# SUNIL TODI & ORS v. STATE OF GUJARAT & ANR

- **Citation:** [2021] 9 S.C.R. 1086
- **Court:** Supreme Court of India
- **Decided:** 2021-12-03
- **Case number:** Criminal Appeal No. 1446 of 2021
- **Bench:** Dr. Dhananjaya Y Chandrachud, A. S. Bopanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sunil-todi-ors-v-state-of-gujarat-anr-35295
- **Pages:** 37

## Headnote

Negotiable Instruments Act, 1881 - ss.138, 141 - Code of
Criminal Procedure, 1973 - ss. 202, 203 and 482 - Dishonour of
cheque issued by way of security - A Power Supply Agreement (PSA)
was entered into between the second respondent and the company
- The PSA between the parties envisaged that the second respondent
would supply power to the company of which the appellants are
directors etc. - The agreement postulated that payment for the power
supplied would be made by means of Letter of Credit (LCs) - A
cheque post-dated 28.08.2017 in the amount of Rs.2,67,84,000/-
was issued by the company in favour of the respondent, with the
following endorsement on its reverse, "to be deposited after
confirmation only for security purpose" - The power supply had
commenced on 01.07.2016 - Though, the LCs' were provided, they
were allegedly not in a form acceptable to the bankers of the second
respondent - Bills were raised by the second respondent - The
company terminated its agreement with the second respondent -
Cheque issued by the company was deposited - Cheque was
dishonoured with a reason 'payment stopped by drawer' - Appellants
alleged offence u/s. 138 of the N.I. Act - A criminal complaint was
filed by the second respondent - Magistrate issued summons to the
appellants - Appellants filed petitions u/s.482 of Cr.P.C. - The High
Court dismissed the petitions for quashing the complaint - Before
the Supreme Court, the appellant contended that cheque was issued
for the purpose of security and not for encashment - Held: The
explanation to s.138 of the NI Act provides that 'debt or any other
liability' means a legally enforceable debt or other liability - The
term debt also includes a sum of money promised to be paid on a
future day by reason of a present obligation - A post-dated cheque
issued after the debt has been incurred would be covered by the
definition of 'debt' - However, if the sum payable depends on a
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contingent event, then it takes the color of a debt only after the
contingency has occurred - Therefore, in the present case, a debt
was incurred after the second respondent began supply of power
for which payment was not made because of the non-acceptance of
the LCs' - The appellants do not dispute that prior to the termination
of the agreement, power was supplied for a period of three months
to the company - Once payments for electricity supply became due
in terms of the PSA, and the company failed to discharge its dues,
the second respondent was entitled in law to present the cheque for
payment - Merely labelling the cheque as a security would not
obviate its character as an instrument designed to meet a legally
enforceable debt or liability, once the supply of power had been
provided for which there were monies due and payable - There is
no inflexible rule which precludes the drawee of a cheque issued
as security from presenting it for payment in terms of the contract.
Negotiable Instruments Act, 1881 - ss.138, 141 - Code of
Criminal Procedure, 1973 - ss. 202, 203 and 482 - Dishonour
of cheque issued by way of security - A Power Supply Agreement
(PSA) was entered into between the second respondent and the
company - A cheque post-dated 28.08.2017 in the amount of
Rs.2,67,84,000/- was issued by the company in favour of the
respondent, with the following endorsement on its reverse, "to be
deposited after confirmation only for security purpose" - The power
supply had commenced - Bills were raised by the second respondent
- The company terminated its agreement with the second respondent
- Cheque issued by the company was deposited - Cheque was
dishonoured with a reason 'payment stopped by drawer' - Appellants
alleged offence u/s. 138 of the N.I. Act - A criminal complaint was
filed by the second respondent - Magistrate issued summons to the
appellants - The accused persons in the present case resided at
Aurangabad while the complaint u/s. 138 was filed before the
Magistrate in Mundra - The argument of the appe

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SUPREME COURT REPORTS
[2021] 9 S.C.R.
 [2021] 9 S.C.R. 1086
1086
SUNIL TODI & ORS.
 v.
STATE OF GUJARAT & ANR.
(Criminal Appeal No. 1446 of 2021)
DECEMBER 03, 2021
[DR. DHANANJAYA Y CHANDRACHUD
AND A. S. BOPANNA, JJ.]
