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Lalan Prasad v. State Of Jharkhand And Others
Factual and Procedural Background
This is an application under Section 482 of the Code of Criminal Procedure seeking quashing of the cognizance order dated 28.3.2003 passed by the SDJM, Koderma in complaint case No. 60 of 2003.
The factual matrix as pleaded by the complainant (OP No. 2) is that her husband, the late Jagdish Lal Chhabra, and the petitioner Lalan Prasad were directors of M/s. Super Steel Casting Ltd. The complainant alleged that the petitioner engaged in financial irregularities and that after a confrontation at the company office on 1.4.2002 the petitioner coerced the deceased to sign certain papers, causing mental strain that preceded his death.
An arbitration meeting on 10.4.2002 produced an award under which the petitioner was to secure release of collateral and hand over title deeds; failing which he would be liable to pay Rs. 55,00,000. The petitioner issued a post-dated cheque No. 9115 dated 10.8.2002 for Rs. 55,00,000 in favour of the complainant. The cheque was presented on more than one occasion and was dishonoured with the bank's endorsement that payment was stopped by the drawer and that funds were insufficient. Notices were sent to the petitioner, some were delayed or returned as "not met", and subsequent presentations (including one in January 2003) were again dishonoured.
The complainant filed a complaint under Section 138 of the Negotiable Instruments Act and additionally alleged non-payment of amounts due in respect of transfer of shares (complainant alleged Rs. 35,00,000 was due; only Rs. 13,50,000 was paid), asserting offences under Sections 420 and 406 IPC.
The learned counsel for the complainant submitted that after inquiry under Section 202 CrPC cognizance had been taken and that questions of existing debt or liability were matters for trial. The petitioner disputed the maintainability of the criminal complaint, contending that the cheque was a post-dated instrument given as collateral security and that there was no subsisting debt on the date the cheque was delivered; the petitioner also alleged forgery/manipulation in the complaint petition.
Legal Issues Presented
- Whether Section 138 of the Negotiable Instruments Act is attracted where a post-dated cheque was issued as collateral security and there was alleged absence of a subsisting debt or liability on the date of issuance.
- Whether criminal proceedings (and the cognizance taken by the Magistrate) can be quashed under Section 482 CrPC where the complaint, on its face and on materials before the High Court, does not disclose any offence.
- Whether allegations under Sections 420 and 406 IPC are maintainable where the facts alleged indicate a breach of contractual terms rather than proof of an ulterior dishonest intention or cheating.
- Whether alleged manipulation/forgery of the complaint papers (substitution of a page adding allegations of unpaid amounts) affects the validity of the criminal proceedings.
Arguments of the Parties
Petitioner's Arguments (Applicant under Section 482 CrPC)
- The cheque in question (No. 9115 dated 10.8.2002 for Rs. 55,00,000) was a post-dated instrument given as collateral security for the release of title deeds and collateral; therefore, when issued it did not discharge any subsisting debt or liability.
- Because the cheque was given as security and not to discharge an existing debt, Section 138 NI Act is not attracted; reliance placed on case law to that effect (CTC (6) 1999 424; 1999 Cur Cri R 4241; 2000 Cr LJ 1988).
- The matters are civil in nature (dispute over contract and payments) and do not disclose criminal liability under Sections 420/406 IPC unless an ulterior dishonest intention or cheating is demonstrated.
- There was alleged forgery/manipulation: the petitioner produced certified copies showing that page No. 6 of the earlier-filed complaint differed from the subsequently-filed page No. 6 in that the later version added allegations about non-payment of Rs. 35,00,000 and part payment of Rs. 13,50,000; petitioner alleged connivance in substituting pages.
Complainant's Arguments
- The complainant's counsel submitted that after due inquiry under Section 202 CrPC cognizance had been taken by the Magistrate and that the quashing application was not maintainable at this stage.
- It was argued that it could not be said as a matter of law that there was no existing debt or liability; such factual disputes should be examined at trial.
