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2014 DIGILAW 398 (GAU)

Don Ayengia v. State of Assam and Sri Haren Mudoi

2014-04-02

B.D.AGARWAL

body2014
JUDGMENT B.D. Agarwal, J. 1. In this case the moot question to be decided is as to whether a person indemnifying the holder of a cheque can be said to have legally enforceable debt or other liability towards the holder of the cheque when the payer defaults in payment of the cheque amount u/s. 138 of the Negotiable Instruments Act, 1881. The appeal and revision petition are directed against the judgment dated 09.11.2011, passed by the learned Sessions Judge in Criminal Appeal Nos. 9 of 2010, affirming the judgment of the learned Judicial Magistrate, passed in CR Case No. 270 of 2008 dated 05.01.2010, whereby the accused has been convicted u/s. 138 of the NI Act. 2. I have heard Sri A.K. Bhuyan, learned counsel for the appellant and the respondent/accused was represented by Sri AB Choudhury, learned senior counsel, who was ably assisted by Sri M.J. Baruah, learned counsel. Also heard Sri K Munir, Additional Public Prosecutor for the State of Assam. I have also gone through the impugned judgments and the oral and documentary evidence, proffered by both the parties. 3. The complaint u/s. 138 r/w S. 142 of the NI Act was filed by the appellant in Criminal Appeal No. 10 of 2012 pleading that the complainant was a partner of a firm, named and styled as M/S Ayaan Consortium. The said firm had entered into a development agreement with the accused No. 2, Nazimul Islam. The agreement was executed on 6.7.2007 and as per the terms and conditions of the agreement the complainant paid a sum of Rs.10 lakhs as advance to the accused Nazimul Islam against construction of a multi-storied building over a certain plot of land. However, the agreement could not materialize and it was cancelled by way of execution of a 'Promissory Note' on 13.8.2007. As per the terms of the Promissory Note the accused Nazimul Islam promised to refund the advance amount of Rs.10 lakhs to the complainant within a month and for a limited period of one month the said accused deposited as many as five cheques with the complainant as security. The accused Nazimul Islam further agreed to pay interest for one month for the delay in refunding the money. Though the accused Nazimul Islam promised to refund the loan amount within one month the post-dated cheques were issued on the date of execution of Promissory Note dated 13.8.2007. The accused Nazimul Islam further agreed to pay interest for one month for the delay in refunding the money. Though the accused Nazimul Islam promised to refund the loan amount within one month the post-dated cheques were issued on the date of execution of Promissory Note dated 13.8.2007. The cheques were dated 5.9.2007, 7.9.2007, 9.9.2007 and 11.9.2007 and those were deposited by the complainant in his bank even before the due date i.e. expiry of one month period of the Promissory Note. Cheques were presented in the bank twice. The fact of dishonour of the cheques in the first round came to be known to the complainant on 15.9.2007. On this date the accused No. 1/respondent Haren Mudoi came into picture. The respondent indemnified the complainant and ratified that earlier cheques, handed over to Nazimul Islam, were actually issued by him, by way of making an endorsement in the original Promissory Note. On the basis of this endorsement the complainant again deposited the cheques in his bank on 5.11.2007, only to be dishonoured by the bank. It was followed by a statutory Notice on 27.11.2007. The notice was replied by accused No. 1/respondent on 7.12.2007 through his lawyer, under Exhibit-21, denying that he had any knowledge of handing over of the cheques to the complainant by Nazimul Islam and also about the dishonour of the cheques due to insufficient fund prior to 25.9.2007 (sic 15.9.2007). Though the respondent also pleaded that he had no business relation with the complainant he took the responsibility to pay the whole amount of Rs.10 lakhs tentatively in the second week of January, 2008 by issuing fresh cheques. On the basis of the respondent's endorsement in the Promissory Note and his certain admissions in the reply to the notice of the complaint the respondent in Criminal Appeal No. 10 of 2012 has been convicted u/s. 138 of the NI Act. 3.1 Since there are counter appeal and revision petition I would refer the parties as complainant and accused herein after in this judgment. 4. As noted earlier five cheques were issued by the respondent and each cheque was of Rs.2 lakhs only. After the conviction of the respondent the trial court has sentenced the accused to undergo simple imprisonment for one year and also imposed compensation of Rs.12 lakhs. 