Indus Airways Pvt. Ltd. & Ors. Versus Magnum Aviation Pvt. Ltd. & Anr. - Section 138 of NI Act

Cheques may be valid regardless of denomination and are used within numerous scenarios in place of cash.

In the last post, I mentioned the facts, issues involved and the reasoning of the court in this case. Here is my opinion relating to it.

Opinion

I feel that it is correct to say that if a cheque is issued as an advance payment for purchase of goods and for some reason, the purchase order gets cancelled, the cheque cannot be said to have been drawn for an existing liability.

However, from the facts of the present case, we can see that

a. The purchasers issued two post-dated cheques dated 15.03.2007 and 20.03.2007.

b. These cheques got dishonoured when they were presented on the ground that the purchasers had stopped payment. Now, this clearly falls within the conditions stipulated under Section 138.

c. Subsequently, the supplier received letter dated 22.03.2007 from the purchasers cancelling the purchase orders and requesting the supplier to return both the cheques.

The cheques got dishonoured before the suppliers got to know about the intention of the purchasers to cancel the purchase orders. When the cheque was drawn, it was clearly an existing liability on part of the purchasers because at that point of time, the contract was still a go and had not been cancelled by them. The suppliers received letter dated 22.03.2007 for cancelling the purchase orders only after the cheques had been dishonoured.

One of the terms and conditions of the contract was that the entire payment would be given to the supplier in advance. Now, by issuing a post-dated cheque dated 15.03.2007 and 20.03.2007, it could be reasonably inferred that the purchasers intended to make the advance payment on 15.03.2007 and 20.03.2007. The fact that the cheques got dishonoured clearly attracts Section 138.

The court by saying that there is a distinction between civil liability and criminal liability under section 138 has clearly over read Section 138. It is an established rule of interpretation that the criminal statutes or criminal provisions are to be strictly construed. By giving Section 138 a liberal interpretation and reading beyond its scope, the honourable court has only forfeited and sacrificed its purpose.

The Apex gave the right reasoning but it seems that it applied that reasoning wrongly to the facts of the present case.