lease agreement, there is a clause which provides that in
the event of any dispute between the parties, the same shall be referred for
settlement to the two Arbitrators that may be appointed by the lessor and lessee
separately. As there is an arbitration clause in the lease agreement and what is
sought to be enforced are the terms of the lease agreement, then in such
circumstances, the complainant under Section 138 of the Negotiable Instruments Act
is not maintainable.
14. Mr. Sanjanwala further submitted that the company had sufficient balance for the
period between 10th September 2015 and 11th May 2016 in their current account
maintained with the H.D.F.C. Bank, when the stop payment instructions were issued
by the accused persons. In such circumstances, no offence under Section 138 of the
Negotiable Instruments Act could be said to have been made out.
15. The learned counsel, thereafter, submitted that the applicants Nos. 2 and 3 were
not Directors of the company at the time when the lease agreement dated 9th August
2012 was executed. The applicants Nos. 2 and 3 had already resigned on 24th
December 2011. The learned counsel tried to substantiate his submission by placing
reliance on the Form No. 32 submitted before the Registrar of the Companies in that
regard.
16. On the other hand, both the applications have been vehemently opposed by Mr.
Nair, the learned counsel appearing for the complainant. According to Mr. Nair, none
of the contentions canvassed merit any consideration. Mr. Nair submitted that the
understanding was distinct and the same was reduced into writing in the form of a
lease agreement. What is sought to be enforced by the complainant are the terms of
the lease agreement. While entering into the lease agreement, the postdated cheques
were issued by the accused persons towards rent, and thereby, they created a debt,
which could be termed as legally enforceable. Merely because they were unable to
continue with the business and handed over the possession of the premises, will not
absolve them from their liability created under the lease agreement.
17. Mr. Nair submitted that merely because there is an arbitration clause in the lease
agreement, the same will not make the complaints under Section 138 of the
Negotiable Instruments Act not tenable in law. The complainant is not precluded from
prosecuting the accused under Section 138 of the N.I. Act for the dishonour of the
cheques. It is for the Trial Court to consider whether the accused has a legally
enforceable liability or not.
18. Mr. Nair submitted that so far as the contention that the applicants Nos. 2 and 3
had ceased to be the Directors of the company at the time when the lease agreement
was executed is a highly disputed question of fact because the name of the applicant
No. 2 i.e. Mr. Vivek Mehrotra figures in the lease agreement at page: 54 of the paper
book. The signature of Vivek Mehrotra is very much there for and on behalf of the
company.
1 9 . Mr. Nair submits that there being no merit in both the applications, they be
rejected.
2 0 . Having heard the learned counsel appearing for the parties and having
considered the materials on record, the only question that falls for my consideration
is whether the complaints should be quashed.

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 2 1 . Let me first deal with the contention raised by the learned senior counsel
appearing for the applicants as regards the arbitration clause in the lease agreement.
The question as to whether merely because there is an arbitration clause will take
away the right of the complainant to move for criminal prosecution has been dealt
with by the Supreme Court in the case of S.W. Palanitkar v. State of Bihar
[MANU/SC/0672/2001 : (2002) 1 SCC 241]. The Supreme Court held that merely
because there is an arbitration clause in a commercial transaction agreement, the
same would not operate as a bar for instituting criminal prosecution, if such breach
even prima facie constituted a criminal offence.
22. An arbitration clause in a agreement in respect of business transaction is not a
bar for filing a criminal complaint under Section 138 of the Negotiable Instruments
Act for dishonour of the cheque. It is also settled law that merely because there is a
civil remedy available, the same is not a ground to quash the criminal proceedings, if
the allegations, prima facie, made out a criminal offence as well. In a case under
Section 138 of the Negotiable Instruments Act, the ingredients to be proved are that
a cheque was issued in discharge of any partial or whole liability which when
presented was dishonoured and in spite of notice issued if the amount is not paid,
then, it will attract the penal provisions under Section 138 of the Negotiable
Instrument Act. The ultimate liability as to how much amount is payable, is a matter
to be considered in the arbitration proceedings and that will not debar the
complainant from filing a complaint for prosecution under Section 138 of the
Negotiable Instruments Act, if the complainant comes forward with a case that the
cheque was issued in discharge of an admitted liability by the accused. The question
as to whether it is an admitted liability and whether there is any legally enforceable
debt for which the cheque was issued, etc, are matters to be considered by the Trial
Court on appreciation of evidence adduced on both the sides.