- The complainant denied knowledge of complaint case No. 16 of 2003 (as pointed out in the proceedings).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CTC (6) 1999 424 (also referenced as 1999 Cur Cri R 4241) | Holds that where a cheque (or undated cheque) was handed over as security and there was no subsisting liability on the date of delivery, Section 138 NI Act is not attracted; the cheque given as security cannot be treated as an instrument for immediate negotiation to discharge existing debt. | The Court relied on this principle to hold that the cheque in issue, being post-dated and given as collateral security, did not evidence a subsisting liability on the date of issue and therefore Section 138 did not apply. |
| 2000, Cr LJ 1988 | Reiterates that transactions where cheques were agreed to discharge payment at a future date and where cheques were handed over as security are of a civil nature and may fall outside the purview of Section 138. | The Court relied on this authority to support the conclusion that the dispute was civil in nature insofar as the cheques were given as future security/performance and not as discharge of an existing debt. |
| 2001 (2) East Cr C 353 (Pat) | Holds that for offences under Sections 406/420 IPC, an ulterior dishonest motive or cheating must be shown; mere breach of agreement or contractual terms does not by itself create criminal liability. | The Court applied this principle to conclude that allegations of breach of agreement (non-payment under an arbitration award or agreement terms) do not by themselves establish criminal liability under Sections 406/420 IPC; cognizance on such bases was therefore considered bad in law. |
Court's Reasoning and Analysis
The Court examined the factual material on record, the pleadings, and the legal authorities cited by the petitioner. It reproduced the text of Section 138 of the Negotiable Instruments Act (as quoted in the opinion) including the provisos about presentation, notice and the 15-day period for payment after notice.
The central legal analysis proceeded as follows:
- The Court considered whether, on the facts pleaded, there was a subsisting debt or liability on the date the cheque was issued. Applying the cited precedents, the Court accepted the petitioner's contention that the cheque was a post-dated instrument delivered as collateral security (for release of title deeds and collateral) and therefore was not given to discharge an existing debt on the date of its delivery.
- Because there was no subsisting debt or liability at the time of issue, the Court held that the essential requirement for attraction of Section 138 (that the cheque be drawn for discharge, in whole or in part, of any debt or other liability existing when the cheque was issued) was not satisfied. On that basis Section 138 was regarded as not being attracted by the facts of the complaint.
- With respect to the offences under Sections 406 and 420 IPC, the Court noted (relying on the cited Patna decision) that criminal liability under those sections requires evidence of cheating or an ulterior dishonest intention. A mere breach of the terms of agreement or non-payment pursuant to contractual/private arrangements is not sufficient to make out these criminal offences. Therefore, cognizance of those offences on the present facts was found to be legally unsustainable.
- The petitioner also alleged forgery and manipulation of complaint papers (substitution of page No. 6 adding additional allegations). The Court recorded these contentions as part of the material on record, and considered all circumstances and materials in arriving at its conclusion that the complaint did not disclose any offence.
- Taking the matters together, the Court concluded that the complaint, as constituted and on the material before it, did not make out a prima facie case under Section 138 NI Act or under Sections 406/420 IPC, and therefore the cognizance taken by the Magistrate was liable to be quashed under the High Court's powers under Section 482 CrPC.
Holding and Implications
Holding: The application under Section 482 CrPC is allowed and the cognizance order dated 28.3.2003 passed by the SDJM, Koderma in complaint case No. 60 of 2003 is hereby QUASHED. The opinion concludes with the notation "Appeal allowed."
Implications:
- The direct effect is that the criminal proceedings founded on the impugned cognizance (complaint case No. 60 of 2003) are quashed and will not proceed on the basis of the same complaint materials as they stood before the High Court in this petition.
- The Court's decision was grounded on the view that the cheque was a post-dated instrument given as collateral security and therefore Section 138 NI Act was not attracted; and that allegations of breach of agreement do not automatically give rise to criminal offences under Sections 406/420 IPC absent proof of dishonest intention or cheating.