4. As noted earlier five cheques were issued by the respondent and each cheque was of Rs.2 lakhs only. After the conviction of the respondent the trial court has sentenced the accused to undergo simple imprisonment for one year and also imposed compensation of Rs.12 lakhs. However, the appellate court has set aside the prison sentence and, instead, imposed a fine of Rs.2000/-, while upholding the compensation of Rs.12 lakhs. This modification in the sentence is under challenge in Criminal Appeal No. 10 of 2012 in view of the judgments of the Hon'ble Supreme Court, rendered in the case of Sivasuryian v. Thangavelu: reported in (2004) 13 SCC 795 and also the Judgment rendered by the Apex Court in the case of R. Vijayan v. Baby; reported in 2011 SAR (Criminal) 903. In these judgments, it has been held that both fine and compensation cannot be imposed together. At best the amount of fine can be imposed as compensation u/s. 357(3) of Code of Criminal Procedure, 1973. 5. Learned counsel for the accused/respondent has argued that in absence of any deed of guarantee the accused cannot be treated as a 'Guarantor' to hold him liable against the debts of the payer/drawer of the cheque. According to Sri Choudhury, learned senior counsel for the accused, the appellant at best can be treated as a mediator. The impugned judgments have also been assailed on the ground that neither the Promissory Note (Exhibit-2) nor the endorsement made thereon on 15.9.2007 (Exhibit-3) can transfer the liability from the principal debtor (A-2) to the mediator/accused No. 1. The appellant further argued that the cheques were handed over to accused No. 2, Nazimul Islam, only to be used as security with the complainant but the accused No. 1 never admitted his liability in unequivocal terms. Learned counsel for the accused further argued that even Exhibit-2 cannot be construed as a 'Promissory Note' within the meaning of Section 4 of the NI Act. The learned counsel for the appellant also relied on certain authorities from different High Courts, which will be discussed later. 6. Per contra, Sri Bhuyan, learned counsel for the complainant argued that the cheques were admittedly issued by the accused No. 1 and also there is no dispute that the cheques have been dishonoured by the bank on its presentation in the bank twice. 6. Per contra, Sri Bhuyan, learned counsel for the complainant argued that the cheques were admittedly issued by the accused No. 1 and also there is no dispute that the cheques have been dishonoured by the bank on its presentation in the bank twice. Sri Bhuyan further submitted that even if the accused was not the principal debtor he stepped into the shoes of the accused No. 2 and he has been rightly convicted u/s. 138 since he failed to discharge his liability. The learned counsel further submitted that section 138 provides prosecution and punishment to the persons who may not be the principal debtors but if it is found that they have some 'other liability' towards the holder of the cheque. In support of these submissions the learned counsel has cited some other judgments, which will be discussed hereinafter. 7. Referring to the endorsements made in the Promissory Note, admissions made in the lawyer's reply (Exhibit-21) and the admissions made in the oral deposition of the accused the learned counsel for the complainant submitted that the cheques were issued by the accused in the capacity of a guarantor, which falls under 'other liability' prescribed u/s. 138 of the NI Act. 8. To appreciate the rival submissions it is necessary to look at the Promissory Note and the endorsement made thereon minutely. Hence, the contents of Exhibit-2 and 3 are reproduced below in extenso: PROMISSORY NOTE Dated: 13.8.2007 I Shri Nazimul Islam S/o. Late Sirajul Islam resident of Bishnu Rabha Path Beltola do hereby declare that after mutual discussion between us (the parties) as per agreement dated 06/07/07 have decided to cancel the said agreement and as such the advance amount of Rs.10,00,000(Rupees Ten Lakhs) only shall be refunded within a period of one month from today. The amount is being refunded vide cheques Nos. 191254 dated 05.09.2007, 191255 dated 07.09.2007, 191256 dated 09.09.2007 191257 dated 11.09.2007 and cheque No. 191258 dated 13.09.2001 which has been acknowledged by Mr. Dhan Ayengia, resident of Nabagrah Road, Guwahati. It may here be mentioned that these cheques have been issued as a security and shall be returned to me as and when the payments are received from me, within the mentioned period. Further it may be also be mentioned that one month's bank interest shall be paid by me, after the payment is cleared, within the stipulated period. It may here be mentioned that these cheques have been issued as a security and shall be returned to me as and when the payments are received from me, within the mentioned period. Further it may be also be mentioned that one