Case BriefsDistrict Court

Tis Hazari Courts, New Delhi: Devanshu Sajlan, MM NI Act-05, while noting the ingredients of Section 138 of the Negotiable Instruments Act, 1881 acquitted a person charged for offence punishable under Section 138 NI Act.

Factual Matrix

Present complaint was filed under Section 138 of the Negotiable Instruments Act, 1881.

Complainant had granted a friendly loan of Rs 21,00,000 to the accused for two months for some urgent need of the accused.

To discharge the legal liability, the accused issued two cheques in favour of the complainant firm, but the same were returned by the bank as no balance was available in the account. Thereafter, Complainant sent a legal notice but the accused allegedly failed to pay the cheque amount and hence, the complainant filed the present complaint.

Accused denied having taken a loan of Rs 21,00,000 from the complainant and instead stated that he took a loan of Rs 5,00,000 and had already paid the same. He added that he had given three blank signed cheques as security cheques which were misused by the complainant.

Discussion

In the present matter, the complainant proved the original cheques that the accused had not disputed as being drawn on the account of the accused.

Court stated that giving a blank signed cheque does not erase the liability under the NI Act. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may subsequently fill up the amount and other particulars (Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, ¶ 34).). The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability.

Legal Notice

It is settled law that an accused who claims that she/he did not receive the legal notice, can, within 15 days of receipt of summons from the court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the Evidence Act [C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555).

Maintainability | Complainant is an unregistered partnership firm

It was contended that the present complaint was barred under Section 69(2) of the Indian Partnership Act. The firm was unregistered and hence the complaint was barred under the stated section.

A simpliciter reading of Section 69(2) would show that it is intended to apply to only suits, and that it would have no application to a criminal complaint.

Hence, the bar imposed on unregistered firms under Section 69(2) of the Indian Partnership Act does not apply to a criminal complaint under Section 138 NI Act.

Non-Existence of Debt

Complainant is required to prove that the cheque in question was drawn by the drawer for discharging a legally enforceable debt.

Court stated that as per the NI Act, once the accused admits signature in the cheque in question, certain presumptions are drawn, which result in shifting of onus on the accused and in the present matter, the issuance of cheques was not denied.

The combined effect of Section 118(a) NI Act and Section 139 of the NI Act is that a presumption exists that the cheque was drawn for consideration and given by the accused of the discharge of debt or other liability.

Rebuttal

  • Misuse of the security cheque

Bench stated that it is immaterial whether the cheque had been filled by the complainant once the cheque has been admitted being duly signed by the drawer-accused.

  • Complainant did not have the financial capacity to grant the alleged loan

It is a settled position of law that in case of cash transaction, showcasing that complainant did not have the adequate financial capacity to lend money to the accused amounts to a probable defense and can help in rebutting the presumption that is accrued to the benefit of the complainant in cheque dishonor cases.

In Basalingappa v. Mudibasappa, (2019) 5 SCC 418, the Supreme Court has observed as follows:

During his cross-examination, when financial capacity to pay Rs. 6 lakhs to the accused was questioned, there was no satisfactory reply given by the complainant. The evidence on record, thus, is a probable defence on behalf of the accused, which shifted the burden on the complainant to prove his financial capacity and other facts.

(emphasis added)

Hence, the Court stated that in cases in which the underlying debt transaction is a cash transaction, the accused can raise a probable defense by questioning the financial capacity of the complainant, and once the said question is raised, the onus shifts on the complainant to prove his financial capacity.

Bench on perusal of the record of the present case, agreed with the submission of the counsel of the accused, since the record created adequate doubts over the financial capacity of the complainant to advance the loan in question.

Conclusion

Hence, Court opined that the complainant failed to establish that it had the financial capacity to advance a loan of Rs 21,00,000 to the accused.

Therefore, accused successfully rebutted the presumption under Section 139 NI Act and the complainant failed to discharge the shifted onus.

“…even if the cheque presented by the complainant was returned unpaid by the bank, the complainant cannot prosecute the accused, as the requirement of the existence of legal liability has not been satisfied in the present case, since the accused has been able to establish a probable defence by creating a credible doubt over the existence of the alleged loan transaction.”

Concluding the matter, Bench held that complainant failed to prove the case beyond a reasonable doubt, hence the accused was acquitted from the charge of offence punishable under Section 138 of the NI Act. [S.S. Auto Gallery v. Vaneet Singh, 21636 of 2016, decided on 9-10-2021]


Advocates before the Court:

Manjeet Singh, counsel for the complainant.

D.K Ahuja, for the accused.

Case BriefsSupreme Court

Supreme Court: The 3-Judge Bench comprising of N.V. Ramana, Surya Kant* and Aniruddha Bose, JJ., upheld the judgement of High Court of Judicature at Madras, whereby the order of acquittal of the Judicial Magistrate was reversed and the appellants had been convicted under Section 138 of the NIA, 1881. The Bench expressed,

“Once the appellant 2 had admitted his signatures on the cheque and the Deed, the trial Court ought to have presumed that the cheque was issued as consideration for a legally enforceable debt.”