- The opinion does not purport to decide disputed factual questions at trial (for instance, the exact contractual relations or any contested evidence) beyond the materials before the Court on the quashing application; it does not indicate that a new binding precedent of wide scope is being fashioned beyond application of the cited authorities to these facts.
Hari Shankar Prasad, J.— This application under Section 482 of the Code of Criminal Procedure has been filed for quashing the cognizance order dated 28.3.2003 passed by SDJM, Koderma in complaint case No. 60 of 2003.
2. Facts giving rise to filing of this application are that OP No. 2-complainant filed a complaint petition before the learned Chief Judicial Magistrate, Koderma alleging inter alia therein that her husband late Jagdish Lal Chhabra and petitioner Lalan Prasad were running a company under the name and style of M/s. Super Steel Casting Ltd, as Directors of the company along with other directors. But due to some mala fide intention, accused-petitioner became hostile to the interest of the company and it appeared to her husband that accused was committing a tot of financial irregularities including defalcation in running of the business and its assets and its income. Her husband approached the petitioner many times and put pressure on him for accounting of the business but her husband was persuaded to come to Head Corporate Office situated in Patna on 1.4.2002 where the petitioner adopted violent attitude causing mental torture to her husband and got the door closed and pressurized her husband to sign certain papers or face grave consequences and thereafter her husband put signatures on some papers. Further case of OP No. 2 complainant is that due to the attitude of the petitioner, her husband went under high depression and subsequently died. Two days after the demise of her husband, on 10.4.2002 a meeting in presence of two arbitrators along with the Directors of the company was held in which petitioner as well as heir of late Jagdish Lal Chhabra also participated and thereafter award was passed. Under the terms of award, the petitioner had to get released the collateral security and hand over the Title Deeds of the property kept as collateral security standing in the name of Jagdish Lal Chhabra and his family kept in Punjab National Bank. SSI Branch, Patna for taking loan in the name and in favour of M/s. Super Steel Casting Ltd. By 10.8.2002 and on failure of the accused to do so within the stipulated period, the accused will be liable to pay Rs. 55 lakhs to the complainant OP No. 2. The petitioner issued post dated cheque No. 9115 dated 10.8.2002, for Rs. 55 lakhs drawn on Central Bank of India. Chiraiya Tand Branch, Patna in favour of the complainant, but when petitioner did not comply with the terms of the said arbitration award on or before 10.8.2002, the aforesaid cheque was presented for collection at complainant's Bank Union Bank of India, Jhumritalaiya Branch on 4.9.2002 but the cheque was dishonoured by the Central Bank of India, Chiraiya Tand Branch, Patna which was presented in Centra Bank of India, Chiraiya Tand Branch, Patna on 17.10.2002 for encashment but cheque was dishonoured by the petitioner's Bank Central Bank of India, Chiraiya Tand Branch, Patna on the ground that payment stopped by the drawer, but there was not sufficient fund in Bank Account of the petitioner. The OP No. 2-complainant was intimated by her Bank Union Bank of India, Jhumritelaiya Branch on 20.11.2002 Further, complainant sent a notice through registered post to the petitioner through her lawyer Sheo Shankar Prasad, Advocate on 3.12.2002, demanding the payment of the said cheque as per provision of Section 138 NI Act, 1881, but the petitioner got registered notice delayed and it was retuned with endorsement ‘not met’, although it is stated that the petitioner was all through present on the address. After return of the notice, Deepak Chhabra, son of the complainant, met petitioner and told about the dishonour of the cheque and asked to pay the cheque amount but the petitioner promised that the cheque would be honoured by 2nd January 2003 on presentation. The petitioner made a telephonic call to the