23. In view of the above discussion, the contention as regards the arbitration clause
should fail and is hereby rejected.
24. Let me now deal with the contention that at the time of issuing the stop payment
instructions to the Bank, there was sufficient balance in the current account of the
accused company maintained with the H.D.F.C. Bank. For the purpose of answering
this contention, I can do no better than refer to and rely upon a decision of the
Supreme Court in the case of M.M.T.C. Limited v. Medchl Chemicals and Pharma
Private Limited [MANU/SC/0728/2001 : (2002) 1 SCC 234]. I may quote the relevant
observations as under:
"13. The learned Judge has next gone into facts and arrived at a conclusion
that the cheques were issued as security and not for any debt or liability
existing on the date they were issued. In so doing the learned Judge has
ignored well settled law that the power of quashing criminal proceedings
should be exercised very stringently and with circumspection. It is settled
law that at this stage the Court is not justified in embarking upon an enquiry
as to the reliability or genuineness or otherwise of the allegations made in
the complaint. The inherent powers do not confer an arbitrary jurisdiction on
the Court to act according to its whim or caprice. At this stage the Court
could not have gone into merits and/or come to a conclusion that there was
no existing debt or liability.
It is next held as follows :-
"This is a special provision incorporated in the Negotiable
Instruments Act. It is necessary to allege specifically in the

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 complaint that there was a subsisting liability and an enforceable
debt and to discharge the same, the cheques were issued. But, we
do not find any such allegation at all. The absence of such vital
allegation, considerably impairs the maintainability."
1 4 . In the case of Maruti Udyog Ltd. v. Narender reported in
MANU/SC/0803/1999 : (1999) 1 SCC 113, this Court has held that by virtue
of Section 139 of the Negotiable Instruments Act, the Court has to draw a
presumption that the holder of the cheque received the cheque for discharge
of a debt or liability until the contrary is proved. This Court has held that at
the initial stage of the proceedings the High Court was not justified in
entertaining and accepting a plea that there was no debt or liability and
thereby quashing the complaint.
15. A similar view has been taken by this Court in the case of K.N. Beena v.
Muniyappan reported in MANU/SC/0661/2001 : 2001 (7) Scale 331, wherein
again it has been held that under Section 139 of the Negotiable Instruments
Act the Court has to presume, in a complaint under Section 138, that the
cheque had been issued for a debt or liability.
16. There is therefore no requirement that the Complainant must specifically
allege in the complaint that there was a subsisting liability. The burden of
proving that there was no existing debt or liability was on the respondents.
This they have to discharge in the trial. At this stage, merely on basis of
averments in the Petitions filed by them the High Court could not have
concluded that there was no existing debt or liability.
17. Lastly it was submitted that complaint under Section 138 could only be
maintained if the cheque was dishonoured for reason of funds being
insufficient to honour the cheque or if the amount of the cheque exceeds the
amount in the account. It is submitted that as payment of the cheques had
been stopped by the drawer one of the ingredient of Section 138 was not
fulfilled and thus the complaints were not maintainable.
18. Such a just contention has been negatived by this Court has, in the case
of Modi Cements Ltd. v. Kuchil Kumar Nandi reported in
MANU/SC/0171/1998 : (1998) 3 SCC 249. It has been held that even though
the cheque is dishonoured by reason of 'stop payment' instruction an offence
under Section 138 could still be made out. It is held that presumption under
Section 139 is attracted in such a case also. The authority shows that even
when the cheque is dishonoured by reason of stop payment instructions by
virtue of Section 139 the Court has to presume that the cheque was received
by the holder for the discharge, in whole or in part, of any debt or liability.
Of course this is a rebuttable presumption. The accused can thus show that
the "stop payment" instructions were not issued because of insufficiency or
paucity of funds. If the accused shown that in his account there was
sufficient funds to clear the amount of the cheque at the time of presentation
of the cheque for encashment at the drawer bank and that the stop payment
notice had been issued because of other valid causes including that there
was no existing debt or liability at the time of presentation of cheque for
encashment, then offence under Section 138 would not be made out. The
important thing is that the burden of so proving would be on the accused.
