A Legally Enforceable Debt II

To commit an offence, within the meaning of Section 138 of The Negotiable Instruments Act, 1881 (“Act”) there must be a legally enforceable debt or other liability subsisting on the date of drawal of the cheque. This is important to point out for sometimes cheques are post-dated.

Notably, in Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd., 2014 (4) SCALE 645, the appellant had issued two post-dated cheques by way of advance payment for certain purchase orders. The orders stood cancelled before delivery. The following proposition was accepted: if a purchaser orders for goods and issues a cheque for an advance payment and subsequently cancels the contract, before any delivery, and directs the relevant bank to stop payment on the cheque, which remains un-presented, though the purchaser may be liable to make good to the seller the losses occasioned by breach of contract, there shall be no criminal liability assessed off the purchaser, under the Act, as and when that cheque, for which it has stopped payment, is presented to the bank nevertheless, by the seller, for encashment. There is simply no legally enforceable debt or other liability subsisting on the date of drawal of the [post-dated] cheque.

Indus Airways is a fine example of retrospective reasoning by the SC where the nature of something is reasoned out retrospectively from the perspective of where it ends up rather than prospectively from the perspective of where it was headed. No such retrospective reasoning is applicable when adjudicating on the dishonor of a post-dated cheque, given as ‘security’ for repayment of a loan installment. Repayment becomes due under a loan agreement, the moment the loan is advanced and the installment falls due. In Sampelly v. Indian Renewable Energy Development Agency Ltd., [Criminal Appeal No. 867 of 2016] (“Sampelly”), admittedly, on the date of drawal of the [post-dated] cheque there was an existing debt/liability, in presenti, in terms of the loan agreement. In applying the judgment in Indus Airways, one cannot lose sight of the difference between a purchase order which is cancelled, before delivery, and that of a loan transaction where a loan has actually been advanced and its repayment is due and legally enforceable. That seems to be the definite conclusion of the Supreme Court in Sampelly, recently.

In lease deeds, the lessee usually provides post-dated cheques as ‘security’ for payment of monthly rents. Payment becomes due under the lease deed, the moment possession of the leased premises is granted and rent falls due. Sampelly, and not Indus Airways, would be clearly applicable in such a case.