Background

The respondent was the proprietor of a garment company named and styled as ‘Growell International’, which along with the appellant 1 was engaged in a business arrangement, whereby they agreed to jointly export garments to France. Certain issues arose regarding delays in shipment and payment from the buyer, due to which, the appellants had to pay the respondent a sum of Rs 11.20 lakhs. To that end, the appellant 2 had issued a cheque on behalf of appellant 1 bearing No. 897993 dated 07-11-2000 in favour of the respondent and also executed a Deed of Undertaking wherein appellant 2 personally undertook to pay the respondent in lieu of the initial expenditure incurred by the latter.

The respondent presented the said cheque to the bank on 29-12-2000 for collection but the cheque was dishonoured due to insufficient funds in the account of appellants. Pursuant to which the respondent issued a notice asking the appellants to pay the amount within 15 days.

The appellants in their reply denied their liability and claimed that blank cheques and signed blank stamp papers were issued to help the respondent in some debt recovery proceedings, and not because of any legally enforceable debt. It was contended by the appellants that the said documents were misused by the respondent to forge the Deed of Undertaking and the High Court had committed patent illegality and exceeded its jurisdiction in reversing the acquittal.

Analysis

The Bench noticed that the Trial Court had completely overlooked the provisions and failed to appreciate the statutory presumption drawn under Section 118 and Section 139 of NI Act. The Statute mandates that once the signature(s) of an accused on the cheque/negotiable instrument are established, then these ‘reverse onus’ clauses become operative. Similarly,

“Mere bald denial by the appellants regarding genuineness of the Deed of Undertaking dated 07-11-2000, despite admitting the signatures, did not cast any doubt on the genuineness of the said document.”

In the light of Rohtas v. State of Haryana, (2019) 10 SCC 554, the Bench evaluated its own limitations and observed that the Court under Article 136 of the Constitution did not encompass the re-appreciation of entirety of record merely on the premise that the High Court had convicted the appellants for the first time in exercise of its appellate jurisdiction.

The Bench, while citing CK Dasegowda and Others v. State of Karnataka, (2014) 13 SCC 119, expressed,

“It is true that the High Court would not reverse an order of acquittal merely on formation of an opinion different than that of the trial Court. It is also trite in law that the High Court ought to have compelling reasons to tinker with an order of acquittal and no such interference would be warranted when there were to be two possible conclusions.”

Noticing that the defence raised by the appellants did not inspire confidence or meet the standard of “preponderance of probability” the Bench stated that in the absence of any other relevant material, the High Court did not err in discarding the appellants’ defence and upholding the onus imposed upon them in terms of Section 118 and Section 139 of the NIA.

Decision

It was held that though the provisions of NI Act envision a single window for criminal liability for dishonour of cheque as well as civil liability for realisation of the cheque amount, since the appellant had accepted the High Court’s verdict; he was entitled to receive only the cheque amount of Rs.11.20 lakhs.

Hence, the impugned order was upheld. Considering the appellants volunteered and thereafter deposited the cheque amount with the Registry of the Court, the Bench had taken a lenient view and held that the appellants should not be required to undergo three months imprisonment as awarded by the High Court.

[Kalamani Tex v. P. Balasubramanian, 2021 SCC OnLine SC 75 , decided on 10-02-2021]


Kamini Sharma. Editorial Assistant has put this report together 

*Judgment by: Justice Surya Kant

Know Thy Judge | Justice Surya Kant

Case BriefsHigh Courts

Tripura High Court: S.G. Chattopadhyay, J., highlights the essence of the provisions of Negotiable Instruments Act, in light of the object of a statutory notice.

It has been stated that the Courts below have concurrently held that the respondent has already established his case under the provisions of Section 138 of Negotiable Instruments Act, 1981 against the accused, who is the present petitioner.

The present petitioner was convicted for committing an offence under Section 138 of the Negotiable Instruments Act and he/she was penalised for a sentence of 1 year along with a fine of Rs 7,00,000.

Session Judge had also affirmed the above decision of the Chief Judicial Magistrate while reducing the sentence to fine and directing the petitioner to pay only Rs 4,00,000.

Being aggrieved with the above, the present criminal revision petition was filed.

Facts

Since both the petitioner and respondent were on good terms and known to each other, the petitioner used to borrow money from the respondents and repay the same in time. On 15-01-2014, he took a loan of Rs 3,50,000 and promised to repay the money within 30-11-2014.

On being requested for the above-amount, past the said date, petitioner handed over a cheque to the respondent but the said cheque was returned with an endorsement “insufficient funds”.

Demand Notice was issued with 15 days of time given for the repayment of the said amount. Every time that the postman visited the house for the service of the demand notice, housemates of the petitioner refused to receive the said letter and said that the petitioner was out of station.

Hence, in view of the above circumstance, the notice was returned to the respondent.