month's bank interest shall be paid by me, after the payment is cleared, within the stipulated period. (Nazimul Islam) 13.8.2007 The above cheques are issued by me to Nazimul Islam to deliver to Mr. Don Ayengia the cheques are already been bounce. Now, we have requested Mr. Dona Ayengia to represent the cheques after 25.09.2007 to contact me. 15.09.2007 (H. Mudoi) 9. In order to establish his case the complainant examined himself as PW-1. He also examined two officers from the bank to prove the fact of deposit and dishonour of the cheques. On the other hand, the accused No. 1 Haren Mudoi examined himself as DW-1. The accused No. 2 Nazimul Islam was murdered about a week prior to the filing of the complaint case in the court. Despite that the original debtor was impleaded as A-2 due to ignorance of his death by the complainant. 10. "Promissory Note" has been defined under Section 4 of the NI Act and the definition of promissory note is as below: A 'promissory note' is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. A few Illustrations as to what would constitute a promissory note and which instrument would not be construed so have also been appended to Section 4. As per the definition of 'Promissory Note' given under Section 4 and the illustrations, I hold that if X gives an undertaking to Y to pay a sum on certain conditions it would not amount to a promissory note in the eye of law. 11. In the instant case, the complainant's case is primarily based on the promissory note (Ext.-2) and the endorsement made thereon by the accused No. 1. In the first part of the so-called promissory note itself the principal debtor, Nazimul Islam himself declared that the cheques were being kept with the creditor as a security for one month. 11. In the instant case, the complainant's case is primarily based on the promissory note (Ext.-2) and the endorsement made thereon by the accused No. 1. In the first part of the so-called promissory note itself the principal debtor, Nazimul Islam himself declared that the cheques were being kept with the creditor as a security for one month. There is no clear stipulation that the cheques were issued by the debtor to the creditor as full and final payment of his liability. Even otherwise, the admitted fact is that the cheques mentioned in the first part of the promissory note were not in the name of Nazimul Islam (principal debtor) but the cheques belonged to the appellant, Haren Mudoi. At this stage, it would also be apposite to mention here that according to PW-2, cheques under Exhibits-4 to 8 were written in two different inks. In other words, the signatory was different and the contents of the cheques were written by some other person. This fact is in consonance with the defence case that the cheques were handed over by the accused No. 1 to accused No. 2, Nazimul Islam and not directly to the complainant. It is true that in view of the endorsement dated 15.09.2007 and the reply of the accused to the statutory notice A-1 had subsequently ratified that the cheques may be used by the complainant after 25.09.2007. However, these endorsements and admissions would not bring Exhibits-2 and 3 within the meaning of 'Promissory Note' defined under Section 4. 12. Under Explanation to Section 138 of the NI Act the "debt or other liability means a legally enforceable debt or other liability". Since the principal loan of Rupees Ten Lakhs was paid by the complainant to A-2 and since the respondent/A-1 herein was not a party to the original agreement dated 06.07.2007 the complainant cannot execute the promissory note and recover the amount from the respondent/A-1 by way of instituting a civil suit in a court. In my considered opinion, a debt which cannot be recovered in a civil suit cannot be allowed to be recovered by way of instituting a criminal case under Section 138 of the NI Act. 13. Sri Bhuyan, learned counsel for the appellant argued that a 'guarantor' stands on the same footing with that of the principal debtor. In my considered opinion, a debt which cannot be recovered in a civil suit cannot be allowed to be recovered by way of instituting a criminal case under Section 138 of the NI Act. 13. Sri Bhuyan, learned counsel for the appellant argued that a 'guarantor' stands on the same footing with that of the principal debtor. In support of this submission, the learned counsel referred to a judgment of the Apex Court, rendered in the case of ICDS Ltd. v. Bina Shabir (2002) 6 SCC 426 and a judgment of the Delhi High Court given in the case of Pratap Singh Yadav v. Atal Bihari Pandey (2003) Cri.L.J. 705. In the first case, a wife had issued a cheque to the creditor on behalf of her husband as a guarantor and in that context the Hon'ble Supreme Court held that a proceeding under Section 138 of the NI Act is maintainable. However, the Hon'ble Judges have