Thus a Court cannot quash a complaint on this ground."
2 5 . Let me now deal with the principal argument canvassed on behalf of the

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 applicants as regards the liability.
26. The issue of cheque is not in dispute. The lease agreement is also not in dispute.
There is no dispute as regards the terms and conditions of the lease agreement. The
applicants are trying to wriggle out of their liability under Section 138 of the
Negotiable Instruments Act on the ground that as they did not do well in the
business, the company decided to terminate the agreement and vacated the premises.
The vacant and peaceful possession was handed over to the complainant, being the
owner of the premises. Once the premises is vacated and the possession is handed
over, thereafter, the complainant being the lessor could not have deposited the
cheques.
2 7 . In order to attract the penal provisions for the bouncing of a cheque, it is
essential that the dishonoured cheque should have been issued in discharge, wholly
or in part of any debt or other liability of the drawer to the payee. The explanation to
Section 138 defines the expression "debt or other liability" as a legally enforceable
debt or other liability. A cheque given not for the satisfaction of any debt or other
liability, partly or wholly, even if it is returned unpaid due to insufficiency of funds or
the stop payment instructions, it would not attract the consequences provided in
Section 138 of the Negotiable Instruments Act. This means that only those payments
are covered which are in discharge of any debt or other liability. Unless the two
conditions set out in section 138 are satisfied, no criminal liability can be fastened.
This is also in accordance with the general scheme, as laid down in Section 118(a) of
the Negotiable Instruments Act. It also enforces the doctrine of consideration, as laid
down in Section 2(d) of the Indian Contract Act, 1872. Too many definitions of the
word debt have been given though the word debt is not defined in the Act. 'Debt' is
defined in the Stroud's Judicial Dictionary, (4th edition, volume 2) as a sum payable
in respect of a liquidated money demand recoverable by action (Rawley v. Rawley 1
QBD 460].
2 8 . In Dictionary of Banking by F.E. Perry (1979 edition, page 64), debt is
mentioned as something owed to another, a liability, an obligation, a chose in action
which is capable of being assigned by the creditor to some other person.
Shri K.J. Aiyar's Judicial Dictionary (page 314) mentions debt as under:
"Debt is a pecuniary liability. A sum payable or recoverable by action in
respect of money demand. It refers to the definition given by Lindey L.J. In
Webb v. Stention (1888 QBD 518)... a debt is a sum of money which is now
payable or will become payable in future by reason of a present obligation".
In Union of India v. Raman Iron Foundry [MANU/SC/0005/1974 : AIR 1974 SC
1265], it is decided as a existing obligation to pay a sum of money now or in future.
Thus, there must be debitum in praesenti solvendum may or may not be praesenti.
The following passage adopted from the judgment of Supreme Court of California
was approved by Supreme Court of India in Keshoram Industries v. CWT
[MANU/SC/0142/1965 : AIR 1966 SC 1370].
"Standing alone, the word 'debt' is as applicable to a sum of money which has been
promised at a future day as to a sum not due and payable. If we to distinguish
between the two, we say of the former that it is a debt owing and of the latter, it is a
debt due".
"The above passage indicates that there is an obligation to pay a sum of money at a
future date. It is debt owing, but when the obligation is to pay a sum of money in
praesenti it is a debt due. A sum due would, therefore, mean a sum for which there is

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 an existing obligation to pay in praesenti or in other words, it is presently payable."
29. Let me now look into the Law Laxicon by P. Ramanathan for meaning of word
"liability":
"Liability: a broad term, it may be employed as meaning the state of being
liable: that for which one is responsible or liable; obligation in general; that
condition of affairs which gives rise to an obligation to do a particular thing
to be enforced by action, responsibility, legal responsibility. In other words,
the condition of one who is subject to charge or duty which may be judicially
enforced."
30. At this stage, it would be appropriate for me to look into the decision of the
Supreme Court in the case of Sampelly Satyanarayana Rao v. Indian Renewable
Energy Development Agency Limited [MANU/SC/1021/2016 : AIR 2016 SC 4363].