complainant, but when it was again presented on 6.1.2003, the same was again dishonoured with a memo payment stopped by the drawer. Although petitioner had no sufficient fund in the Bank. Thereafter OP No. 2-complainant sent a notice through registered post through her lawyer Sri Ganesh, Advocate on 15.1.2003 for payment of the said cheque amount and petitioner received notice on 20.1.2003 but paid nothing till the date of filing of this complaint case. There was no sufficient fund in the account of the petitioner-accused on the date and so the accused knowingly and deliberately directed the Bank to stop payment of the cheque and, therefore, OP No. 2-complainant filed a case under Section 138 NI Act. Further case of the OP No. 2 complainant is that as per decision of the arbitration, petitioner has to pay Rs. 35 lakhs for the transfer of shares of the complainant, her husband and her sons. The complainant and her sons transferred their shares in the company M/s. Super Steel Casting Ltd. to the accused person Lalan Prasad but the accused person paid only Rs. 13,50,000/- (Rupees thirteen lakhs and fifty thousand) and assured to pay later on but the petitioner-accused became dishonest and not paid the rest amount of Rs. 21,50,000/- (Rupees twenty one lakh and fifty thousand) and inspite of several requests, he committed offence under Sections 420 and 406, IPC. On the other hand, learned counsel for the complainant appeared and submitted that after due inquiry under Section 202, Cr PC, cognizance in the case has been taken and this quashing application is not maintainable at all. It was further pointed out that it cannot be said that there was no existing debt or liability and these are matters which should be considered at the stage of trial. It was further pointed out that complainant has got no knowledge about complaint case No. 16 of 2003.
3. Learned counsel appearing for the petitioner submitted that the complainant has filed a case that cheque No. 9115 dated 10.8.2002 for Rs. 55 lakhs, was a post dated cheque issued to the complainant as collateral security for the release of Title Deed, etc. and when by 10.8.2002 petitioner failed to get collateral security released and failed to hand over the Title Deeds of the property kept as collateral security standing in the name of late Jagdish Lal Chhabra, then after 10.9.2002, cheque was presented before the Bank for encashment, but the banker informed the complainant that cheque was dishonoured as the petitioner has stopped payment. Thereafter notice was sent to the petitioner which was delayed by the petitioner in collusion with the postal peon in and it was retuned with the endorsement of the postal peon ‘not met’. Thereafter her son went to the petitioner and informed him that the cheque has been dishonoured and the petitioner again asked him to present the cheque in the month of January, 2003 and the cheque was again presented on 4.1.2003 but it was again dishonoured with the endorsement ‘payment stopped’. Thereafter, again notice was sent which was received by the petitioner but he did not make payment within the stipulated date and thereafter complainant has lodged this complaint case, but the date on which this post dated cheque was issued, there was no subsisting liability or debt to be made by the petitioner. In this connection, reliance has been placed on CTC (6) 1999 424 wherein it has been held that in the facts and circumstances of the case, provision of Section 138 of Negotiable Instrument Act is not attracted. Para-8 of the aforesaid judgment is quoted herein-below:—
“8. Therefore, on the date when the cheque was handed over, there was no legally enforceable debt or other liability. An undated cheque for Rs. 35 lakhs was handed over as a security for the purpose of the contract. It was not handed over with the intention of making it as an instrument of immediate negotiation to discharge a subsisting liability or debt. Thus, this is a case where one of the parties to the contract had obtained a signed undated cheque for Rs. 35 lakhs as a security. As dispute arose between the parties, the cheque is now utilized by the complainant to resort to Section 138 of the Act by filing in a date convenient to him”.
