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Karnataka High Court Upholds Lower Courts’ Decision on Section 138 of Negotiable Instruments Act 1881 in Cheque Dishonor Case

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Karnataka High Court Upholds Lower Courts’ Decision on Section 138 of Negotiable Instruments Act 1881 in Cheque Dishonor Case

Case title: MR. B H SHIVANANDA VS MR S SATHISH CHAWLA

Case no.: CRIMINAL REVISION PETITION NO. 824 OF 2016

Dated on: 28th May 2024

Quorum:  Hon’ble. MR JUSTICE S RACHAIAH

FACTS OF THE CASE

It is the case of the complainant that the accused is an absolute owner of the property situated at Mudhugurki Village, Vijipura Hobli, Devanahalli Taluk, Bengaluru Rural District and he intended to sell it to the complainant. The complainant on negotiation, paid a sum of Rs.2,96,000/- and got the sale agreement executed. Due to some misunderstanding, the said sale agreement needed to be cancelled and the accused agreed to return the amount which he had received towards the sale agreement. Accordingly, a cheque for a sum of Rs.3,16,000/- was issued to the complainant. The cheque was presented on 04.01.2010 by the complainant for encashment, however, it came to be dishonoured with an endorsement as ‘payment stopped’. The complainant issued a legal notice calling upon the accused to repay the amount. Despite the notice being served, the accused failed to repay the amount. Hence, the complaint came to be filed before the Jurisdictional Magistrate. To prove the case of the complainant, he himself examined as P.W.1 and got marked 16 documents as Exs.P1 to P16. On the other hand, the accused did not choose to examine any witnesses.

 ISSUES

  1. Whether the accused issued the cheque in question to the complainant for the discharge of a legally enforceable debt or liability?
  2. Whether the dishonor of the cheque with the endorsement ‘payment stopped’ constitutes an offence under Section 138 of the Negotiable Instruments Act?
  3. Whether the accused successfully rebutted the presumption that the cheque was issued for the discharge of a debt or liability?
  4. Whether the complainant proved the existence of the sale agreement and the transaction leading to the issuance of the cheque?

LEGAL PROVISIONS

Section: 397 of CR.P.C: The High Court or any Sessions Judge may call for and examine the record of any proceeding before any inferior Criminal Court situate within its or his local jurisdiction for the purpose of satisfying itself or himself as to the correctness, legality or propriety of any finding.

Section: 401 CR.P.C: Where under this Code an appeal lies but an application for revision has been made to the High Court by any person and the High Court is satisfied that such application was made under the erroneous belief that no appeal lies thereto and that it is necessary in the interests of justice so to do, the High Court may treat.

SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT: It states that returning of a cheque unpaid constitutes an offence only if such return is due to want of funds. Where the cheque is returned by the bank for want of full signature of the drawer, it does not constitute an offence U/S 138.

CONTENTIONS OF THE APPELLANT

It is the submission of learned counsel for petitioner that the findings of the Courts below in recording the conviction are not proper, therefore, the findings are required to be set aside. It is further submitted that the complainant contended that the accused was intending to sell the property and entered into an agreement of sale, therefore, he paid the amount. However, the said agreement stood cancelled due to some unavoidable circumstances and the accused agreed to repay the amount and issued the cheque. In fact, the complainant did not produce the said sale agreement. In the absence of the sale agreement, the liability to repay the amount would not arise. However, the Courts below failed to consider the said aspect and recorded the conviction, which is against the evidence on record. It is further submitted that even though the accused contended that he did not enter into any contract or any agreement with the complainant, the said contention was not considered by the Courts below. Further, the accused contended that he had no account in the ICICI Bank and the cheque did not belong to him, the said contention was also not considered by the Courts below. As a result, the impugned judgments have been passed and the same is liable to be set aside. It is further submitted that the complainant must have established that the cheque belonged to the accused, when the specific contention was taken by the accused that it did not belong to him. However, the complainant has not made any efforts to prove that the cheque belongs to the accused. The said contention of the accused has been uncontroverted. However, the Courts below failed to consider the said contention and passed the impugned judgments. Therefore, the said findings of conviction are required to be set aside. Making such submission, the learned counsel for petitioner prays to allow the petition.