The question for consideration before the Supreme Court in the facts of the case was
whether the dishonour of a postdated cheque given for repayment of loan
installment, which is also described as "security" in the loan agreement, is covered
by Section 138 of the Negotiable Instruments Act. The Supreme Court proceeded to
explain the law as under:
"7. It will be appropriate to reproduce the statutory provision in question
which is as follows :
"138. Dishonour of cheque for insufficiency, etc., of funds in the
account. - Where any cheque drawn by a person on an account
maintained by him with a banker for payment of any amount of
money to another person from out of that account for the discharge,
in whole or in part, of any debt or other liability, is returned by the
bank unpaid, either because of the amount of money standing to the
credit of that account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that account by an
agreement made with that bank, such person shall be deemed to
have committed an offence and shall, without prejudice to any other
provisions of this Act, be punished with imprisonment for a term
which may be extended to two years, or with fine which may extend
to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply
unless -
(a) the cheque has been presented to the bank within a
period of six months from the date on which it is drawn or
within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as
the case may be, makes a demand for the payment of the
said amount of money by giving a notice in writing, to the
drawer of the cheque, within thirty days of the receipt of
information by him from the bank regarding the return of the
cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of
the said amount of money to the payee or, as the case may
be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice.

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 Explanation. - For the purposes of this section, "debt or other
liability" means a legally enforceable debt or other liability."
8. Clause 3.1(iii) of the agreement may also be noted :-
"3.1 SECURITY FOR THE LOAN
The loan together with the interest, interest tax, liquidated damages,
commitment fee, upfront fee prima on repayment or on redemption,
costs, expenses and other monies shall be secured by;
(I) xxxxx
(ii) xxxxx
(iii) Deposit of Post dated cheques towards repayment of
installments of principal of loan amount in accordance with
agreed repayment schedule and installments of interest
payable thereon."
9. Reference may now be made to the decision of this Court in Indus Airways
Private Limited v. Magnum Aviation Private Limited [MANU/SC/0288/2014 :
(2014) 12 SCC 539], on which strong reliance has been placed by learned
counsel for the appellant. The question therein was whether postdated
cheque issued by way of advance payment for a purchase order could be
considered for discharge of legally enforceable debt. The cheque was issued
by way of advance payment for the purchase order but the purchase order
was cancelled and payment of the cheque was stopped. This Court held that
while the purchaser may be liable for breach of the contract, when a contract
provides that the purchaser has to pay in advance and cheque towards
advance payment is dishonoured, it will not give rise to criminal liability
under Section 138 of the Act. Issuance of cheque towards advance payment
could not be considered as discharge of any subsisting liability. View to this
effect of the Andhra Pradesh High Court in Swastik Coaters (P) Ltd. v.
Deepak Bros.[MANU/AP/0124/1996 : 1997 Cr.L.J. 1942], Madras High Court
in Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd.
[MANU/TN/0002/1999 : (1999) 1 CTC 6], Gujarat High Court in Shanku
Concretes (P) Ltd. v. State of Gujarat [MANU/GJ/0380/1999 : 2000 Cri.L.J.
1988] and Kerala High Court in Supply House v. Ullas [MANU/KE/0304/2006
: 2006 Cri.L.J. 4330] was held to be correct view as against the view of Delhi
High Court in Magnum Aviation (P) Ltd. v. State [MANU/DE/2127/2010 :
(2010) 172 DLT 91] and Mojj Engg. Systems Ltd. v. A.B. Sugars Ltd.
[MANU/DE/1462/2008 : (2008) 154 DLT 579] which was disapproved.
10. We have given due consideration to the submission advanced on behalf
of the appellant as well as the observations of this Court in Indus Airways
(supra) with reference to the explanation to Section 138 of the Act and the
expression "for discharge of any debt or other liability" occurring in Section
138 of the Act. We are of the view 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, the Section is attracted and not otherwise.
11. Reference to the facts of the present case clearly shows that though the
word "security" is used in clause 3.1(iii) of the agreement, the said
expression refers to the cheques being towards repayment of installments.

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 The repayment becomes due under the agreement, the moment the loan is
advanced and the installment falls due. It is undisputed that the loan was
duly disbursed on 28th February, 2002 which was prior to the date of the
cheques. Once the loan was disbursed and installments have fallen due on
the date of the cheque as per the agreement, dishonour of such cheques
would fall under Section 138 of the Act. The cheques undoubtedly represent
the outstanding liability.
