Monday, 9 May 2016

Whether it can be held that cheques were issued as security cheque if liability and consideration is proved?

 The argument that the respondent had no liability to
liquidate the debt owed by Nazimul Islam, has not impressed
us. What is important is whether the cheques were supported
by consideration. Besides the fact that there is a presumption
that a negotiable instrument is supported by consideration
there was no dispute that such a consideration existed in as
much as the cheques were issued in connection with the
discharge of the outstanding liability against Nazimul Islam. At
any rate the endorsement made by the respondent on the
promissory note that the cheques can be presented for
encashment after 25-09-2007 clearly shows that the cheques
issued by him were not ornamental but were meant to be
presented if the amount in question was not paid within the
extended period. The High Court in our view fell in error in
upsetting the conviction recorded by the Courts below who had
correctly analysed the factual situation and applied the law
applicable to the same.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NOS. 82-83 OF 2016
(Arising out of S.L.P. (Crl.) Nos.4517-4518 of 2014)
Don Ayengia …Appellant
Versus
The State of Assam & Anr. …Respondents
Dated;January 28, 2016
T.S. THAKUR, J.

1. Leave granted.
2. These appeals arise out of a judgment and order dated 2nd
April, 2014 passed by the High Court of Assam, Nagaland,
Mizoram and Arunachal Pradesh at Guwahati in Criminal Appeal
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No.10 and Criminal Revision No.41 both of the year 2012
whereby the High Court has allowed the Criminal Revision
No.41 of 2012 and set aside the conviction of respondent
Haren Mudoi under Section 138 of the Negotiable Instruments
Act, 1881 and dismissed Criminal Appeal No.10 of 2012 filed
by the Complainant/Appellant.
3. The Complainant/Appellant in these appeals is a partner
in M/s. Ayaan Consortium. He entered into an agreement with
one Nazimul Islam for construction of a multi-storeyed building
over a certain parcel of land. It is not in dispute that the
Complainant/Appellant paid to Nazimul Islam in connection
with the said agreement a sum of Rs.10,00,000/- (Rupees Ten
Lakhs only). It is also not in dispute that the agreement did not
materialise in the execution of the work in question with the
result that the same was cancelled in terms of a Promissory
Note dated 13th August, 2007 executed by Nazimul Islam in
favour of the Complainant/Appellant. The Promissory Note,
apart from cancelling the agreement, promised to pay to the
Complainant/Appellant the amount of Rs.10,00,000/- received
by the executant Nazimul Islam within a period of one month
from the date the Promissory Note was executed. What is
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important is that the Promissory Note further stipulated that
the amount of Rs.10,00,000/- was being refunded by the
executant in terms of five post-dated cheques dated 5th
September, 2007, 7th September, 2007, 9th September, 2007,
11th September, 2007 and 13th September, 2007, the receipt
whereof was acknowledged by the Complainant/Appellant. The
Promissory Note, at the same time, somewhat contradicted
itself when it mentioned that the cheques were being issued as
a security and shall be returned to Nazimul Islam when the
amount of Rs.10,00,000/- is paid by him within a period of one
month. Interest at the bank rates was also promised to be paid
on the said amount of Rs.10,00,000/-.
4. The cheques so received by the Complainant/Appellant
appear to have been presented for payment after the expiry of
the period of one month stipulated for the return of the
amount when no such return was made to the
Complainant/Appellant. All the cheques were, however,
dishonoured by the bank on the ground of insufficiency of
funds. A second presentation also proved abortive for the same
reason. It was at this stage that Respondent No.2-Haren Mudoi
appeared on the scene and indemnified the