Negotiable Instruments Act, 1881 - ss.138, 141 - Code of
Criminal Procedure, 1973 - ss. 202, 203 and 482 - Dishonour of
cheque issued by way of security - A Power Supply Agreement (PSA)
was entered into between the second respondent and the company
- The PSA between the parties envisaged that the second respondent
would supply power to the company of which the appellants are
directors etc. - The agreement postulated that payment for the power
supplied would be made by means of Letter of Credit (LCs) - A
cheque post-dated 28.08.2017 in the amount of Rs.2,67,84,000/-
was issued by the company in favour of the respondent, with the
following endorsement on its reverse, "to be deposited after
confirmation only for security purpose" - The power supply had
commenced on 01.07.2016 - Though, the LCs' were provided, they
were allegedly not in a form acceptable to the bankers of the second
respondent - Bills were raised by the second respondent - The
company terminated its agreement with the second respondent -
Cheque issued by the company was deposited - Cheque was
dishonoured with a reason 'payment stopped by drawer' - Appellants
alleged offence u/s. 138 of the N.I. Act - A criminal complaint was
filed by the second respondent - Magistrate issued summons to the
appellants - Appellants filed petitions u/s.482 of Cr.P.C. - The High
Court dismissed the petitions for quashing the complaint - Before
the Supreme Court, the appellant contended that cheque was issued
for the purpose of security and not for encashment - Held: The
explanation to s.138 of the NI Act provides that 'debt or any other
liability' means a legally enforceable debt or other liability - The
term debt also includes a sum of money promised to be paid on a
future day by reason of a present obligation - A post-dated cheque
issued after the debt has been incurred would be covered by the
definition of 'debt' - However, if the sum payable depends on a
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contingent event, then it takes the color of a debt only after the
contingency has occurred - Therefore, in the present case, a debt
was incurred after the second respondent began supply of power
for which payment was not made because of the non-acceptance of
the LCs' - The appellants do not dispute that prior to the termination
of the agreement, power was supplied for a period of three months
to the company - Once payments for electricity supply became due
in terms of the PSA, and the company failed to discharge its dues,
the second respondent was entitled in law to present the cheque for
payment - Merely labelling the cheque as a security would not
obviate its character as an instrument designed to meet a legally
enforceable debt or liability, once the supply of power had been
provided for which there were monies due and payable - There is
no inflexible rule which precludes the drawee of a cheque issued
as security from presenting it for payment in terms of the contract.
Negotiable Instruments Act, 1881 - ss.138, 141 - Code of
Criminal Procedure, 1973 - ss. 202, 203 and 482 - Dishonour
of cheque issued by way of security - A Power Supply Agreement
(PSA) was entered into between the second respondent and the
company - A cheque post-dated 28.08.2017 in the amount of
Rs.2,67,84,000/- was issued by the company in favour of the
respondent, with the following endorsement on its reverse, "to be
deposited after confirmation only for security purpose" - The power
supply had commenced - Bills were raised by the second respondent
- The company terminated its agreement with the second respondent
- Cheque issued by the company was deposited - Cheque was
dishonoured with a reason 'payment stopped by drawer' - Appellants
alleged offence u/s. 138 of the N.I. Act - A criminal complaint was
filed by the second respondent - Magistrate issued summons to the
appellants - The accused persons in the present case resided at
Aurangabad while the complaint u/s. 138 was filed before the
Magistrate in Mundra - The argument of the appellants is that in
these circumstances, the Magistrate was duty bound to postpone
the issuance of process and to either enquire into the case himself
or to direct an investigation either by a police officer or by some
other person - It was further contended that the summoning order
showed non-application of mind - Held: Under Sub-Section (1) of
s.202, a Magistrate upon the receipt of a complaint of an offence
of which he/she is authorized to take cognizance is empowered to
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postpone the issuance of process against the accused and either (i)
enquire into the case; or (ii) direct an investigation to be made by a
police officer or by such other person as he thinks fit - If the
Magistrate holds an inquiry himself, it is not compulsory that he
should examine witnesses and in suitable cases the Magistrate can
examine documents to be satisfied that there are sufficient grounds
for proceeding u/s. 202 - In the present case, the Magistrate has
adverted to: (i) The complaint; (ii) The affidavit filed by the
complainant; (iii) The evidence as per evidence list and; and (iv)
The submissions of the complainant - The order passed by the
Magistrate cannot be held to be invalid as betraying a nonapplication of mind - As it is settled that in determining the question
as to whether process is to be issued, the Magistrate has to be
satisfied whether there is sufficient ground for proceeding and not
whether there is sufficient ground for conviction.
Dismissing the appeals, the Court
HELD: 1. In the present case, the Power Supply Agreement
(PSA) between the parties envisaged that the second respondent
would supply power to the company of which the appellants are
directors or as the case may be, managing director. The
agreement postulated that payment for the power supplied would
be made by means of Letter of Credits (LCs). Though, the LCs'
were provided, they were allegedly not in a form acceptable to
the bankers of the second respondent. The appellants do not
dispute that prior to the termination of the agreement, power
was supplied for a period of three months to the company. In
other words, the agreement for the supply of power was acted
upon and power was supplied to by the second respondent and
consumed by the company. [Para 23][1106-F-H]
2. The explanation to Section 138 of the NI Act provides
that 'debt or any other liability' means a legally enforceable debt
or other liability. The term debt also includes a sum of money
promised to be paid on a future day by reason of a present
obligation. A post-dated cheque issued after the debt has been
incurred would be covered by the definition of 'debt'. However,
if the sum payable depends on a contingent event, then it takes
the color of a debt only after the contingency has occurred.