12. Judgment in Indus Airways (supra) is clearly distinguishable. As already
noted, it was held therein that liability arising out of claim for breach of
contract under Section 138, which arises on account of dishonour of cheque
issued was not by itself at par with criminal liability towards discharge of
acknowledged and admitted debt under a loan transaction. Dishonour of
cheque issued for discharge of later liability is clearly covered by the statute
in question. Admittedly, on the date of the cheque there was a debt/liability
in presenti in terms of the loan agreement, as against the case of Indus
Airways (supra) where the purchase order had been cancelled and cheque
issued towards advance payment for the purchase order was dishonoured. In
that case, it was found that the cheque had not been issued for discharge of
liability but as advance for the purchase order which was cancelled. Keeping
in mind this fine but real distinction, the said judgment cannot be applied to
a case of present nature where the cheque was for repayment of loan
installment which had fallen due though such deposit of cheques towards
repayment of installments was also described as "security" in the loan
agreement. In applying the judgment in Indus Airways (supra), one cannot
lose sight of the difference between a transaction of purchase order which is
cancelled and that of a loan transaction where loan has actually been
advanced and its repayment is due on the date of the cheque..
13. 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. While approving the views of different High
Courts noted earlier, this is the underlying principle as can be discerned from
discussion of the said cases in the judgment of this Court.
14. In Balaji Seafoods (supra), the High Court noted that the cheque was not
handed over with the intention of discharging the subsisting liability or debt.
There is, thus, no similarity in the facts of that case simply because in that
case also loan was advanced. It was noticed specifically therein - as was the
admitted case of the parties - that the cheque was issued as "security" for
the advance and was not intended to be in discharge of the liability, as in the
present case.
15. In HMT Watches Ltd. v. M.A. Abida [MANU/SC/0296/2015 : (2015) 11
SCC 776], relied upon on behalf of the respondent, this Court dealt with the
contention that the proceedings under Section 138 were liable to be quashed
as the cheques were given as "security" as per defence of the accused.
Negativing the contention, this Court held :-
"10. Having heard the learned counsel for the parties, we are of the
view that the accused (Respondent 1) challenged the proceedings of
criminal complaint cases before the High Court, taking factual
defences. Whether the cheques were given as security or not, or
whether there was outstanding liability or not is a question of fact

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 which could have been determined only by the trial court after
recording evidence of the parties. In our opinion, the High Court
should not have expressed its view on the disputed questions of fact
in a petition under Section 482 of the Code of Criminal Procedure, to
come to a conclusion that the offence is not made out. The High
Court has erred in law in going into the factual aspects of the matter
which were not admitted between the parties. The High Court further
erred in observing that Section 138(b) of the NI Act stood
uncomplied with, even though Respondent 1 (accused) had admitted
that he replied to the notice issued by the complainant. Also, the
fact, as to whether the signatory of demand notice was authorised by
the complainant company or not, could not have been examined by
the High Court in its jurisdiction under Section 482 of the Code of
Criminal Procedure when such plea was controverted by the
complainant before it.
1 1 . In Suryalakshmi Cotton Mills Ltd. v. Rajvir Industries Ltd.
[MANU/SC/7050/2008 : (2008) 13 SCC 678], this Court has made
the following observations explaining the parameters of jurisdiction
of the High Court in exercising its jurisdiction under Section 482 of
the Code of Criminal Procedure: (SCC pp. 685-87, paras 17 & 22)
"17. The parameters of jurisdiction of the High Court in
exercising its jurisdiction under Section 482 of the Code of
Criminal Procedure is now well settled. Although it is of wide
amplitude, a great deal of caution is also required in its
exercise. What is required is application of the well-known
legal principles involved in the matter.
***
22. Ordinarily, a defence of an accused although appears to
be plausible should not be taken into consideration for
exercise of the said jurisdiction. Yet again, the High Court at
that stage would not ordinarily enter into a disputed
question of fact. It, however, does not mean that documents
of unimpeachable character should not be taken into
consideration at any cost for the purpose of finding out as to
whether continuance of the criminal proceedings would
amount to an abuse of process of court or that the complaint
petition is filed for causing mere harassment to the accused.
