((-1-)) mst IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL APPLICATION NO.1145 OF 2008 Hindustan Construction Co.Ltd. Applicant versus The State of Maharashtra & ors. Respondents Mr.Amit Desai, Sr.Counsel i/by Prakash Naik for applicant. Mr.Shirish Gupte, Sr.Counsel i/by M/s.Dhruve Liladhar for respondents 3 to 5. Mr.Subhash Jha i/by M/s.Law Global for respondent no.2. Mr.J.P.Yagnik, APP for State. CORAM : A.S.OKA, J. DATE : 04th March 2009 P.C. :- 1. Heard learned senior counsel appearing for the applicant. I have heard learned senior counsel appearing for the third to fifth respondents as well as learned counsel appearing for the second respondent. 2. This is an application for grant of special leave under sub section 4 of section 378 of Code of Criminal Procedure, 1973. The second ((-2-)) respondent company is the first accused. Third to fifth respondents are respectively second, third and fifth accused. 3. the case made out by the applicant in complaint under section 138 read with section 141 of the Negotiable Instruments Act, 1881 (hereinafter referred to as "the said Act") is that the applicant company provided on the request of the first accused-company an intercorporate deposit of Rs.1.00 crore for a period of 180 days carrying interest @ 26% p.a.. According to the applicant, a sum of Rs.1.00 crore was paid to the first accused by cheque dated 19th March 1996. On 21st March 1996 the first accused forwarded to the applicant a post dated cheque towards principal amount of Rs.1.00 crore and two quarterly interest cheques. Apart from the post dated cheques, various documents such as demand promissory note and signature verification of the bankers was forwarded by the first respondent to the applicant. A security of four lakh shares of the first accused was also given by the first accused to the applicant. 4. Initially cheque dated 19th June 1996 ((-3-)) issued by the first accused for Rs.4,93,644/- towards interest was dishonoured. Later on, the said amount was paid by the first accused to the applicant by two bankers’ cheques. 5. On 12th September 1996 the accused no.2 requested the applicant to roll over the said intercorporate deposit for a further period of ninety days. By letter dated 27th November 1996, the applicant called upon the accused to repay the amount of deposit within fifteen days together with interest thereon. On 16th December 1996 the applicant deposited the cheque in the sum of Rs.1.00 crore as well as cheque in the sum of Rs.4,93,644/- dated 16th September 1996 and 17th September 1996 respectively for realisation. The said cheques were dishonoured on the ground of insufficient funds. Thereafter a notice of demand was issued by the applicant. After service of notice of demand the present complaint was filed. By the impugned order, the complaint has been dismissed. 6. Learned senior counsel appearing for the applicant has taken me through the complaint and other relevant documents on record. He ((-4-)) submitted that the learned Judge has passed an order of acquittal only on the ground that the cheques in dispute were not issued for consideration and the same were issued only by way of collateral security. He submitted that the learned Trial Judge has completely misunderstood the judgement of the Apex Court in the case of M.S.Narayana Menon @ Mani Vs. State of Kerala and another ([2006]6-SCC-39). He submitted that by the said decision the Apex Court has not held as a proposition of law that the post dated cheque or a cheque issued by way of security cannot be the basis of conviction under section 138 of the said Act. 7. The learned counsel appearing for the second respondent submitted that the Apex Court has held that a complaint under section 138 of the said Act is not maintainable on the basis of a cheque which was issued by the accused by way of security. He has placed reliance on several decisions including certain decisions of this Court. The learned senior counsel appearing for the third to fifth respondents submitted that the learned Trial Judge has taken a reasonable and probable view that the cheques in dispute were issued towards security ((-5-)) and has rightly passed the order of acquittal. He submitted that the authorised representative of the applicant has clearly admitted that the cheques were given by way of security. He submitted that in any case there was no case made out for proceeding against respondent nos.4 and 5 by invoking section 141 of the said Act. 8. I have carefully considered the submissions. Prima facie, it appears to me that there is no dispute between the parties that a sum of Rs.1.00 crore was paid by the applicant to the first accused company by way of intercorporate deposit. The amount was paid by cheque dated 19th March 1996 and the period of intercorporate deposit was 90 days. Out of three cheques issued by the first accused, the first one was dated 19th June 1996 in the sum of Rs.4,93,644/- towards interest on the intercorporate deposit. The said cheque was dishonoured but later on the amount payable under the