CONTENTIONS OF THE RESPONDENTS

The learned counsel for respondent vehemently justified that the accused being an owner of the property was intending to sell the property. Accordingly executed the sale agreement after having received the part of sale consideration. Ex. P8 is an affidavit executed by the accused herein has admitted that he had sold four sites to the complainant. Similarly, the accused admitted that the complainant had paid part payment by way of cheque as well as cash. When the transaction is admitted by the accused and the affidavit executed to that effect, it can be said that the complainant has proved the transaction. It is further submitted that since the accused had admitted the transaction regarding the sale of sites, the issuance of the cheque after cancelling the said sale transaction cannot be denied at a later stage. Moreover, when the cheque was presented for encashment, the complainant received an endorsement as ‘payment stopped’. If the cheque did not belong to the accused, the banker would have issued an endorsement either as the signature differs or does not belong to the signatory. In the absence of this endorsement, the burden obviously lies on the accused to prove that the cheque did not belong to him. However, the accused had not made any efforts to prove that the cheque did not belong to him. In the absence of proof regarding the cheque which did not belong to him, the inference could be drawn that the cheque belongs to the accused. It is further submitted that the Courts below after appreciating the oral and documentary evidence on record, recorded the conviction which appears to be appropriate and relevant. Therefore, there are neither infirmities nor errors in the findings of the Courts below. Hence, it is not required to be interfered with the findings. Making such submission, the learned counsel for the respondent prays to dismiss the petition.

COURT’S ANALYSIS AND JUDGEMENT

THIS CRL.RP IS FILED U/S. 397 R/W 401 CR.P.C PRAYING TO SET ASIDE THE ORDER OF CONVICTION AND SENTENCE PASSED BY THE XIV ADDITIONAL CHIEF METROPOLITAN MAGISTRATE BENGALURU, IN C.C.NO.26550/2011 DATED 01-03-2014 FOR THE OFFENCES PUNISHABLE UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT. After having heard the learned counsel for the respective parties and also perused the findings of the Courts below, it is necessary to have a cursory look upon the evidence of P.W.1. According to P.W.1, the accused intended to sell the property. After negotiation, the complainant paid the amount to the accused as a part payment and got the sale agreement executed in respect of the property. However, due to some unavoidable circumstances, the sale agreement had to be cancelled. Further, P.W.1 stated that in lieu of the said cancellation, the accused stated to have issued a cheque for a sum of Rs.3,16,000/-. When it was presented it for encashment, it came to be dishonored as ‘payment stopped’. Before adverting to the facts of the case, it is necessary to refer the proposition of law regarding the Negotiable Instruments Act and also dictum of the Hon’ble Supreme Court on the said law. It is the settled principle of law that once the execution of the cheque is admitted by the accused, the Court has to raise a presumption that the said cheque has been issued for the discharge of debt or liability. The said presumption is rebuttable in nature, it can be rebutted by raising a probable defence by the accused. In the present case, the accused denied the issuance of the cheque and its execution, however, he has not made any efforts to prove that the cheque did not belong to him and he has not issued the cheque for any transaction with the complainant. It is also settled principle of law that mere denial of the transaction and issuance of the cheque is not sufficient to rebut the presumption. The accused except denial, he has not made any efforts to substantiate and prove the said denial. Therefore, I am of the considered opinion that the accused did not rebut the presumption. Moreover, the complainant produced several documents and got them marked to substantiate the transaction. When the accused failed to rebut the presumption, it is necessary to draw the adverse inference that the cheque has been issued for the purpose of discharge of legally recoverable debt or liability. In such a way, it can be conferred that the Courts below rightly appreciated the evidence and recorded the conviction. Therefore, interference with the said findings did not arise. Hence, I decline to interfere with said findings. The Criminal Revision Petition is dismissed.

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Judgement Reviewed by – HARIRAGHAVA JP

 

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Delhi High Court Upholds Dishonoured Cheque Conviction : Cited Lack of Merit in the Contentions of the Appellant

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Case Title – Rajesh Kumar Jain Vs. J.C. Trading