While we are not oblivious of the fact that although a large
number of disputes should ordinarily be determined only by
the civil courts, but criminal cases are filed only for
achieving the ultimate goal, namely, to force the accused to
pay the amount due to the complainant immediately. The
courts on the one hand should not encourage such a
practice; but, on the other, cannot also travel beyond its
jurisdiction to interfere with the proceeding which is
otherwise genuine. The courts cannot also lose sight of the
fact that in certain matters, both civil proceedings and
criminal proceedings would be maintainable."
1 2 . In Rallis India Ltd. v. Poduru Vidya Bhushan
[MANU/SC/0422/2011 : (2011) 13 SCC 88], this Court expressed its

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 views on this point as under: (SCC p. 93, para 12)
"12. At the threshold, the High Court should not have
interfered with the cognizance of the complaints having been
taken by the trial court. The High Court could not have
discharged the respondents of the said liability at the
threshold. Unless the parties are given opportunity to lead
evidence, it is not possible to come to a definite conclusion
as to what was the date when the earlier partnership was
dissolved and since what date the respondents ceased to be
the partners of the firm."
1 6 . We are in respectful agreement with the above observations. In the
present case, reference to the complaint (a copy of which is Annexures P-7)
shows that as per the case of the complainant, the cheques which were
subject matter of the said complaint were towards the partial repayment of
the dues under the loan agreement (para 5 of the complaint).
17. As is clear from the above observations of this Court, it is well settled
that while dealing with a quashing petition, the Court has ordinarily to
proceed on the basis of averments in the complaint. The defence of the
accused cannot be considered at this stage. The court considering the prayer
for quashing does not adjudicate upon a disputed question of fact.
18. In Rangappa v. Sri Mohan [MANU/SC/0376/2010 : (2010) 11 SCC 441],
this Court held that once issuance of a cheque and signature thereon are
admitted, presumption of a legally enforceable debt in favour of the holder of
the cheque arises. It is for the accused to rebut the said presumption, though
accused need not adduce his own evidence and can rely upon the material
submitted by the complainant. However, mere statement of the accused may
not be sufficient to rebut the said presumption. A post dated cheque is a well
recognized mode of payment [Goaplast (P) Ltd. v. Chico Ursula D'Souza
MANU/SC/0200/2003 : (2003) 3 SCC 232].
19. Thus, the question has to be answered in favour of the respondent and
against the appellant. Dishonour of cheque in the present case being for
discharge of existing liability is covered by Section 138 of the Act, as rightly
held by the High Court."
31. Incorporating a rebuttable presumption, Section 139 lays down that unless the
contrary is proved, it shall be presumed by the court that "the holder of a cheque
received the cheque of the nature referred to in Section 138 for the discharge, in
whole or in part, of any debt or other liability". The term "presumption" in its largest
and most comprehensive signification, according to Gajendragadkar, J., (as he then
was) who spoke for the majority in Izhar Ahmad v. Union of India,
MANU/SC/0094/1962 : AIR 1962 SC 1052 at 1060, may be defined to be an
inference, affirmative or disaffirmative of the truth or false-hood of a doubtful fact or
proposition drawn by a process of probable reasoning from something proved or
taken for granted. The contention advanced is that the presumption is violative of the
fundamental right guaranteed under clause (3) of Article 20 of the Constitution of
India. The expression "holder of a cheque" occurring in Section 139 cannot be
understood as defined in Section 8 of the Act which covers any person entitled in his
own name to the possession thereof and to receive or recover the amount due on
cheque from the parties thereto. The definition as contained in Section 8
comprehends even an endorsee for collection though he may not have property in the

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 instrument. The presumption incorporated in Section 139 is not intended to cover all
kinds of holders; it covers only the holder of a cheque "of the nature referred to in
Section 138". Only in respect of a cheque which was issued in discharge, in whole or
in part, of a debt or other liability, the presumption operates in favour of the payee
as well as in favour of a holder in due course as defined in Section 9. This
construction receives support from the language employed in clause (a) of Section
142, which speaks of cognizance of offences, and provisions (b) and (c) of Section
138. Section 4 of the evidence Act defines the expression "shall presume" as,
"Whenever it is provided by this Act, that the court shall presume a fact, it shall
regard such fact as proved, unless and until it is disproved". It is, therefore,
incumbent on the court, in a prosecution under Section 138, unless the contrary is
proved to draw the inference that the cheque received by its holder was a cheque of
the nature referred to under Section 139 for the discharge, in whole or in part, of any
debt or other liability. The presumption is displaced only when the truth of the
inference is disproved on other evidence. However, as pointed out above, the
rebuttable presumption under Section 139 operates only in favour of the payee or a
holder in due course but not in favour of a person, who, without consideration
became the holder of the cheque.