said cheques was paid by the accused by two bankers’ cheques. The cheque in the sum of Rs.1.00 crore dated 17th September 1996 represented the amount of intercorporate deposit. The second cheque in the sum of ((-6-)) Rs.4,93,644/- dated 19th September 1996 represented the balance interest payable on the intercorporate deposit amount. These two cheques which are the subject matter of the complaint have been dishonoured. There does not seem to be any dispute regarding liability of the accused to repay the intercorporate deposit amount with interest. A perusal of the impugned order shows that the learned Trial Judge has relied upon the admissions given by the authorised representative of the applicant in the cross examination to the effect that the said two cheques were given as security for the repayment of loan amount with interest. The learned counsel appearing for the second respondent brought to my notice that more than one such admission is found in the cross examination of the authorised representative of the applicant. The learned Trial Judge held that the cheques in dispute were not issued by the first accused but the same were forwarded by the first accused for collateral purposes other than repayment. The learned Judge held that two cheques were not issued for the repayment of the liability of intercorporate deposit amount. However, they were forwarded as a security for the deposit amount. ((-7-)) 9. It will be necessary to refer to the decision of the Apex Court in the case of M.S.Narayanana Memon @ Mani (supra). The learned counsel appearing for the second respondent has placed reliance on what is held in paragraph 52 which reads thus :- "52. We, in the facts and circumstances of this case, need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be a part of the debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The appellant clearly said that nothing is due and the cheque was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefor cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act." From the said decision and in particular from the aforesaid paragraph it appears that before the Apex Court the case of the accused in a complaint under section 138 of the said Act was that there was nothing due and payable by him and that the cheque was issued by way of security. In the facts of the case before the ((-8-)) Apex Court the said defence was accepted as probable one. The Apex Court held that as the said defence that there was nothing due by the accused has been accepted as probable defence, the cheque cannot be said to have been issued in discharge of the debt. 10. It will be also necessary to refer to the another decision of the Apex Court in the case of Sudhir Kumar Bhalla Vs. Jagdish Chand and others ([2008]7-SCC-137). Paragraph 22 of the said decision reads thus :- "22. On examination of the abovestated findings of the learned Single Judge in the judgement impugned before us, we find that the learned Single Judge has not addressed himself on the legal question raised before him by the appellant that the criminal liability of the appellant under the provisions of Section 138 of the Act are attracted only on account of the dishonour of the cheques issued in discharge of liability or debt, but not on account of issuance of security cheques. ... ... ..." 11. It appears to me that by both the above referred decisions the Apex Court has not laid down as a proposition of law that the cheques issued by way of security for repayment of debt cannot be the subject matter of a complaint under section 138 of the said Act. The observations made by the Apex Court in the ((-9-)) aforesaid decisions, appear to be in the light of the facts of the case before it. 12. The learned counsel appearing for the second respondent has placed reliance on a decision of this Court in the case of Goa Handicrafts, Rural and Small Scale Industries Development Corporation Ltd. Vs. Samudra Ropes Pvt.Ltd. and others (2005-Cri.L.J.-4072). Paragraphs 17 and 18 of the said decision read thus :- "17. From the above discussion, it can be seen that all that the Accused is required to show is that the cheque either was issued not for any liability as for example when it is issued for the purpose of giving a donatior or for a purpose which is illegal and not enforceable etc. 18. In my view from the discussion of the evidence adduced by both parties it will have to be held that the Accused has successfully rebutted the presumption raised under Section 139 of the said Act in view of the clear admission given by P.W.I, Shirodkar in his cross-examination which is consistent with the stand taken by the Accused in his examination-in-chief. The cheque given by the Accused was, therefore, never meant to be deposited but was referred only as a sort of collateral security. This is clear from the evaluation of the evidence in paras 7 to 11 above. Such a cheque in my view would not entail the penal liability as envisaged under Section 138 of the said Act if it is deposited and is dishonoured. Secondly, from the aforesaid discussion, it can also be seen that the cheque in question ((-10-)) was not given for an existing debt or legally enforceable liability." This was a case where the stand of the accused was that the cheques issued by him were never meant to be deposited but it were issued only as some sort of a collateral security. Moreover, this Court found that the cheques in question were not given for an existing debt or legally enforceable liability. The learned counsel for the second respondent also placed reliance on another decision of Andhra Pradesh High Court in the case of Laxminivas Agarwal Vs. Andhra Semi Conductors Pvt.Ltd. and others (2006-Cri.L.J.