Dishonour of Cheque occurring when parties entered in an illegal and void agreement: Can Court still take cognizance in S. 138 NI Act complaint? Dwarka Court decides

Dwarka Court, New Delhi: Shipra Dhankar, MM (NI Act) on noting that the dishonour of cheque occurred in consequence of an illegal and void agreement, dismissed the complaint under Section 138 of the Negotiable Instrument Act, 1881.

What are we dealing with in the present matter?

The Complainant was approached by the accused with the proposal that, in return for a commission/liaison fee, the accused can obtain in the complainant’s favour a tender issued by the NTPC where the accused enjoys “good links” with the higher authorities.

Thereafter, the complainant, after having applied for the said tender and paid the amount demanded from him, received from the accused a tender award letter, however, the said letter was later found to be forged.

In view of the above incident, the complainant demanded his money back from the accused, pursuant to which certain cheques were drawn in his favour out of which one got dishonoured.

Complainant approached the Court due to the dishonour of the above-said one cheque.

Analysis, Law and Decision

Section 138 NI Act clarifies that “debt or other liability” means a legally enforceable debt or other liability. The said legal position was fortified by the decision of Delhi High Court in Virender Singh v. Laxmi Narain, 2006 SCC OnLine Del 1328 wherein it was found that if the consideration or object of an agreement is unlawful, illegal or against the public policy, the agreement itself is void and legally unenforceable, as a result of this, any cheque issued in discharge of a liability under such a void agreement, cannot be said to be issued in discharge of a legally enforceable debt o liability.

The Bench also relied on Section 23 of the Indian Contract Act to see whether the agreement entered into by both the parties was for a lawful consideration/object or not.

Court on noting the fact that the sole purpose of the agreement was to obtain a tender in favour of the complainant, not on the basis of its intrinsic merit, but on the basis of “good links” of the accused with the NTPC higher authorities. Such agreements are expressly rendered void and of no legal consequence by virtue of Section 23 of the Indian Contract Act.

Hence the agreement was illegal and void.

In the present matter, presumption stood rebutted by the Complainant’s own version. The complainant’s own depiction of the transaction disclosed that the same was legally unenforceable and void.

Lastly, the Court referred to the maxim “in pari delicito portior est conditio defendantis”, which embodies the principle: “the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to a illegality or fraud”.

In light of the above discussion, the cognizance in the present complaint was declined and the complaint was dismissed. [Virender Dahiya v. Keshav Kumar, CC No. 11747 of 2021, decided on 10-1-2022]

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