Case Number – CRL. REV. P. 222/2024

Dated on – 14th May, 2024

Quorum – Justice Anoop Kumar Mendiratta

FACTS OF THE CASE
In the case of Rajesh Kumar Jain Vs. J.C. Trading, the Respondent J.C. Trading supplied “paper and board” to Rajesh Kumar, the Appellant in the case, via a bill dated 12th of August, 2014 for Rs. 5,26,728/-. The Appellant issued a cheque dated 9th of September, 2014 for Rs. 5,26,785/- to J.C. Trading in discharge of the liability for the goods supplied. The same cheque was dishonoured upon the presentation due to the “insufficient funds” as indicated by the bank return memo dated 10th of September, 2014. The Respondent, sent a legal notice dated 7th of October, 2014 to the Appellant in the case, demanding the payment. Despite the service of the notice, the Appellant failed to make the payment. Due to the non-payment, the Respondent instituted a complaint under Section 138 of the Negotiable Instruments Act, 1881, dealing with the dishonour of the cheques for the insufficiency of funds or if it exceeds the amount arranged to be paid from that account. On dated 8th of July, 2022, Rajesh Kumar Jain, the Appellant in the case was convicted and further on the 23rd of July, 2022, the Appellant was sentenced to four months of simple imprisonment and a fine of Rs. 8,50,000/-. In default of payment of the fine, he was to undergo an additional two months of simple imprisonment. The entire amount was directed to be paid to the Respondent.

ISSUES
The main issue of the case whirled around whether the cheque dated 9th of September,2014 was issued by the Appellant in discharge of a legally enforceable debt or liability towards the Respondent?
Whether the goods supplied by the Respondent to the Appellant were defective and whether they were returned by the Appellant, thus nullifying any liability under the cheque?
Whether the legal notice dated 7th of August, 2014, sent by the Respondent to the Appellant demanding for the payment, was duly served and whether the non-receipt of the legal notice could be valid reason for the Appellant?
Whether the presumption under Section 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for the discharge of any debt or liability, was effectively rebutted by the Appellant?
Whether the Trial Court and the Appellate Court rightfully acknowledged the evidences and applied the legal principles in convicting the Appellant and upholding the sentence?
Whether the ledger produced by the Respondent, which was maintained in the electronic form, could be relied upon to prove the supply of goods and the existence of the liability?
Whether the contention of the Appellant regarding the cheque being issued as an advance payment and did not discharge of an existing liability holds merit under the circumstances of the case?
Whether there was any error concerning the Procedure or Jurisdiction in the findings and conclusions of the Trial Court and the Appellate Court that would warrant the intervention by the High Court in its revisional jurisdiction?

LEGAL PROVISIONS
Section 138 of the Negotiable Instruments Act, 1881 prescribes the Dishonour of Cheque for insufficiency, etc., of funds in the account
Section 139 of the Negotiable Instruments Act, 1881 prescribes the Presumption in favour of holder
Section 118(a) the Negotiable Instruments Act, 1881 prescribes the Presumption as to negotiable instruments of consideration
Section 251 of the Criminal Procedure Code, 1973 prescribes the Substance of accusation to be stated
Section 313 of the Criminal Procedure Code, 1973 prescribes the Power to examine the accused
Section 397 of the Criminal Procedure Code, 1973 prescribes the Calling for records to exercise powers to revision
Section 401 of the Criminal Procedure Code, 1973 prescribes the Power of High Court for revision
Section 65 of the Indian Evidence Act, 1872 prescribes the Cases in which secondary evidence relating to documents may be given
Section 27 of the General Clauses Act, 1897 prescribes the Meaning of Service by Post

CONTENTIONS OF THE APPELLANT
The Appellant, through their counsel, in the said case contented that the cheque was not issued in discharge of a legally enforceable debt or liability and that the goods supplied by the Respondent turned out to be defective and were returned, thus nullifying any liability.
It was asserted that the material supplied by the Respondent was defective and was returned through a goods return Challan dated 8th of September, 2014 and that there was no outstanding liability necessitating the issuance of the cheque.
Further it was contented that the Appellant acknowledged the cheque bearing his signature but contented that the particulars were filled in by the clerical staff of the firm of the Respondent and that the Appellant did not authorize the same.
The Appellant, asserted that they did not receive the legal notice dated 7th of October, 2014 sent by the Respondent, challenging the presumption of the due service of notice under Section 27 of the General Clauses Act, 1897 and that the presumption under the Section 139 of the Negotiable Instruments Act, 1881, was effectively rebutted by the presentation of a probable defence and that there was no outstanding debt as contented through relying on the testimonies and documentary evidences, inclusive of the goods return challan and the bank letter.
Moreover it was contented that the Respondent failed to furnish adequate the evidences to prove that the goods were not defective or that they were not returned and that was failure to examine the transporter, Mr. Kalim, who allegedly handled the return of goods.
Further the Appellants questioned the reliability of the ledger produced by the Respondent, asserting that it was maintained in the electronic form and not substantiated by other documentary evidences or corroborating testimony and that it was open to him to rely on the evidence led by the complainant to raise a probable defense and that he was not required to prove his defense beyond a reasonable doubt and that the burden or proof for rebutting the presumption under Section 139 of the Negotiable Instruments Act, 1881 was on the preponderance of probabilities.
The Appellants, through their counsel, in the said case relied on various precedents inclusive of the M/s. Indus Airways Pvt. Ltd. & Ors. Vs. M/s. Magnum Aviation Pvt. Ltd. & Anr. To contend that a cheque issued as an advance payment for goods not ultimately supplied or defective does not constitute a legally enforceable debt.