-2643). In the facts of the said case the Andhra Pradesh High Court observed that the complainant had obtained blank signed cheque with a view to make use of it as a threat to the accused for the realisation of the amount and therefore it cannot be construed that the accused had issued the cheque voluntarily for discharge of any debt or legal liability. the learned counsel appearing for the second respondent placed reliance on another decision of this Court in the case of Titanor Components Ltd; Goa Vs. Techno Engineers, New Delhi and another in Criminal Appeal No.51 of 2006 decided on 21st ((-11-)) August 2008. It appears to me that the said decision is rendered in the light of peculiar facts of the case before this Court. The said fact is apparent from paragraph 12 of the said decision. Reliance was also sought to be placed on another decision of this Court in the case of Dinkar Ganpati Sali Vs. Alpesh Babulal Shah and another in Criminal Application No.5728 of 2005 decided on 14th August 2007. This was a case where this Court held that the loan repayable by the accused was already discharged and, therefore, the cheque could not be treated as one issued against the legally enforceable pecuniary liability. 13. The learned senior counsel appearing for the applicant has invited my attention to the decision of this Court in the case of Balagi Agencies Pvt. Ltd. Vs. Vilas Bagi of Bagi Package Ltd. and another (2008-ALL MR [Cri]-2230). This was a case where the accused had placed an order for supply of certain material with the complainant. In the facts of the case before this Court it was agreed that the complainant would give a rotating credit limit of Rs.5.00 lakhs against the deposit of undated cheque for Rs.5.00 lakhs by the ((-12-)) accused. The complainant addressed a letter to the accused demanding the outstanding amount of more than Rs.9.00 lakhs. The complainant called upon the accused to submit the bank guarantee covering the outstanding amount. By the said letter the complainant informed the accused that if the bank guarantee was not received before a particular date, the complainant would be forced to deposit the blank cheque which was given to the complainant as security. Thereafter as the accused did not respond, the complainant filled in the cheque and presented the cheque for encashment which was dishonoured. In paragraph no.20 this Court held thus :- "20. ... ... The accused did not dispute his liability to make the payment as was required by the Complainant nor informed the Complainant that the Complainant should not proceed with deposit of the said cheque to recover the amount due by the Complainant. The silence of the accused was taken as his consent, as it was bound to be so taken, and the Complainant proceeded to complete the cheque and deposit the same only to be returned with endorsement that the funds were insufficient." In paragraph no.21 of this decision this Court considered the meaning of the word "to secure" and observed thus :- ((-13-)) "21. ... ... Security is given, not as Security is given, not as Security is given, not as a piece of paper to be retained by the piece of paper to be retained by the piece of paper to be retained by the creditor creditor creditor but to be enforced when the but to be enforced when the but to be enforced when the debtor debtor debtor fails to pay the amount. In this fails to pay the amount. In this fails to pay the amount. In this case case case the subject cheque was given to the subject cheque was given to the subject cheque was given to assure assure assure the payment of the goods taken on the payment of the goods taken on the payment of the goods taken on credit credit credit by the accused and once payment by the accused and once payment by the accused and once payment was was was not forthcoming, nor the bank not forthcoming, nor the bank not forthcoming, nor the bank guarantee guarantee guarantee sought for by the Complainant, sought for by the Complainant, sought for by the Complainant, the the the Complainant was certainly entitled to Complainant was certainly entitled to Complainant was certainly entitled to enforce enforce enforce the security and this was done by the security and this was done by the security and this was done by the the the Complainant after due notice to the Complainant after due notice to the Complainant after due notice to the accused accused