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Therefore, in the present case, a debt was incurred after the
second respondent began supply of power for which payment was
not made because of the non-acceptance of the LCs'. The issue
to be determined is whether Section 138 only covers a situation
where there is an outstanding debt at the time of the drawing of
the cheque or includes drawing of a cheque for a debt that is
incurred before the cheque is encashed. [Para 25][1107-B-C;
1108-A-C]
3. The object of the NI Act is to enhance the acceptability
of cheques and inculcate faith in the efficiency of negotiable
instruments for transaction of business. The purpose of the
provision would become otiose if the provision is interpreted to
exclude cases where debt is incurred after the drawing of the
cheque but before its encashment. The true purpose of Section
138 would not be fulfilled, if 'debt or other liability' is interpreted
to include only a debt that exists as on the date of drawing of the
cheque. Moreover, Parliament has used the expression 'debt or
other liability'. The expression "or other liability' must have a
meaning of its own, the legislature having used two distinct
phrases. The expression 'or other liability' has a content which
is broader than 'a debt' and cannot be equated with the latter. In
the present case, the cheque was issued in close proximity with
the commencement of power supply. The issuance of the cheque
in the context of a commercial transaction must be understood in
the context of the business dealings. The issuance of the cheque
was followed close on its heels by the supply of power. To hold
that the cheque was not issued in the context of a liability which
was being assumed by the company to pay for the dues towards
power supplied would be to produce an outcome at odds with the
business dealings. If the company were to fail to provide a
satisfactory LC and yet consume power, the cheques were capable
of being presented for the purpose of meeting the outstanding
dues. [Para 26][1108-D-H]
4. Once payments for electricity supply became due in
terms of the PSA, and the company failed to discharge its dues,
the second respondent was entitled in law to present the cheque
for payment. Merely labelling the cheque as a security would not
obviate its character as an instrument designed to meet a legally
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enforceable debt or liability, once the supply of power had been
provided for which there were monies due and payable. There is
no inflexible rule which precludes the drawee of a cheque issued
as security from presenting it for payment in terms of the contract.
It all depends on whether a legally enforceable debt or liability
has arisen. [Para 27][1109-B-D]
5. Under Sub-Section (1) of Section 202, a Magistrate upon
the receipt of a complaint of an offence of which he/she is
authorized to take cognizance is empowered to postpone the
issuance of process against the accused and either (i) enquire
into the case; or (ii) direct an investigation to be made by a police
officer or by such other person as he thinks fit. The purpose of
postponing the issuance of process for the purposes of an enquiry
or an investigation is to determine whether or not there is
sufficient ground for proceeding. However, it is mandatory for
the Magistrate to do so in a case where the accused is residing
at a place beyond the area in which the Magistrate exercises
jurisdiction. The accused persons in the present case reside at
Aurangabad while the complaint under Section 138 was filed
before the Magistrate in Mundra. The argument of the appellants
is that in these circumstances, the Magistrate was duty bound to
postpone the issuance of process and to either enquire into the
case himself or to direct an investigation either by a police officer
or by some other person. [Para 32][1111-E-H]
6. Section 145 of the NI Act provides that evidence of
the complainant may be given by him on affidavit, which shall
be read in evidence in an inquiry, trial or other proceeding
notwithstanding anything contained in the CrPC. The Constitution
Bench held that Section 145 has been inserted in the Act, with
effect from 2003 with the laudable object of speeding up trials in
complaints filed under Section 138. Hence, the Court noted that
if the evidence of the complainant may be given by him on affidavit,
there is no reason for insisting on the evidence of the witnesses
to be taken on oath. Consequently, it was held that Section 202(2)
CrPC is inapplicable to complaints under Section 138 in respect
of the examination of witnesses on oath. The Court held that the
evidence of witnesses on behalf of the complainant shall be
