2025 (5) TMI 1280 - HC - Indian Laws

Dishonour of cheques - returned back with the reason Funds Insufficient - discharge of legally enforceable debt or liability Offence punishable u/s 138 of the NI Act - rebuttable the statutory presumptions - Challenged the acquittal of an accused - effect of the settlement entered into between the parties during trial - veracity of the receipts and payments - HELD THAT - It was observed that even though the accused Sandeep had agreed to his signatures on the agreement to sale however it was disputed that the property had been sold. Also as noted in the impugned judgments the petitioner never produced the original agreement to sell. The learned Trial Court rightly observed that the sale price for the subject property by no stretch of imagination could be merely Rs. 4, 50, 000/- and the defence of the accused persons that the subject property had been only been mortgaged seemed more reliable in view of Exhibit CW1/D1. The petitioner has not contested the observation regarding price of the property and also not placed any material on record to controvert the said observation. As far as the veracity of the receipts Exhibit CW1/D2 (colly) and payments are concerned although the complainant had sought to explain that he had extended 2-3 loans to the accused Sandeep for a sum of Rs. 30, 000/- to Rs. 40, 000/- however as noted by the learned Trial Court no cogent explanation was furnished as to why he had received payments from the accused persons for over Rs. 3 lakhs as seen from the seventeen receipts and bank transactions. The learned Trial Court also noted that it is feasible that some of the receipts had been misplaced by the accused persons as the disputes pertain to the year 2011. It is also relevant to note that the petitioner had made no mention of the prior loans in the complaint. Even if the case of the complainant is taken at the highest it is also peculiar to note that while a debt of Rs. 4.5 lakhs has been claimed to be due on part of the accused persons the total amount of the cheques in dispute comes to Rs. 6.5 lakhs. No explanation has been given by the complainant as to why the cheques were drawn for an amount higher than the alleged debt of Rs. 4.5 lakhs. The main thrust of the petitioner is on the fact that the parties had apparently settled the matter at one point and the respondents had failed to make the payments as per the settlement. It is argued that the sheer fact that the parties had settled the matter shows the legitimacy of the debt. The accused persons had denied the settlement and contended that the statement dated 25.07.2014 was signed by accused Sandeep without reading the same. The accused Jyoti altogether denied any knowledge of the settlement. It was also stated that the petitioner had assured the accused Sandeep that he would withdraw the present complaints on receiving Rs. 30, 000/- to Rs. 40, 000/-. A party may enter into a compromise for a number of reasons especially to avoid undergoing through the harassment of trial and mitigate the uncertainty of their odds in litigation. A party may also enter into a settlement due to the relationship with the other party. Undisputably once the settlement is arrived at between the parties and made part of the Court record the same subsumes the original complaint. If the accused party fails to follow through with the settlement it is open to the complainant to pursue the fresh cause of action that arises from breach of the settlement if the settlement has attained finality or to pursue the original complaint as has been done by the complainant in the present case. In the latter case however the complainant has to proceed in accordance with law and prove the foundational facts as alleged in the complaint as per the provisions of NI Act. The complainant however cannot pursue parallel proceedings in relation to the same transaction. It is relevant to note that in the present case the learned Trial Court kept the matters pending for compliance of the agreed settlement terms. Thereafter when the accused persons failed to make the requisite payments the matter was proceeded on merits. On being pointedly asked the learned counsel for the petitioner submitted that the petitioner has taken no steps to secure compliance of the settlement. There was no adjudication in the present case regarding existence of any debt before the parties entered into the settlement. Insofar as the effect of the settlement on the merits of the present cases are concerned as noted above while it was open to the petitioner to pursue his civil and criminal remedies against non- compliance of the settlement the mere fact that the accused had entered into a settlement cannot be construed to be an admission of debt and the complainant was still required to establish the foundational facts in the present case. From appreciation of evidence in the opinion of this Court the respective respondents have been able to satisfy the test of preponderance of possibilities and rebut the presumptions stipulated in Sections 118 and 139 of the NI Act. Thus this Court finds no such perversity in the impugned judgments so as to merit an interference in the findings of acquittal. The present appeals are dismissed in the aforesaid terms.

Summary

The core legal questions considered in this judgment are as follows:

1. Whether the learned Trial Court erred in acquitting the accused respondents in complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), despite the presumption of liability arising from dishonour of cheques.

2. Whether the accused persons successfully rebutted the statutory presumptions under Sections 118 and 139 of the NI Act regarding the issuance of cheques in discharge of a legally enforceable debt or liability.

3. The legal effect and implications of a settlement entered into between the parties during trial, especially in the context of subsequent non-compliance and continuation of proceedings.

4. The scope of interference by the appellate court in an order of acquittal in cases under Section 138 of the NI Act.

Issue-wise Detailed Analysis:

1. Scope of appellate interference in acquittal under Section 138 NI Act

The Court referred to established legal principles governing appellate interference in acquittals, emphasizing that ordinarily, an appellate court should be slow to overturn a trial court's judgment unless it is perverse or wholly unsustainable in law. This principle was drawn from precedents which caution against disturbing acquittals where two views are possible, especially in regular criminal offences.

