The High Court of Delhi, in a judgment pronounced on October 27, 2025, quashed five criminal complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act).
Justice Neena Bansal Krishna, hearing petitions filed under Section 482 of the Code of Criminal Procedure (Cr.P.C.), concluded that the cheques in question were issued purely as “security” and not for any legally enforceable liability or debt, as evidenced by an undisputed Memorandum of Understanding (MOU) between the parties. The Court also found the summoning orders procedurally invalid as they were adopted from a court that lacked jurisdiction.
The petitions were filed by Sri Sai Sapthagiri Sponge Pvt. Ltd. (Petitioner) seeking to quash the summoning orders and proceedings initiated by M/s. Magnifico Minerals Pvt. Ltd. (Respondent No. 2/Complainant).
Background of the Case
The Complainant, M/s. Magnifico Minerals Pvt. Ltd., claimed it was engaged in the business of supplying Steam Coal to the Petitioner. As per the Complainant’s accounts, a sum of Rs. 1,91,72,159.51 was allegedly due from the Petitioner as of November 3, 2014.
In alleged discharge of this liability, the Petitioner issued five cheques drawn on the State Bank of Mysore, Bellary, for a total of Rs. 1.75 Crores. Upon presentation by the Complainant at the Bank of India, Parliament Street, New Delhi, the cheques were dishonoured with the remarks “STOP PAYMENT.”
After serving legal notices, the Complainant filed five separate complaints under Section 138 of the N.I. Act before the Court of the Addl. Civil Judge & JMFC, Bellary, Karnataka. The Bellary court issued summoning orders on April 8, April 27, and May 18, 2015.
However, on October 14, 2015, the Ld. MM, Bellary, returned the complaints for want of jurisdiction, directing them to be presented before the court of competent jurisdiction. The complaints were subsequently assigned to the Ld. MM, Patiala House Courts, New Delhi. The Petitioner challenged these proceedings, leading to the present petitions before the High Court.
Arguments of the Parties
Petitioner’s Submissions:
The Petitioner argued for quashing the complaints on several grounds. The primary contention was a Memorandum of Understanding (MOU) dated May 6, 2014, executed between the parties. The Petitioner reproduced the MOU, which stated:
“We are issuing following cheques for Rs. 1.75 Crores for Security Purpose only. Cheques you are insisting for audit purpose, for showing to banker and Security purpose and not for depositing into Bank. So this cheques are not for presenting into Bank for clearing.”
Based on this, the Petitioner argued the cheques were not issued for any consideration or legally enforceable debt, but were obtained by the Complainant for the limited purpose of being shown to its banker as security.
The Petitioner also challenged the summoning orders, arguing that the Ld. MM, Delhi, mechanically adopted the orders issued by the Ld. MM, Bellary, who had no jurisdiction, without recording fresh pre-summoning evidence.
Respondent’s Submissions:
The Complainant (Respondent No. 2) contended that the issuance of the cheques and the signatures were not disputed, raising a presumption of a legally enforceable debt under Section 139 of the N.I. Act, which could only be rebutted during trial.
The Complainant also relied on the second paragraph of the same MOU, which stated, “We are issuing LC’s for fresh supply. And it can be adjusted towards old outstanding amount…”, to argue that the security cheques could be adjusted against old dues. It is submitted that despite emails and notices warning the Petitioner, the dues were not cleared, which “crystallised” the contingent liability and made the security cheques enforceable.
Citing HMT Watches Ltd. v. M.A. Abida, the Complainant argued that disputed questions of fact, such as whether cheques were for security or liability, cannot be examined in proceedings under Section 482 Cr.P.C.
High Court’s Analysis and Findings
Justice Neena Bansal Krishna analyzed the two primary issues: the enforceability of the cheques and the validity of the summoning orders.
1. On Security Cheques and Enforceable Debt:
The Court closely examined the MOU dated May 6, 2014, which was relied upon by both parties. The judgment held that the first paragraph of the MOU “clearly records that the cheques were issued only for the purpose of being shown as security to the Banks, and not for presentation.”
Rejecting the Complainant’s interpretation of the MOU’s second paragraph, the Court observed: “The plain reading of the second paragraph of the MOU… makes it further clear that the said Clause pertains only to the Letters of Credit (LCs), which could be adjusted towards old outstanding dues, and not to the subsequent payments that may become due.” The Court found the Complainant “has failed to read the complete terms of the MOU and has instead read the same in isolation.”
The Court concluded the Complainant’s claim that the cheques were later converted into a debt “is wholly incorrect and reflects a misinterpretation of the terms of the MOU.”
Addressing the scope of Section 482 Cr.P.C., the Court acknowledged the general rule that the accused’s defence is not considered at the quashing stage. However, it cited the exception laid down by the Apex Court in Harshendra Kumar D. v. Rebatilata Koley, stating: “…if on the face of the documents which are beyond suspicion or doubt placed by the accused, the accusations against him cannot stand, it would be travesty of justice if the accused is relegated to trial…”
The High Court noted that since the Complainant itself relied on the MOU and did not dispute its veracity, the document was “of impeccable and sterling quality and can rightly be relied upon at this stage.”
Based on this, the Court held: “It is thus, held that the impugned cheques were security cheques given for a specific purpose and could not have been encashed for a liability which may have subsequently arisen.”
2. On the Validity of the Summoning Orders:
The Court also found merit in the Petitioner’s challenge to the summoning orders. It noted that the Ld. MM, Bellary, had returned the complaints following the Apex Court’s judgment in Dashrath Rupsingh Rathod and the subsequent 2015 amendment to the N.I. Act, as the evidence stage under Section 145(2) had not commenced.
The High Court affirmed a “settled principle of law that once a Complaint is returned, all proceedings conducted in that Court becomes non-est in the eyes of law.”
It found that the Ld. MM, Patiala House Courts, “erred in adopting the summons earlier issued by the Ld. MM, Bellary, even though those Orders of Summoning had already become non-est in law.” The judgment stated, “Fresh summoning Order were required to be made by the Ld. MM, Delhi; however, this mandatory step was overlooked.”
Decision
Concluding that the cheques were issued only for security and not for a legally enforceable debt, the High Court ruled that the complaints under Section 138 of the N.I. Act were not maintainable. The Court also held the summoning orders to be invalid on procedural grounds.
In light of this discussion, the High Court allowed the petitions and quashed all five complaint cases (CC No. 15098/2016, CC No. 15410/2016, CC No. 15373/2016, CC No. 1540/2019, and CC No. 1541/2019) pending before the Ld. Metropolitan Magistrate, New Delhi, along with the impugned summoning orders and all further proceedings.