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permitted on affidavit. If the Magistrate holds an inquiry himself,
it is not compulsory that he should examine witnesses and in
suitable cases the Magistrate can examine documents to be
satisfied that there are sufficient grounds for proceeding under
Section 202. [Para 38][1118-A-D]
7. In the present case, the Magistrate has adverted to: (i)
The complaint; (ii) The affidavit filed by the complainant; (iii) The
evidence as per evidence list and; and (iv) The submissions of
the complainant. [Para 39][1118-E]
8. The order passed by the Magistrate cannot be held to
be invalid as betraying a non-application of mind. In Dy. Chief
Controller of Imports & Exports v. Roshanlal Agarwal, this Court
has held that in determining the question as to whether process
is to be issued, the Magistrate has to be satisfied whether there
is sufficient ground for proceeding and not whether there is
sufficient ground for conviction. Whether the evidence is
adequate for supporting the conviction can only be determined
at the trial. [Para 40][1118-F-G]
9. The High Court did not quash the complaint against the
appellants since it was prima facie established that they were
triable for dishonour of cheque. Section 141 of the NI Act
stipulates that if a company is alleged to have committed an
offence under Section 138, then every person who 'was in charge
of, and responsible to, the company for the conduct of the business
of the company' shall also be deemed guilty of the offence. The
proviso provides an exception if she proves that the offence was
committed without her knowledge or that she had exercised due
diligence. [Paras 41-42][1119-G-H; 1120-A]
10. The test to determine if the Managing Director or a
Director must be charged for the offence committed by the
Company is to determine if the conditions in Section 141 of the
NI Act have been fulfilled i.e., whether the individual was incharge of and responsible for the affairs of the company during
the commission of the offence. However, the determination of
whether the conditions stipulated in Section 141 of the Act have
been fulfilled is a matter of trial. There are sufficient averments
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in the complaint to raise a prima facie case against them. It is
only at the trial that they could take recourse to the proviso to
Section 141 and not at the stage of issuance of process.
[Para 44][1122-D-E]
11. In the present case, it is evident that the principal
grounds of challenge which have been set up on behalf of the
appellants are all matters of defence at the trial. The Magistrate
having exercised his discretion, it was not open to the High Court
to substitute its discretion. The High Court has in a carefully
considered judgment, analysed the submissions of the appellants
and for justifiable reasons has come to the conclusion that they
are lacking in substance. [Para 45][1122-F]
HMT Watches v. MA Habida (2015) 11 SCC
776 : [2015] 3 SCR 719; Mehmood UI Rehman v. Khazir
Mohammad Tunda (2015) 12 SCC 420 : [2015] 4 SCR
841; Birla Corporation Ltd. v. Adventz Investments and
Holdings (2019) 16 SCC 610 : [2019] 7 SCR 655;
Krishna Lal Chawla v. State of U.P (2021) 5 SCC 435
: 2021 AIR 1381; Re: Expeditious Trial of Cases under
Section 138 of N.I. Act 1881 Suo Motu Writ Petition
(Crl) No. 2 of 2020, decided on 16 April 2021; SMS
Pharmaceuticals v. Neeta Bhalla (2005) 8 SCC
89 : [2005] 3 Suppl. SCR 371; Mainuddin Abdul Sattar
Shaikh v. Vijay D Salvi (2015) 9 SCC 622 : [2015] 6
SCR 1033 - relied on.
Indus Airways Private Limited v. Magnum Aviation
Private Limited (2014) 12 SCC 539 : [2014] 5 SCR
56; Sampelly Satyanarayana Rao v. Indian Renewable
Energy Development Agency Limited (2016) 10 SCC
458 : [2016] 6 SCR 531; Sripati Singh v. State of
Jharkhand 2021 SCC OnLine SC 1002; Keshoram
Industries v. CWT AIR 1966 SC 1370; M/s Womb
Laboratories Pvt Ltd v. Vijay Ahuja Criminal Appeal
Nos 1382-1383 of 2019, decided on 11 September 2019;
Vijay Dhanuka v. Najima Mamtaj (2014) 14 SCC 638 :
[2014] 4 SCR 171; Pepsi Foods Ltd. v. Special Judicial
Magistrate (1998) 5 SCC 749 : [1997] 5 Suppl. SCR
12; Abhijit Pawar v. Hemant Madhukar Nimbalkar
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(2017) 3 SCC 528 : [2016] 9 SCR 475; Dy. Chief
Controller of Imports & Exports v. Roshanlal Agarwal
(2003) 4 SCC 139 : [2003] 2 SCR 621; Bhushan Kumar
v. State (NCT of Delhi (2012) 5 SCC 424 : [2012] 2
SCR 696; Sunil Bharati Mittal v. CBI (2015) 4 SCC
609 : [2015] 1 SCR 377 - referred to.
Banchharam Majumdar v. Adyanath Bhattacharjee
(1909) ILR 36 Cal 936 - referred to.
Lindey L.J in Webb v. Strention 1888 QBD 518; People
v. Arguello 1869 37 Calif 524 - referred to.
