Case Note & Summary
The petitioner, SBI Global Factors Limited, a factoring company, filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881, against the respondents for dishonour of cheques. The cheques were originally issued by the respondents in favour of M/s. Dhanshree Textile Industries (respondent No.2) for repayment of a loan. The petitioner had entered into a factoring agreement with respondent No.2, whereby the petitioner purchased the receivables and took assignment of the debt. The cheques were subsequently endorsed in favour of the petitioner. Upon dishonour of the cheques, the petitioner issued a demand notice and filed a complaint. The respondents filed a petition under Section 482 Cr.P.C. for quashing of the FIR, contending that the petitioner was not a payee or holder in due course of the cheques. The High Court examined the definition of 'payee' and 'holder in due course' under the NI Act. It held that the petitioner, being a factor, was not the payee of the cheques as the cheques were drawn in favour of respondent No.2. The court also noted that the petitioner did not become a holder in due course because the cheques were not endorsed in its favour before maturity and the petitioner had notice of the defect in title. The court further observed that the factoring agreement did not transfer the ownership of the cheques but only the receivables. Consequently, the court held that the complaint under Section 138 NI Act was not maintainable and quashed the FIR.
Headnote
A) Negotiable Instruments Act - Section 138 - Payee - Factor - A factor who purchases receivables and takes assignment of debt is not a payee of the cheques issued in favour of the original creditor. The factor cannot maintain a complaint under Section 138 of the Negotiable Instruments Act, 1881, as it is not the payee or holder in due course of the dishonoured cheques. (Paras 6-10) B) Criminal Procedure Code - Section 482 - Quashing of FIR - The High Court can quash criminal proceedings if the complaint does not disclose the essential ingredients of the offence. Where the complainant is not the payee or holder in due course, the complaint under Section 138 NI Act is not maintainable and is liable to be quashed. (Paras 11-12)
Issue of Consideration
Whether a factor (SBI Global Factors Limited) can be considered a payee or holder in due course of cheques issued in favour of the original creditor (M/s. Dhanshree Textile Industries) for the purpose of maintaining a complaint under Section 138 of the Negotiable Instruments Act, 1881.
Final Decision
The High Court allowed the petition and quashed the criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, pending before the Metropolitan Magistrate, 37th Court, Ballard Pier, Mumbai, being C.C. No. 123/SS/2018.
Law Points
- Section 138 Negotiable Instruments Act
- 1881
- payee
- holder in due course
- factor
- assignment of debt
- criminal complaint
- quashing of FIR