reiterated the basic rule that to maintain a case u/s.138 the cheques should be issued against any other debt or other liability. I have already discussed the Explanation appended to Section 138 wherein it has been stipulated that the liability should be legally enforceable. In other words, the husband's liability is recoverable from the wife as a guarantor. However, in the case before me, there was no any contract of guarantee in between the complainant and Accused No. 1. In this way, the authority of ICDS Ltd. (supra) stands on different footing and is not applicable in the present case. 13.1 In the judgment of Delhi High Court, a son had issued a cheque to the creditor to discharge the liability of his father. When the cheque was bounced from the bank the payee lodged a case under Section 138 of the NI Act. When processes were issued by the court against father and son the accused persons approached the High Court for quashing of the criminal proceeding. The High Court quashed the proceeding against the father and held that when the cheque was issued by the son the proceeding would continue only against the son. However, in the case before me, there is no family relationship between the complainant and A-1 nor is there any legally enforceable debt of the accused towards the complainant. The High Court quashed the proceeding against the father and held that when the cheque was issued by the son the proceeding would continue only against the son. However, in the case before me, there is no family relationship between the complainant and A-1 nor is there any legally enforceable debt of the accused towards the complainant. Besides this, in Exhibit-2, there is a clear averment that the cheques were deposited with the payee only as a security and that too for a limited period. In the case of Sudhir Kumar Bhalla v. Jagdish Chand (2008) 7 SCC 137 , the Hon'ble Supreme Court has held that only those cheques, which are issued against a legally enforceable liability or debt, can attract the provisions of Section 138 and not against the cheques which are issued on account of security. In this way, the Delhi High Court judgment is also distinguishable on facts. 14. On the other hand, learned counsel for the respondent relied upon a judgment of the Kerala High Court, given in the case of Arumughan Pillai v. State of Kerala (2005 Cri.L.J. 3259). In this case, the complainant had a dispute with DW-1 and the second respondent played the role of mediator and he issued a cheque to the complainant/appellant to compromise the dispute. The dispute between the appellant and DW-1 led to filing of a civil case and ultimately, the appellant withdrew the civil case and no consideration was given to DW-1. Referring to Section 43 of the NI Act, the High Court has held that the cheque was issued by the mediator without any consideration. Hence, it would not create any obligation on the part of the drawer of the cheque. The case before me is squarely covered by the aforesaid decision. Here also, cheques were issued by the accused without any consideration nor against any business transaction nor as a guarantor. At best, the cheques were issued by A-1 to A-2 to be kept as collateral security with the complainant. However, such collateral security cannot be executed or enforced by way of filing a criminal proceeding under section 138 of the NI Act. 15. At best, the cheques were issued by A-1 to A-2 to be kept as collateral security with the complainant. However, such collateral security cannot be executed or enforced by way of filing a criminal proceeding under section 138 of the NI Act. 15. For the reasons, assigned hereinabove, I hold that no person can be convicted or prosecuted in a proceeding under Section 138 of the NI Act, who indemnifies the principal debtor for his liability towards the complainant unless such guarantor enters into an agreement with the holder of the cheque. In the present case, neither A-1/respondent had any legally enforceable debt towards the holder of the cheque nor did he stand as a guarantor on the basis of any valid contract of guarantee. Besides this, blank cheques were handed over to the principal debtor (A-2) to be kept as security against his liability and not against any legally recoverable debt or liability against A-1/respondent. Hence, the conviction of the respondent/petitioner in Criminal Revision Petition No. 41 of 2012 is against the law and is hereby set aside. 16. In the result, Criminal Revision Petition No. 41 of 2012 stands allowed. The conviction of the said petitioner, namely Haren Mudoi, vide impugned judgments, is hereby set aside. He is acquitted from the offence under Section 138 of the NI Act. In view of the aforesaid result, Criminal Appeal No. 10 of 2012, filed by the complainant has become infructuous and accordingly, the same is closed.