32. I am of the view that only because the possession of the premises came to be
handed over to the complainant by terminating the lease agreement at an early stage,
will not absolve the accused from their liability incurred under the agreement. The
cheques, at the relevant point of time, could be said to have been issued in favour of
the complainant in discharge of a legally enforceable debt. Indisputably, on the date
when the cheques were issued, there was a debt/liability in presenti in terms of the
lease agreement. However, I leave it upon the Trial Court to look into this issue after
appreciating the evidence that the parties may lead in the course of the trial.
Ordinarily, a defence of an accused, although appears to be plausible, should not be
taken into consideration for exercise of jurisdiction under Section 482 of the Cr.P.C.
Section 142(c) invests certain Magistrates with the power of trying offences
punishable under Section 138. When power is given to try an offence, it includes the
power to convict or acquit and, in case of conviction, to exercise the sentencing
discretion also to award an appropriate sentence, allowed by law. In order to convict
an accused, the court must find him guilty. For the purpose of entering conviction or
acquittal, the Magistrate must get himself satisfied of the ingredients of the offence.
Power to try and convict includes the power to decide existence of the ingredients
necessary to constitute the offence. One of the ingredients to be found is as to
whether the cheque was drawn in discharge, in whole or in part of any legally
enforceable debt or other liability. If that question arises in a civil suit, it could be
said that it could be decided only by that civil court. In a criminal prosecution, that
question will arise only collaterally for the purpose of deciding criminal liability. The
Magistrate himself can decide it for the purpose of the criminal trial and conviction.
The Magistrate is not deciding that matter to decree a suit for money due under the
cheque. His finding may not be binding on a civil court. Still, for the purpose of
conviction, the Magistrate himself can decide that matter. Without deciding that
matter, the Magistrate cannot enter conviction. After taking cognizance, the
Magistrate need not refer the question of drawing of the cheque in discharge of a
legally enforceable debt or other liability to a competent civil court and await its
decision to proceed with the trial.
33. In the aforesaid context, I may quote the observations of the Supreme Court in
the case of S. Krishnamoorthy v. Chellammal [MANU/SC/0372/2015 : AIR 2015 SC
3182] as under:
"4. The respondent (accused) challenged the proceedings of criminal

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 complaint case by moving a Criminal Original Petition under Section 482 of
the Code before the High Court. In said petition the accused pleaded that her
son-in-law A. Raj and Ayyavu (father of A. Raj) had actually borrowed a sum
of Rs. 2,00,000/- on 19.4.2005. The cheques in question were only taken as
security. Actually, loan was taken by A. Raj and Ayyavu by mortgaging their
house in favour of one Balakrishnan, brother of the present appellant. It is
alleged by the present respondent (accused) in the petition that
Balakrishnan, instead of getting the mortgage deed executed, obtained an
agreement of sale from aforesaid two persons with false and incorrect
recitals, that a sum of Rs. 2,00,000/- was paid as advance and part of
consideration, and balance of Rs. 25,000/- shall be paid within 35 months.
Cheques bearing Nos. 857491, 857492 and 857493 of Canara Bank,
Dharapuram Branch, were got filled up in the name of the complainant
(appellant), which were misused by him.
5. The above defence of the respondent (accused) before the High Court, in
the petition filed under Section 482 of the Code, is nothing but absolutely
factual in nature, which is neither admitted by the complainant, nor apparent
on the face of the record. Such type of disputed factual defences could have
been appreciated only by the trial court, after the parties led their evidence.
In our opinion, the High Court committed grave error of law in examining the
allegations and counter allegations which are disputed and factual in nature
in a proceeding under Section 482 of the Code.