Later the matter reached the trial and the petitioner was convicted under Section 138 NI Act.

Misutilization of the Cheque

Petitioner contended in regard to the cheque that the accused had never issued any cheque in discharge of any debt or liability, but only a blank cheque was issued as a security for the loan which was borrowed by him from the complainant and after the loan was repaid, the complainant, instead of returning the cheque, misutilized it against him.

Statutory Presumption

Respondent’s counsel submitted that the presumption under Section 139 read with the Rule of Evidence as provided under Section 118, NI Act with regard to the existence of debt or liability is not a discretionary presumption, it is a statutory presumption which is obligatory on the part of the Court. Hence, a heavy burden is cast on the accused to rebut such presumption.

Further, the counsel added that apart from making mere denial of the existence of debt or liability, the accused did not lead any evidence to prove that he had no legal liability to be discharged and as such the courts below had drawn the statutory presumptions against him.

Section 138 NI Act requires proof of the essential ingredients:

  • there is legally enforceable debt
  • a cheque is drawn on an account maintained by the accused with his banker for payment of any amount to another person from his account in the discharge in whole or in part of the debt or liability
  • the cheque is returned by the bank unpaid, either because of the insufficient fund in the account of the accused to honour the cheque or that the cheque amount exceeds the amount arranged to be paid from that account by an agreement made with the bank.

Bench noted that the petitioner in his defence merely offered an explanation throwing suggestion to the prosecution witnesses in their cross-examination that he gave a blank signed cheque as security and did not deny the fact that he borrowed loan from the complainant.

Question for consideration:

In the instant matter, whether such an explanation offered by the petitioner is enough to disprove the statutory presumptions under Sections 138 and 139, NI Act?

In the decision of Hiten P. Dalal v. Bratindranath Banerjee, (2001) 6 SCC 16, Supreme Court that the presumptions to be drawn by the court under Sections 138 and 139, NI Act are presumptions of law which cast the evidential burden on the accused to disprove the presumptions.

Further, in the case of Mallavarapu Kasivisweswara Rao v. Thavikonda Ramulu Firm, (2008) 7 SCC 655, it was held that it is a settled position that the initial burden lies if the accused to prove the non-existence of consideration.

Decision

Bench on perusal of the above held that the explanation offered by the accused petitioner is not founded on proof and it does not stand to reason.

The object of the statutory notice is to protect an honest drawer of the cheque by providing him with a chance to make the fund sufficient in his bank account and correct his mistake.

Accused had an opportunity to explain himself, he instead repeatedly avoided the service of demand notice and did not state that he already has the repayment of the loan.

Therefore, Court held that the prosecution successfully discharged its burden in proving the case against the petitioner with the help of the statutory presumptions under the NI Act, and the accused failed to rebut those presumptions and prove the contrary by offering provable explanation founded on the proof.

Adding to the above, Bench also observed that the overall conduct of the accused depicted that he wanted to avoid the service of the notice. Impugned judgment by the below courts does not require any interference and the conviction and sentence were upheld by the High Court.

Bench directed the fine of Rs 4,00,000 within a period of 2 months.[Nitai Majumder v. Tanmoy Krishna Das, 2020 SCC OnLine Tri 537, decided on 17-11-2020]

Case BriefsHigh Courts

Madras High Court: The Bench of M.V. Muralidharan, J. upheld the order of respondent’s acquittal for an offence punishable under Section 138 of Negotiable Instruments Act, 1881 while holding that “the different ink, pen, and manipulation of the amount would show that the complainant had failed to demonstrate due execution of the cheque.”

The present appeal was directed against the judgment of acquittal passed by the Additional District Judge reversing the conviction of the respondent under Section 138 (for dishonour of cheque).

Appellant submitted that respondent borrowed a sum of Rs 1,50,000 from him and issued a cheque drawn on ING Vysya Bank towards his liability to repay the same. However, the cheque was dishonoured. The appellant initiated the process under Section 138 and the trial court convicted the respondent holding him guilty. The respondent appealed to the ADJ who reversed his conviction as mentioned above.

The High Court observed that presumption in favour of complainant contemplated under Sections 118 and 139 of NI Act comes to play only on the satisfaction of Court that the cheque in question was duly executed. It was explained that “execution” of the cheque does not mean the mere handing over a “blank cheque”, but it means that the cheque is given in the full form, ” the complainant cannot be justified in doing material alteration beyond the knowledge of the accused.”

It was stated, it would be certainly unlawful if a complainant is allowed to fill up details of cheque beyond the knowledge of the accused such as filling up date and amount in a blank cheque.” In the present case, figure denoting the amount was found to be written in different inks and also the handwriting in as much as digits and words were concerned also differed. In such view of the matter of the Court did not find any illegality in the impugned order. Thus, the petition was dismissed. [E. Dhanuskodi v. D. Sreedhar, 2018 SCC OnLine Mad 5124, dated 08-11-2018]