However, the Court distinguished cases under Section 138 NI Act, noting that the statutory presumptions under Sections 118 and 139 alter the evidentiary landscape. The Supreme Court's ruling in Rohitbhai Jivanlal Patel v. State of Gujarat was cited to highlight that the appellate court has wider latitude to examine the evidence and determine whether the accused has successfully rebutted the presumption of discharge of debt/liability by the cheque. The Court underscored that the appellate court can scrutinize the evidence to see if the preponderance of probabilities favors the accused's defense, thus justifying interference with an acquittal.

2. Presumptions under Sections 118 and 139 of the NI Act and their rebuttal

The Court noted that the signatures on the cheques were undisputed, thereby attracting the presumption under Section 118 that the cheques were drawn for consideration, and under Section 139 that the cheques were issued in discharge of a legally enforceable debt or liability. These presumptions shift the burden onto the accused to rebut them by adducing a probable defense.

It was clarified that the accused need not conclusively disprove the existence of debt/liability beyond reasonable doubt but must establish on a preponderance of probabilities that the cheques were not issued in discharge of such debt. The Court extensively relied on the recent Supreme Court exposition in Rajesh Jain v. Ajay Singh, which elaborated that the accused may discharge this burden through direct or circumstantial evidence, or by invoking presumptions under the Evidence Act. Once the accused meets this burden, the presumption disappears and the complainant must prove the existence of debt/liability as a matter of fact.

3. Application of law to facts regarding existence of debt/liability

The respondents contended that the transaction was not a sale of property but a mortgage loan of Rs. 4.5 lakhs, which had been repaid. They produced seventeen receipts and bank statements evidencing payments totaling approximately Rs. 3,34,820/- towards the loan. The Trial Court accepted this defense as plausible and noted the absence of the original agreement to sell the property, as well as the improbability of the property being sold for the low price of Rs. 4.5 lakhs.

The petitioner denied the loan transaction and claimed the receipts pertained to separate transactions, but failed to provide a cogent explanation for the payments or produce the original sale agreement. The Court observed that the petitioner's own admissions and documentary evidence supported the accused's version, thereby satisfying the preponderance of probabilities test in favor of the accused.

Additionally, the Court noted the peculiarity that the cheques in question totaled Rs. 6.5 lakhs, exceeding the alleged debt of Rs. 4.5 lakhs, without any explanation from the petitioner.

4. Effect of settlement entered during trial

The petitioner argued that the accused had admitted the debt by entering into a settlement before the Trial Court and had failed to comply with the payment terms, thus entitling the complainant to maintain the complaints. The accused denied knowledge of the settlement or claimed it was signed without reading.

The Court observed that a settlement subsumes the original complaint and once entered, the complainant can either pursue a fresh cause of action for breach of settlement or proceed with the original complaint. However, the complainant must prove the foundational facts of the complaint independently. The Court noted that the Trial Court had kept the matter pending for compliance with the settlement and only proceeded on merits after the accused failed to comply.

The petitioner had not taken steps to enforce the settlement, and the Court held that mere entry into a settlement does not constitute an admission of debt. Therefore, the complainant was still required to prove the existence of a legally enforceable debt/liability as per the NI Act provisions.

5. Treatment of competing arguments and evidentiary findings

The Court found that the Trial Court had carefully considered the evidence, including the documentary proof and the parties' statements. The petitioner's failure to produce the original sale agreement, the improbability of the sale price, and the credible documentary evidence produced by the accused weighed in favor of the accused's defense.

The Court also took note of a police complaint filed by the accused against the petitioner alleging threats and misuse of blank cheques, lending further credence to the accused's defense.

The petitioner's arguments were found to be based on surmises and conjectures without sufficient evidentiary support. The Court concluded that the Trial Court's appreciation of evidence was neither perverse nor unsustainable.

Significant Holdings:

"The restriction on the power of Appellate Court in regard to other offence does not apply with same vigour in the offence under NI Act which entails presumption against the accused."

"Once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque received the cheque in discharge of a legally enforceable debt or liability are raised against the accused."

"The accused is not expected to prove the non-existence of the presumed fact beyond reasonable doubt. The accused must meet the standard of 'preponderance of probabilities', similar to a defendant in a civil proceeding."

"Once the accused adduces evidence to the satisfaction of the Court that on a preponderance of probabilities there exists no debt/liability in the manner pleaded in the complaint or the demand notice or the affidavit-evidence, the burden shifts to the complainant and the presumption 'disappears' and does not haunt the accused any longer."

"The mere fact that the accused had entered into a settlement cannot be construed to be an admission of debt and the complainant was still required to establish the foundational facts in the present case."

"This Court finds no such perversity in the impugned judgments so as to merit an interference in the findings of acquittal."

The Court dismissed the appeals, upholding the acquittal of the accused respondents. The principles reaffirmed include the nature and effect of statutory presumptions under the NI Act, the evidentiary burden on the accused to rebut such presumptions on a preponderance of probabilities, and the limited scope of appellate interference in acquittals unless the trial court's findings are perverse or wholly unsustainable. The judgment also clarifies the legal effect of settlements in such proceedings and underscores the necessity for the complainant to prove the foundational facts of debt/liability notwithstanding any interim settlements.