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No liability in cheque paid as advance - Delhi HC

"Mere advance payment as per agreement does not create liability where no goods delivered"

 A cheque issued as advance payment for purchase of goods, if it bounces, cannot be cause for filing criminal case under Section 138 of the Negotiable Instruments Act. In this case, Indus Airways Ltd vs Magnum Aviation Ltd, the airways issued post-dated cheques to the other company as advance payment towards orders for spare parts. Later the deal was cancelled and the payment was stopped. The seller company filed complaint against the airways and a Delhi magistrate issued summons to the purchasers. On appeal, the Delhi High Court ruled against the purchaser ruling that the post-dated cheques were issued against a liability. Quashing the judgment, the Supreme Court stated last week that the cheques were not issued against a liability. "If a cheque is issued as advance payment for purchase of goods and for any reason the order is not carried out either because of its cancellation or otherwise the cheque cannot be said to have been drawn for an existing debt or liability," the judgment clarified.

 Article referred: http://www.business-standard.com/article/opinion/one-fire-doesn-t-lead-to-insolvency-114041300639_1.html

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