Case Law Reference
[2014] 5 SCR 56
referred to
Para 18
[2016] 6 SCR 531
referred to
Para 20
[2015] 3 SCR 719
relied on
Para 21
[2014] 4 SCR 171
referred to
Para 33
[2015] 4 SCR 841
relied on
Para 34
[1997] 5 Suppl. SCR 12
referred to
Para 34
[2016] 9 SCR 475
referred to
Para 34
[2019] 7 SCR 655
relied on
Para 36
[2003] 2 SCR 621
referred to
Para 40
[2012] 2 SCR 696
referred to
Para 40
[2015] 1 SCR 377
referred to
Para 42
[2005] 3 Suppl. SCR 371
relied on
Para 43
[2015] 6 SCR 1033
relied on
Para 43
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No.1446 of 2021.
From the Judgment and Order dated 26.06.2019 of the High Court
of Gujarat at Ahmedabad in Special Criminal Application No.9754 of
2017.
With
Criminal Appeal No.1447 of 2021.
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR.
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Sidharth Luthra, Ms. Meenakshi Arora, Sr. Advs., Debmalya C.
Banerjee, Samarjit Pattnaik, Rohan Sharma, Vikas Gogne, Kartik
Bhatnagar, Puneet Relan, Irfan Muzamil, Rahul Totala, Nicholas
Choudhury, Ujjwal Singh, Anmol, Rahul Tyagi, M/s Karanjawala & Co.,
Advs. for the Appellants.
Mohit Mathur, Ms. Rebecca John, Sr. Advs., Aman Gupta, Ms.
Aastha Mehta, Ms. Deepanwita Priyanka, Ms. Prerna Mohapatra, Advs.
for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
1. A Single Judge of the High Court of Gujarat dismissed the
petitions under Section 482 of the Code of Criminal Procedure, 19731,
instituted by the appellants to quash the criminal complaint2 instituted by
the second respondent for offences punishable under Section 138 of the
Negotiable Instruments Act, 18813, and challenge an order of summons
dated 3 November 2017 of the JMFC Mundra on the complaint. The
complaint arises from the dishonour of a cheque in the amount of
Rs.2,67,84,000/-. In the two appeals which arose from the order of the
High Court, the appellants are respectively,four Directors4 and the
Managing Director5 of a company by the name of R.L. Steels & Energy
Limited6.
2. The background in which the controversy has arisen needs to
be noticed. On 19 December 2015, a Letter of Intent was issued by the
company to the second respondent for providing uninterrupted power
supply at the plant of the company situated at Aurangabad in Maharashtra.
Clause (k) of the Letter of Intent envisages that all payments would be
made within sixty days through a Letter of Credit7 to be opened by the
company. On 29 April 2016, an email was addressed by the company
stating that payment security would be by cheque for an amount
equivalent to the quantum of energy to be scheduled for forty-five days.
Payments for monthly billing were to be made by LC within seven days
1"CrPC"
2 CC No. 1220 of 2017
3"NI Act"
4SLP (Crl) 6590/ 2019
5SLP (Crl) 6995/2019
6"Company"
7"LC"
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of the receipt of bills. This was agreed upon in a communication dated
30 April 2016 addressed on behalf of the second respondent. On 30
June 2016, the company addressed a communication to the second
respondent that it was issuing two cheques "only for security deposit"
and that the cheques were to be deposited "after getting confirmation
only". The details of the cheques were :
Cheque No.
Amount
013287
13392000/-
013286
26784000/-
3. A cheque post-dated 28 August 2017 in the amount of
Rs.2,67,84,000/- was accordingly issued with the following endorsement
on its reverse: "to be deposited after confirmation only for security
purpose". The power supply commenced from 1 July 2016. On 4 July
2016, the company addressed a communication to its banker, Karur Vysya
Bank, requesting to stop payment of the above two cheques. On 24 July
2016, a Power Supply Agreement8 was entered into between the second
respondent and the company. The agreement envisages that the company
would make payment to the second respondent on the tenthday of every
calendar month by a LC. Clause 2.5.1 of the agreement stipulated thus:
"2.5.1 The Member Consumer shall on the date of execution of
this Agreement or not later than 30 (thirty) days prior to the Date
of Commencement of Supply furnish to GENERATOR an BG/
postdated cheque of 45 days energy bill, in a form and substance
acceptable to the Generator, for an amount equal to energy charge
payable for the Contracted Capacity, from any Indian Bank
acceptable to the Generator."
4. The relevant terms of the Power Supply Agreement were as
follows:
(a)
Letter of Credit - Under Clause 2.5, the company was
required to make payments for the power supply through
LCs'. Clause 2.6 envisages that the Company would issue
a LC in accordance with the requirements of the second
respondent's Bank;
(b)
Payment Date and Delay Penalty- Under Clause 2.7, the
Company was required to make payment on the tenth day
8"PSA"
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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of every month; in default of which a late payment charge
of fifteen per cent per annum would be payable;
(c)
Default in Payments - Clause 8.2 provided that parties
would be bound by the obligations even in the case of a
dispute, unless there was a failure of payment without
justification; and
(d)
Entire Agreement - Clause 14 provided that the PSA
shall represent the entire agreement, and supersede and
extinguish any previous drafts, agreements or
understandings.
