Is the dishonor of a post-dated cheque issued as an advance payment an offence under section 138 of the Negotiable Instruments Act, 1881?
Allowing an appeal in M/s Indus Airways Pvt Ltd & Ors v M/s Magnum Aviation Pvt Ltd & Anr, the Supreme Court recently ruled it was not an offence, as “there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque” for criminal liability to be made out under section 138.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]
Holding that there is a “fine distinction between civil liability and criminal liability” in section 138, the court ruled that a cheque issued as an advance payment for the purchase of goods cannot be said to have been drawn for an existing debt or liability if the purchase order is cancelled.
Indus Airways placed two orders for aircraft parts with Magnum Aviation and issued two post-dated cheques as advance payment for the orders. One of the conditions of their contract was that the entire payment had to be made in advance. The cheques were dishonoured on the ground that Indus Airways had stopped payment. Subsequently, Magnum Aviation received a letter from Indus cancelling the orders and requesting the return of the cheques.
An additional chief metropolitan magistrate, Delhi, issued a summons to Indus Airways. A revision petition followed and the summons was set aside. However, Delhi High Court restored the summons on the ground that the issue of a cheque at the time of signing a contract had to be considered against a liability.
Overruling the high court, the Supreme Court said that if a condition of the contract is breached the purchaser may have to make good a loss occasioned to the seller but that does not create criminal liability under section 138.
[/ihc-hide-content]
The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