6. In Padal Venkata Rama Reddy alias Ramu v. Kovvuri Satyanarayana Reddy
and others MANU/SC/0884/2011 : (2011) 12 SCC 437, this Court, explaining
the law on the scope of Section 482 of the Code, has observed, in paragraph
32, as under:
"32. It would not be proper for the High Court to analyse the case of
the complainant in the light of all the probabilities in order to
determine whether conviction would be sustainable and on such
premise arriving at a conclusion that the proceedings are to be
quashed. In a proceeding instituted on a complaint, exercise of
inherent powers to quash the proceedings is called for only in a case
in which the complaint does not disclose any offence or is frivolous,
vexatious or oppressive. There is no need to analyse each and every
aspect meticulously before the trial to find out whether the case
would end in conviction or acquittal.""
3 4 . So far as the vicarious liability of the Directors under Section 141 of the
Negotiable Instruments Act is concerned, I may quote the observations of the
Supreme Court as contained in para 31 in the case of Gunmala Sales Private Ltd. v.
Navkar Infra Projects Pvt. Ltd. [MANU/SC/0959/2014 : AIR 2015 SC 1072] as under:
"30. When in view of the basic averment process is issued the complaint
must proceed against the Directors. But, if any Director wants the process to
be quashed by filing a petition under Section 482 of the Code on the ground
that only a bald averment is made in the complaint and that he is really not
concerned with the issuance of the cheque, he must in order to persuade the
High Court to quash the process either furnish some sterling uncontrovertible
material or acceptable circumstances to substantiate his contention. He must
make out a case that making him stand the trial would be abuse of the
process of court. He cannot get the complaint quashed merely on the ground
that apart from the basic averment no particulars are given in the complaint

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 about his role, because ordinarily the basic averment would be sufficient to
send him to trial and it could be argued that his further role could be brought
out in the trial. Quashing of a complaint is a serious matter. Complaint
cannot be quashed for the asking. For quashing of a complaint it must be
shown that no offence is made out at all against the Director."
35. I shall conclude my judgment quoting the observations of the Supreme Court, as
contained in paras 10 and 13, in the case of HMT Watches Ltd. v. M.A. Abida
[MANU/SC/0296/2015 : 2015 (3) Scale 832] as under:
"10. Having heard learned counsel for the parties, we are of the view that the
accused (respondent No. 1) challenged the proceedings of criminal complaint
cases before the High Court, taking factual defences. Whether the cheques
were given as security or not, or whether there was outstanding liability or
not is a question of fact which could have been determined only by the trial
court after recording evidence of the parties. In our opinion, the High Court
should not have expressed its view on the disputed questions of fact in a
petition under Section 482 of the Code of Criminal Procedure, to come to a
conclusion that the offence is not made out. The High Court has erred in law
in going into the factual aspects of the matter which were not admitted
between the parties. The High Court further erred in observing that Section
138(b) of N.I. Act stood uncomplied, even though the respondent No. 1
(accused) had admitted that he replied the notice issued by the complainant.
Also, the fact, as to whether the signatory of demand notice was authorized
by the complainant company or not, could not have been examined by the
High Court in its jurisdiction under Section 482 of the Code of Criminal
Procedure when such plea was controverted by the complainant before it."
"13. Lastly, it is contended on behalf of the respondent No. 1 that it was not
a case of insufficiency of fund, as such, ingredients of offence punishable
under Section 138 of the N.I. Act are not made out. We are not inclined to
accept the contention of learned counsel for respondent No. 1. In this
connection, it is sufficient to mention that in the case of Pulsive Technologies
P. Ltd. v. State of Gujarat MANU/SC/0725/2014 : [(2014) 9 SCALE 437 :
(AIR 2015 SC 910)], this Court has already held that instruction of "stop
payment" issued to the banker could be sufficient to make the accused liable
for an offence punishable under Section 138 of the N.I. Act. Earlier also in
Modi Cements Ltd. v. Kuchil Kumar Nandi MANU/SC/0171/1998 : (1998) 3
SCC 249 : (AIR 1998 SC 1057)], this Court has clarified that if a cheque is
dishonoured because of stop payment instruction even then offence
punishable under Section 138 of N.I. Act gets attracted."
36. In the overall view of the matter, I have reached to the conclusion that no case is
made out for the quashing of the two complaints under Section 138 of the Negotiable
Instruments Act.
37. Both the applications fail and are hereby rejected. Rule in both the applications
stands discharged. The ad-interim order earlier granted stands vacated.
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