5. On 10 August 2016, 12 September 2016 and 27 September
2016, three LCs' favouring the second respondent were issued by Punjab
National Bank at the behest of the company.
6. According to the complaint, the LCs' provided by the company
were not in the format required by their bankers. The company was
stated to have been informed of this position in an exchange of emails in
spite of which, it is alleged that it failed to provide LCs in the correct
format.
7. On 4 August 2016, the second respondent raised a provisional
bill for Rs.1,77,56,157/- for electricity supplied during the period from 1
July 2016 to 31 July 2016. On 27 August 2016, an invoice for
Rs.1,66,48,028/- was issued for power supply during the month of July
2016. On 1 September 2016, an invoice was raised in the amount of
Rs.2,17,24,875/- for power supplied during August 2016. On 1 October
2016, an invoice was raised in the amount of Rs.2,19,18,186/- for power
supplied during September 2016.
8. On 20 October 2016, the company terminated its agreement
with the second respondent. The cheque which was issued by the
company was deposited on 28 August 2017. On 18 September 2017, a
legal notice was issued by the second respondent to the appellants alleging
the commission of offences under Section 138 of the NI Act. It was
alleged in the notice that according to the ledger maintained by the second
respondent in its books of account, a sum of Rs.6,02,91,089/- remained
outstanding. The notice alleged that the appellants had issued a cheque
dated 28 August 2017 drawn on Karur Vysya Bank, Aurangabad which
had been dishonoured for the reason of 'payment stopped by drawer'.
A reply dated 5 October 2017, was addressed in response to the legal
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notice. It was stated that the cheque that was issued was only for the
purpose of Security and not for encashment.
9. On 2 November 2017, a criminal complaint was filed by the
second respondent in the court of the Additional Chief Judicial Magistrate,
Mundra against the appellants seeking issuance of summons and
imposition of fine of Rs. 5,35,68,000. An affidavit was filed on 3 November
2017, in support of the complaint. On 6 November 2017, the Magistrate
issued summons to the appellants. The appellants instituted petitions under
Section 482 of the CrPC for quashing of the criminal complaint.
Simultaneously, the complainant filed a Regular Civil Suit for recovery
of dues.
10. By the impugned judgment and order dated 24 June 2019, the
High Court has dismissed the petitions for quashing the complaint.
However, it allowed a petition for quashing filed by a nominee director
who was not in-charge of the day-to-day management of the company
and by a woman non-executive Director. The reasons that guided the
High Court for dismissing the petitionareas follows:
(i)
The issues pertaining to the issuance of cheques, nonpayment of electricity charges, issuance of LCs, among
others, are questions of fact. They will have to be decided
by the trial court;
(ii)
The complaint appears to be genuine. The High Court cannot
exercise its jurisdiction under Section 482 CrPC unless it is
established that there was an ulterior motive behind the
initiation of criminal proceedings; and
(iii)
Both civil and criminal proceedings are maintainable on the
same set of facts, as in this case.
11. Mr. Sidharth Luthra and Ms. Meenakshi Arora, learned senior
counsel have appeared on behalf of the appellants in support of the
appeals. Mr. Mohit Mathur and Ms Rebecca John, learned senior counsel
have appeared on behalf of the second respondent. Ms. Aastha Mehta,
learned counsel appeared on behalf of the State of Gujarat.
12. Mr. Sidharth Luthra, learned senior counsel has urged three
submissions in support of the appeals:
(i)
The cheques which were issued to the second respondent
were intended at all material times to be a security towards
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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payment. This is evident from the endorsement made on
the reverse of the cheque in the amount of Rs.2,67,84,000/
- dated 28 August 2017, and is buttressed by the stipulation
under PSA that payment was to take place by means of
LC. A suit has been instituted by the company against the
second respondent in the court of the Civil Judge, Senior
Division, RCS 15/2017 in which the defence in the written
statement is that:
a.
There was a default by the company in the payment
of electricity consumption charges from July to
September 2016; and
b.
