Sampelly Satyanarayan Rao v. Indian Renewable Development Agency 2016 (Case Summary)
In this Landmark case, the Hon’ble Supreme Court of India decided on validity/inclusion of Post-Dated cheques given as “security” against a Loan under section 138 of the Negotiable Instruments Act, 1881. The case revolved around the maintainability of a criminal complaint filed in consequence of the Cheques being Dishonoured that were given as security.
Facts of Sampelly Satyanarayan Rao v. Indian Renewable Development Agency
- Sampelly Satyanarayan Rao (Original Accused) is Director of the Appellant company whose cheques have been Dishonoured. The company is engaged in the business of power generation.
- The Respondent, (Original Complainant) is a government of India enterprise and is engaged in development of renewable energy.
- Appellant company applied for a loan, which was granted by the Respondent company vide loan Agreement dated 15.03.2001. As per the loan Agreement, the respondent agreed to advance a loan of Rs. 11.50 crores.
- The Agreement recorded Post-Dated cheques towards payment of installments of Loan and as security.
- On presentation of the said cheques by the Respondent, they were Dishonoured. Consequently, a Criminal Complaint u/s 138 of the NI Act was filed by the Respondent company.
- Thereafter, the Appellant, (original Accused) approached the High Court seeking quashing of the criminal proceedings. He contended that the cheques were given by way of security as mentioned in the agreement and that on the date the cheques were issued, no debt or liability was due. Thus, dishonour of post-dated cheques given by way of security did not fall under section 138 of the Act.
Issues framed
- Whether post dated cheques given as security can attract criminal liability under section 138 of the Negotiable Instruments Act?
Subordinate Court Judgment
The High Court of Delhi did not accept the contentions and held that in the present case when the post-dated cheques were issued, the loan had been sanctioned and the cheques were cheque issued for a debt in present but payable in future. Hence, I find no reason to quash the complaints. Therefore, the petition for quashing was dismissed.
The Appellant being aggrieved by the dismissal of the petition filed an appeal to the Hon’ble Supreme Court of India.
Judgment of Sampelly Satyanarayan Rao v. Indian Renewable Development Agency
The Hon’ble Supreme Court analysed section 138 of the Negotiable Instruments Act, the court also interpreted the phrase “Discharge of Legally Enforceable Debt”.
The court held that Dishonour of Post-Dated cheque issued for discharge of later liability is clearly covered by the statute. Admittedly, in this case, on the date of the encashment of the cheque there was a debt/liability present in terms of the loan agreement.
The Supreme court dismissed the Appeal holding that there is no illegality in criminal complaints u/s 138 of the NI Act, filed by the Respondents as there was a legally enforceable debt at the time of dishonour of the post-dated cheques.