CONTENTIONS OF THE RESPONDENT
The Respondent, through their counsel, in the said case contented that the cheque dated 9th of September, 2014 was issued by the Appellant in discharge of a legally enforceable debt for the supply of goods (paper and board) as per the bill dated 12th August, 2014.
Further it was contented that the goods were duly supplied to and accepted by the Appellant without any immediate complaint about their quality or any defects.
Thus, on the presumption under Section 139 of the Negotiable Instruments Act, 1881, which mandates that the cheque was issued for the discharge of a debt or liability unless proven otherwise by the accused.
It was asserted by the Respondent that there were no credible evidences to prove that the goods were returned and that the goods return challan produced by the appellant was not substantiated by examining the transporter, Mr. Kalim, or any other corroborative evidence and that the legal notice dated 7th of October, was duly sent to the address of the Appellant and service could be presumed under Section 27 of the General Clauses Act, 1897 and that the claim of the Appellant was insufficient to rebut this presumption.
Moreover, it was contended that if the goods were indeed defective and returned, the Appellant should have taken steps to stop the payment of the cheque and that the failure to do so and the subsequent dishonour of the cheque for ‘insufficient funds’ indicated that the debt was acknowledged and that the cheque was issued in good faith.
The Respondent defended the reliability of their ledger, which was maintained in the electronic form, as per standard business practices and that the ledger corroborated the transaction and the outstanding liability and that the inconsistencies in the defense of the Appellant, inclusive of the claim that only ‘board’ was supplied instead of ‘paper and board’ and that in VAT coding, ‘paper and board’ are categorized under one code, and the bill reflected this coding practice.
The Respondent, through their counsel, in the said case contented that the Appellant failed to rebut the presumption under Section 139 of the Negotiable Instruments Act, 1881 and that the defense of the Appellant was not substantiated by credible evidences, and his failure to act prudently undermined his claims.

COURT ANALYSIS AND JUDGMENT
The court in the case of Rajesh Kumar Jain Vs. J.C. Trading, reaffirmed that under Section 139 of the Negotiable Instruments Act, 1881, once the execution cheque is admitted, there is a statutory presumption that the cheque was issued for the discharge of a debt or other liability and that this presumption is rebuttable, and the burden of proof lies on the accused to present a probable defense to rebut this presumption. The court observed that the Appellant failed to provide the sufficient evidence to rebut the presumption that the cheque was issued for a legally enforceable debt and that the defense of the Appellant that the goods were supplied were defective and returned was not supported by any credible evidences, especially, the Appellant did not present the transporter who allegedly returned the goods as a witness, nor did the Appellant provide any documentary evidence of the return. The court stated that the cheque issued by the Appellant was dishonoured due to insufficient balance and that the Appellant did not stop the payment of the cheque, which he could have done if the goods were really defective and returned and that the Appellant, additionally, did not respond to the legal notice sent by the Respondent. The court in this case noted that the ‘goods return challan’ presented by the Appellant lacked verification, and that the transporter involved in this process was not examined in the court. The court, thus, dismissed the criminal revision petition instituted by the Appellant as the court did not find any merits in the contentions of the Appellant and upheld the concurrent findings of the Trial Court and the Appellate Court. The court, in this case, upheld the conviction of the Appellant under Section 138 of the Negotiable Instruments Act, 1881 and the Appellant was directed to undergo the sentence imposed by the Trial Court, inclusive of four months of simple imprisonment, two additional month of simple imprisonment and a fine of Rs. 8,50,000. The court, in this case, directed that a copy of the order be forwarded to the Trial Court and the Superintendent of Jail for information and compliance with the order on the sentence as passed by the Trial Court.

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Judgement Reviewed by – Sruti Sikha Maharana

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