Though the company had issued LC to cover the
dues of the electricity bills/ invoices, it had intentionally
avoided to furnish them in terms of the draft LCs'
furnished by the bankers of the company. In the suit
instituted by the second respondent against the
company, being CS 236/2019 before the High Court
of Judicature at Madras, the pleading in paragraph 8
of the plaint is that the cheques were issued by way
of security:
"8. As agreed between the parties, the Defendant thereafter
by its issued two cheques bearing Nos.013287 & 013286
of amount of Rs.1,33,92,000/- (One Crore Thirty Three
Lakhs and Ninety Two Thousand only) and Rs.2,67,84,000/
- (Two Crores and Sixty Seven Lakhs and Eighty Four
Thousand Only) respectively as security deposit to the
Plaintiff on the condition that the cheques were to be
deposited after obtaining permission. The Plaintiff states
that the same was accepted, and the condition was further
incorporated under Clause 2.5.1 of the PSA. The associated
cheques are filed herewith as Plaint Document No.5 (Colly).
However, the Defendant subsequently vide letter dated
04.07.2016 ordered their bank to stop payment of their
cheques. The communication is filed herewith as Plaint
Document No.6."
Consequently, since the cheques have been issued by way of
security and were not intended to be deposited, the institution of a
complaint under Section 138 is an abuse of the process. Therefore,
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the invocation of the jurisdiction under Section 482 CrPC is
justified;
(ii)
Section 202 CrPC envisages the postponement of the
issuance of process where the accused resides beyond the
jurisdiction of the territory of the court. Despite the clear
provisions of Section 202, no inquiry was carried out by the
Magistrate; and
(iii)
The summoning order shows non-application of mind
inasmuch as no reasons have been adduced by the
Magistrate.
In this backdrop, the following sequence of events was emphasized
in the course of the submissions:
•
10 August 2016 : issuance of LC;
•
30 September 2016: complainant stopped the supply of
power;
•
20 October 2016: termination of the PSA by the company;
•
30 June 2017: instructions issued to the bankers to stop
payment;
•
31 August 2017: presentation of the cheques;
•
2 November 2017: complaint under Section 138 filed;
•
3 November 2017: affidavit filed in support of the complaint;
and
•
6 November 2017: summoning order issued.
13. On the basis of the above sequence of events, it has been
submitted that recourse to the filing of a complaint under Section 138 of
NI Act is an abuse of the process. In the course of evaluating the
submissions, the line of precedent to which a reference has been made
would be considered.
14. Ms. Meenakshi Arora, learned senior counsel submitted that
a clear case for the invocation of the jurisdiction under Section 482 CrPC
was established for the following reasons:
(i)
Though the contract was terminated on 20 October 2016
by the company, the cheques were presented to the bank
only on 31 August 2017;
SUNIL TODI & ORS. v. STATE OF GUJARAT & ANR.
[DR. DHANANJAYA Y CHANDRACHUD, J.]
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(ii)
The fact that the cheques were issued towards security for
payment is evident from the endorsement on the reverse of
the cheques and from the admission in paragraph 8 of the
plaint instituted by the second respondent in the High Court
of Madras;
(iii)
Under the terms of the PSA, payment was envisaged to be
made through LC and not by cheque;
(iv)
A civil suit has been instituted by the second respondent for
the recovery of its dues;
(v)
MSEDCL has raised an additional charge which has been
occasioned by the default of the second respondent; and
(vi)
Apart from the bald statement that the Directors are incharge of and responsible for the management of the
company, no specific role has been ascribed to them in the
plaint so as to invoke the doctrine of vicarious liability.
15. On the other hand, Mr. Mohit Mathur and Ms. Rebecca John,
learned senior counsel appearing on behalf of the second respondent
have submitted that:
(i)
The High Court has noted in the impugned judgment that
there is no dispute in regard to the liability of the company
for electricity supplied during the months of August,
September and October 2016;
(ii)
Though the PSA envisaged that payment would be made
through LC, they could not be honoured because the LC
were not in a format acceptable to the Bankers of the second
respondent;
(iii)
The Law does not prohibit the invocation of Section 138 of
the NI Act even in a situation where the cheques have
been issued initially as a security;
(iv)
The summoning order of the Magistrate conforms to law.
The complaint was instituted on 2 November 2017 and was
duly supported by an affidavit dated 3 November 2017. A
summoning order is not required to furnish detailed reasons
particularly in a case under Section 138 of the NI Act, having
due regard to the summary nature of the proceedings; and
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(v)
The complaint spells out the role attributed to the Directors
and prima facie at this stage, the test of vicarious liability is
duly met.
On the above premises, it has been submitted that there is no
reason for this Court, to interfere with the judgment of the High Court
since detailed reasons have been furnished by the High Court for rejecting
the petitions under Section 482 of the CrPC.
16. Ms. Aastha Mehta, learned counsel for the State of Gujarat
has submitted that the trial has not proceeded since 2017 due to the
pendency of the proceedings before the High Court and this Court.
Learned counsel urged that there is no ground to interfere with the order
of the High Court.