accused and in such a situation, in any and in such a situation, in any and in such a situation, in any humble humble humble view, it could not be said that view, it could not be said that view, it could not be said that the the the subject cheque was not given in subject cheque was not given in subject cheque was not given in payment payment payment of any debt or liability and only of any debt or liability and only of any debt or liability and only because because because it was given as security the it was given as security the it was given as security the accused accused accused would not be liable for dishonour would not be liable for dishonour would not be liable for dishonour of of of the same. the same. the same. What use is a security which cannot be enforced? Since the accused had not objected to the letter dated 16.3.1999 the Complainant was free to complete the details on the cheque, earlier given as security, and present the same to recover the amount due to the Complainant. In such a fact situation, the ratio of the Apex Court in I.C.D.S. Ltd. Vs. Beemna Shabeer, [2002(4) ALL MR 270 (S.C.)] (supra) was fully attracted. In other words, no doubt the In other words, no doubt the In other words, no doubt the cheque cheque cheque was issued as security but demand was issued as security but demand was issued as security but demand to to to clear that debt was made and upon clear that debt was made and upon clear that debt was made and upon failure, failure, failure, the security was enforced. the security was enforced. the security was enforced." (Emphasis added) This Court further proceeded to observe in paragraph no.25 that securities are given so that they can be enforced when need arises. They are not given as pieces of paper. In the aforesaid case the complainant after due notice to the accused that he would enforce the security in case the Bank Guarantee was not given proceeded to enforce the security by ((-14-)) depositing the cheque given by way of security and in such a situation it cannot be said that the provisions of Section 138 were not attracted. 14. Prima facie, it appears to me that the decisions of the Apex Court relied upon by the counsel for the second respondent cannot be read as decisions laying down ratio that the cheques issued by way of security can never be the basis of a complaint under section 138 of the said Act. That is also not the view taken by this Court in the decisions in the cases of Goa Handicrafts, Rural and Small Scale Industries Development Corporation Ltd. (supra), Titanor Components Ltd, Goa (supra) and Dinkar Ganpati Sali (supra). 15. In a prosecution under section 138 of the said Act a question may arise whether the cheque in question was issued towards legally enforceable debt or liability. If in the facts of the case a cheque is issued by way of security for repayment of debt payable by the accused and on the date on which the cheque was deposited, if there was no subsisting liability to pay the debt, the offence under section 138 ((-15-)) will not be attracted. In a given case, the accused can establish that the parties agreed that the cheque was not to be deposited. As an absolute proposition of law it cannot be held that a cheque issued by way of security for repayment of debt or liability cannot be the basis of a complaint under section 138 of the said Act. If a cheque is issued by way of security for repayment of loan by an accused and if the loan is not repaid within the time agreed, the creditor can always deposit the cheque as the cheque has been issued obviously towards the discharge of liability of the loan amount. To facilitate the recovery of the loan amount post dated cheques may be issued by a debtor of the date on which date the loan amount is to become due and payable. In such a case a complaint can be validly filed under section 138 of the said Act. 16. Therefore, prima facie, it appears to me that the view taken by the learned Trial Judge is erroneous. 17. The cheque was drawn on the account of the first accused company. The second accused was stated to be the Chairman of the first accused ((-16-)) at the relevant time. Therefore, leave will have to be granted as against second and third respondents (first and second accused). The fourth and fifth respondents have been shown as accused on the ground that they were the Directors of the first accused. However, I find that there are no material averments made in the complaint as well as in the affidavit in lieu of examination-in-chief in conformity with section 141 of the said Act as against respondents 4 and 5. Therefore, leave cannot be granted as against respondents 4 and 5. 18. Hence, I pass following order :- (a) The application stands dismissed as against respondent nos.4 and 5. Leave to prefer an appeal is granted confined to respondents 2 and 3 (accused nos.1 and 2). Appeal is admitted. 19. As advocates on record for the respondents 2 and 3 waive service, an action under section 390 of the Code of Criminal Procedure, 1973 is not necessary. (A.S.OKA, J.)