Debt at Presentation, Not at Signing, Decides Section 138 Liability on Security Cheques: Rajasthan High Court

M/s Vibrant Academy (I) Pvt. Ltd., which runs an IIT-JEE coaching institute, engaged the four petitioners as faculty and obtained cheques to indemnify itself against losses from any breach of the contract (para 3). The cheques, for sums between Rs.6,00,000 and Rs.41,50,000, were undated when given, and the company was free to present them on a breach (paras 3-4). The petitioners resigned, the company sent legal notices, and when the cheques could not be honoured it filed complaints under Section 138 before the Special Judicial Magistrate, N.I. Act Cases No.3, Kota, which took cognizance (paras 1, 4). The petitioners sought quashing relying on Indus Airways v. Magnum Aviation; the company relied on I.C.D.S. v. Beena Shabeer (paras 5, 8).

The signatures on the cheques were undisputed, as was the fact that they were undated and given as security (para 10). Both sides accepted that no debt or liability subsisted when the cheques were drawn (para 13). The petitioners had accepted the contracts with open eyes; whether the contracts were valid and gave rise to liability on breach could not be decided under Section 482 Cr.P.C., where appreciation of evidence is not desirable (paras 11-12). Citing Rathish Babu Unnikrishnan, the Court said a quashing court should not conduct a detailed factual enquiry where a legal presumption operates (para 12). Indus Airways was distinguished: there the cheques were advance payments under purchase orders that were later cancelled (para 14). Dashrathbhai Trikambhai Patel held that a dishonoured cheque must represent a legally enforceable debt on the date of maturity or presentation, and Sampelly Satyanarayana Rao tested the debt on the date mentioned in the cheque (paras 15, 18). Sunil Todi read ‘other liability’ as covering a liability arising by the date of maturity (para 19). The relevant date is therefore presentation or maturity (para 20).