17. The issues which arise for our consideration are as follows:
(i)
Whether the dishonor of a cheque furnished as a 'security'
is covered under the provisions of Section 138 of the NI
Act;
(ii)
Whether the Magistrate, in view of Section 202 CrPC, ought
to have postponed the issuance of process; and
(iii)
Whether a prima facie case of vicarious liability is made
out against the appellants.
18. The first submission which has been urged on behalf of the
appellants is that a complaint under Section 138 of the NI Act would not
be maintainable since the cheque of Rs 2.67 crores was issued by way
of a security and,is thus not against a legally enforceable debt or liability.
The appellant has placed reliance on the judgment of a two judge Bench
of this Court in Indus Airways Private Limited v. Magnum Aviation
Private Limited9.The issue in that case was whether the post-dated
cheques which were issued by the appellants who were purchasers, as
an advance payment in respect of purchase orders, could be considered
to be in discharge of a legally enforceable debt or other liability and
whether the dishonor of the cheques amounted to an offence under
Section 138. The appellants had placed two purchase orders for the
supply of aircraft parts with the first respondent and had issued two
post-dated cheques as advance payment. The supplier received a letter
from the purchasers cancelling the purchase and requesting the return
9 (2014) 12 SCC 539
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[DR. DHANANJAYA Y CHANDRACHUD, J.]
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of both the cheques. Following a notice by the suppliers, a complaint
was instituted under Section 138 upon which cognizance was taken by
the Magistrate and summons were issued. The High Court allowed a
petition under Section 482 CrPC and set aside the order issuing process
by construing the expression "discharge of any debt or other liability" in
Section 138 holding that there must be a liability at the time of issuing the
cheque10. In appeal, Justice R M Lodha writing for a two-Judge
Benchallowed the appeal11 observing:
"9. The Explanation appended to Section 138 explains the meaning
of the expression "debt or other liability" for the purpose of Section
138. This expression means a legally enforceable debt or other
liability. Section 138 treats dishonoured cheque as an offence, if
the cheque has been issued in discharge of any debt or other
liability. The Explanation leaves no manner of doubt that to attract
an offence under Section 138, there should be a legally enforceable
debt or other liability subsisting on the date of drawal of the cheque.
In other words, drawal of the cheque in discharge of an existing
10"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 provision of this Act, be
punished with imprisonment for 8 [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, 9 [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.
Explanation.-For the purposes of this section, "debt of other liability" means a
legally enforceable debt or other liability."
11It was held that the view taken by the Andhra Pradesh High Court in Swastik
Coaters v. Deepak Bros, 1997 Cri LJ 1942 (AP), the Gujarat High Court in Shanku
Concreates v. State of Gujarat, 2000 Cro LJ 1988 (Guj), the Madras High Court in
Balaji Seafoods Exports v. Mac Industries, (1999) 1 CTC 6 (Mad).
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or past adjudicated liability is sine qua non for bringing an offence
under Section 138. If a cheque is issued as an advance payment
for purchase of the goods and for any reason purchase order is
not carried to its logical conclusion either because of its cancellation
or otherwise, and material or goods for which purchase order
was placed is not supplied, in our considered view, the cheque
cannot be held to have been drawn for an existing debt or liability.
The payment by cheque in the nature of advance payment indicates
that at the time of drawal of cheque, there was no existing liability."
19. Drawing the distinction between civil and criminal liability, it
was observed that if there is a breach in the condition of advance payment,
it would not incur criminal liability under Section 138 of the NI Act since
there is no legally enforceable debt or liability at the time when the cheque
was drawn.The Court held that if at the time when a contract is entered
into, the purchaser has to pay an advance and there was a breach of
that condition, the purchaser may have to make good the loss to the
seller, but this would not occasion a criminal liability under Section 138.
The issuance of a cheque towards advance payment at the time of the
execution of the contract would not - in the view which has adopted in
Indus Airways - be considered as a subsisting liability so as to attract
an offence under Section 138 upon the dishonor of the cheque.
20. A later judgment of a two judge Bench in Sampelly
Satyanarayana Rao v. Indian Renewable Energy Development
Agency Limited12 considered the decision in Indus Airways. In
Sampelly, the appellant was the Director of a company which was
engaged in power generation, while the respondent was a government
enterprise engaged in renewable energy. The respondent agreed to
advance a loan for setting up a power project and the agreement envisaged
that post-dated cheques towards payment of installments of the loans
would be given by way of security. The cheques having been dishonored,
complaints were instituted under Section 138 which led to quashing
petitions filed before the High Court. The submission which was urged
before this Court was that dishonor of the post-dated cheques given by
way of security did not amount to a legally enforceable debt or liability
under Section 138 in presentia. This Court held, after adverting to the
decision in Indus Airways that if on the date of the cheque, a liability or
debt exists or the amount has become enforceable, Section 138 would
12 (2016) 10 SCC 458
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stand attracted and not otherwise.