4. Reliance has further been placed upon 2000, Cr LJ 1988 wherein it was held that case is purely of civil nature. In this connection, para-14 of the judgment may be quoted hereinbelow:—
“14. This Court relies on the decision cited by Mr. Majumdar of the High Court of Madras (supra) 1999 Cur Cri R 4241. Wherein a principle is laid down that to attract Section 138 of the Negotiable Instruments Act. It must be pointed out that there was subsisting liability or debt on the date when the contract was entered into. In that given case before the High Court of Madras, the contract expressly made it clear that the cheques were handed over as security. In this case, it is clear from the agreement entered into between the parties that after borrowing the money, making a statement to repay the same at some future date, the cheques were issued for one performance. Therefore, the transaction from its very nature or from the intention of the parties, as reflected in the agreement executed between the parties, in purely of a civil nature, for which a civil suit has already been filed. The very fact that the payment was agreed to some future date and there was no debt or liability on the date of delivery of the cheques will take the case out of the purview of the Section 138 of the Negotiable Instruments Act.”
5. Further para-17 of the judgment is also quoted herein-below:—
“17. Therefore, the accused has right to approach the High Court at any stage for quashing the allegations that complaint prima facie does not disclose any offence. In such circumstances, when it appears to the High Court under Section 482 of the Code that complaint does not disclose any offence, it has ample powers to quash the proceedings and the complaint and accused need not in all cases be relegated to the learned Magistrate directing the accused to file proper application for discharge or dropping of the proceedings. As discussed above, the complaint filed under Section 138 of the Negotiable Instruments in this case discloses no criminal liability as envisaged under Section 138 of the Act and, therefore, the complaint is required to be quashed.”
6. From the discussions made above and considering the case laws relied upon, I am of the view the provision of Section 138 of Negotiable Instruments Act which is quoted herein-below:—
“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 persons from out of that account for the discharge, in whole or in part, of any debt or other liability, is retuned 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 if 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,”
is not attracted in view of the fact that there was no subsisting liability or debt on the date of issue of cheque, as the cheque No. 9115 was a post dated cheque given to the complainant as collateral security and, therefore, no case is made out under Section 138 of the Negotiable Instruments Act. Further, so far as other Sections such as 406 and 420, IPC are concerned under which cognizance has been taken, it has to be shown that there was ulterior motive of cheating and when that ulterior motive of cheating is shown, then case will be maintainable under these sections and when there is breach of the terms of agreement, then there is no criminal liability and the cognizance taken against the petitioner in such a situation is bad in law. Reliance in this connection may be placed upon 2001 (2) East Cr C 353 (Pat).
7. Petitioner again filed supplementary affidavit and submitted that some forgery has been committed by the complainant. It was pointed out that initially the complaint petition with only first part of the allegation was filed and there was no second part of the allegation such as transfer of shares, etc. in favour of M/s. Super Steel Casting Limited. It was submitted that serious manipulation have been made to such an extent that original page No. 6 of the complaint petition, which have been filed on 27.2.2003, had been changed and its place, a new page No. 6 had been substituted adding allegation of only part payment of 13,50,000/- and non-payment of remaining amount of 35,00,000/- in the subsequently filed complaint petition.
8. It was further pointed out that it will be evident from the copies of two complaint petition certified copies of which were obtained by the petitioner from the office of learned Chief Judicial Magistrate, Koderma. It was further pointed out that if page No. 6 of instant complaint petition and page No. 6 of annexed copy of the complaint petition is compared, then it will be seen that in previously filed complaint petition, only one paragraph was written and there was no such allegation or averment about payment of Rs. 35,00,000/- or so, but in the subsequently changed page No. 6, it will appear that one part has been added containing allegation about non payment of Rs. 35,00,000/- and about payment of Rs. 13,50,000/- out of due amount of Rs. 35,00,000/- and this paragraph was not there in the original complaint petition and by forgery and manipulation, this paragraph in connivance with the officials of Civil Court has been added. It was further pointed out that page No. 6 of both the original and substituted page bears seal with the same handwriting of the date of the filing of complaint petition and thus; complainant has also committed forgery along with Advocate.
9. Considering all the circumstances and materials on record, no case under any of the section is made out against the petitioner. In the result, this application is allowed and the cognizance order dated 28.3.2003 passed by SDJM, Koderma in complaint case No. 60 of 2003 is hereby quashed.
10. Appeal allowed.
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