Complainant/Appellant by acknowledging that the cheques in
question were actually issued by him and handed over to
Nazimul Islam. This acknowledgment was reflected in the form
of an endorsement on the Promissory Note in which he agreed
to the cheques being presented for payment after 25th
September, 2007. The Complainant/Appellant accordingly once
again presented the cheques for payment on 5th November,
2007 but the same were dishonoured by the bank for the third
time. This led to the issue of a statutory notice by the
Complainant/Appellant to which the Respondent sent a reply
through the lawyer denying that he had any knowledge of
handing over of all the cheques to the Complainant/Appellant
by Nazimul Islam and also about the dishonour of the cheques
due to insufficiency of funds. What is significant is that, in the
reply, the Respondent undertook to pay the whole amount of
Rs.10,00,000/- by the second week of January, 2008 by
issuing fresh cheques.
5. A complaint under Section 138 of the Negotiable
Instruments Act, 1881 was in the above backdrop filed by the
appellant against both Nazimul Islam and Haren Mudoi. Since
Nazimul Islam had, in the meantime, passed away,
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proceedings against him abated but the trial court found the
Respondent guilty and accordingly convicted him for the
offence punishable under Section 138 of the Negotiable
Instruments Act, 1881 and sentenced him to undergo simple
imprisonment for a period of one year. In addition, the trial
court awarded compensation to the Complainant/Appellant in a
sum of Rs.12,00,000/- to be paid within a period of three
months.
6. Aggrieved by the judgment and order passed by the trial
court, the Respondent preferred Criminal Appeal No.9 of 2010
before Additional Sessions Judge, Kamrup at Guwahati, who,
while upholding the conviction of the Respondent modified the
sentence awarded to him to payment of a fine of Rs.2,000/-
(Rupees Two Thousand only) and, a default sentence of
imprisonment for a period of one month, in addition to the
amount of compensation awarded by the trial court. The
sentence of imprisonment was, in that view, set aside by the
appellate court.
7. Criminal Appeal No.10 of 2012 and Criminal Revision
No.41 of 2012 were then filed before the High Court at
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Guwahati by the parties. While Criminal Appeal No.10 of 2012
was filed by the Complainant/Appellant, Criminal Revision
No.41 of 2012 challenged the conviction of the Respondent by
the trial court and affirmed by the Appellate Court for an
offence under Section 138 of the Negotiable Instruments Act,
1881. The High Court has, as seen earlier, set aside the
conviction of the Respondent and allowed Criminal Revision
No.41 of 2012 while dismissing Criminal Appeal No.10 of 2012
in terms of the judgment and order impugned in the present
appeals.
8. We have heard learned counsel for the parties at some
length who have taken us through the orders passed by the
courts below. We may at the outset gainfully extract
Promissory Note dated 13th August, 2007 executed by Nazimul
Islam in favour of the complainant in which the deceased
Nazimul Islam had acknowledged his liability to refund the
amount of Rs.10,00,000/- received by him from the
Complainant/Appellant in this appeal. The Promissory Note was
in the following words:
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“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
13.09.2007 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.
 (Nazimul Islam) 13.8.2007”
9. We may also extract, at this stage, the endorsement
which the Respondent made on the Promissory Note
acknowledging that the cheques handed over to the
Complainant/Appellant herein were actually issued by him and
agreeing that the same may be presented for payment after
25th September, 2007. The endorsement was in the following
manner:
“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
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cheques after 25.09.2007 to contact me.
15.09.2007
 (H.Mudoi)”
10. It is not in dispute that the execution of the Promissory
Note and the endorsement made by the Respondent has been
satisfactorily proved at the trial. Concurrent findings recorded
by the trial court and the first appellate court to that effect
conclude the factual part of the controversy. The only question
that survives in the above background is whether the cheques
issued by the Respondent were meant to discharge, in whole or
part, “any debt or other liability” within the meaning of Section
138 of the Negotiable Instruments Act, 1881.
11. We have no hesitation in answering that question in the
affirmative. The facts as narrated above and as held proved by
the trial Court and the appellate court, leave no manner of
doubt, that Nazimul Islam had received an amount of rupees
ten lakhs from the complainant in connection with the
agreement executed between the two. It is also not in dispute
that upon termination of the agreement, the amount paid to
Nazimul Islam was refundable to the complainant and that
Nazimul Islam had agreed to refund the same within one
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month. The promissory note executed by Nazimul Islam
contained an unequivocal acknowledgment of not only the
debt/liability aforementioned but promised to liquidate the
same within one month with interest at the bank rate. Five
cheques handed over were to be returned but only upon
payment of the amount in question. Such being the fact
situation, it cannot be said that the cheques had nothing to do
with any debt or other liability. As a matter of fact, the
existence of the debt or liability was never in dispute. On the
contrary, it was acknowledged by Nazimul Islam who simply
sought one month’s time to pay up the amount. The cheques
were post dated, only to give to the drawer the specified one
month’s time to pay the amount. There is thus a direct
relationship between the liability and the cheques issued in
connection therewith. Thus far there is no difficulty. The
difficulty arises only because the promissory note uses the
words “security” qua the cheques. This would ordinarily and in
the context in which the cheques were given imply that once
the amount of rupees ten lakhs was paid, the cheques shall
have to be returned. There would be no reason for their
retention by the complainant or for their presentation. In case,
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however, the amount was not paid within the period stipulated,
the cheques were liable to be presented for otherwise there
was no logic or reason for their having been issued and handed
over in the first instance. If non-payment of the agreed
debt/liability within the time specified also did not entitle the
holder to present the cheques for payment, the issue and
delivery of any such cheques would be meaningless and futile if
not absurd. It is important to note that it was not a case
where no debt or liability was determined or acknowledged to
be payable. If cheques were issued in relation to a continuing
contract or business where no claim is made on the date of the
issue nor any determinate amount payable to the holder, one
could perhaps argue that the cheques cannot be presented or
prosecution launched on a unilateral claim of any debt or
liability. The present is, however, a case where the existence
of the debt/liability was never in dispute. It was on the
contrary acknowledged and a promise was made to liquidate
the same within one month. Failure on the part of the debtor
to do so could lead to only one result, viz. presentation of the
cheques for payment and in the event of dishonour, launch of
prosecution as has indeed happened in the case at hand.
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12. The argument that the respondent had no liability to
liquidate the debt owed by Nazimul Islam, has not impressed
us. What is important is whether the cheques were supported
by consideration. Besides the fact that there is a presumption
that a negotiable instrument is supported by consideration
there was no dispute that such a consideration existed in as
much as the cheques were issued in connection with the
discharge of the outstanding liability against Nazimul Islam. At
any rate the endorsement made by the respondent on the
promissory note that the cheques can be presented for
encashment after 25-09-2007 clearly shows that the cheques
issued by him were not ornamental but were meant to be
presented if the amount in question was not paid within the
extended period. The High Court in our view fell in error in
upsetting the conviction recorded by the Courts below who had
correctly analysed the factual situation and applied the law
applicable to the same.
13. In the result, we allow these appeals and set aside the
order passed by the High Court to the extent it allowed
Criminal Revision No.41 of 2012 filed by the respondent.
Consequently the order passed by the appellate court shall
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stand restored. We, however, do not see any reason to
interfere with the order passed by the High Court to the extent
it dismissed Criminal Appeal No.10 of 2012. No costs.
…………………….……..……CJI.
 (T.S. THAKUR)
………………………….…..……J.
 (KURIAN JOSEPH)
New Delhi
January 28, 2016

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