2025 (5) TMI 1737 - HC - Indian Laws

Dishonour of cheques - repayment of a loan - security cheques - Offence under Section 138 of the Negotiable Instruments Act (NI Act) - legally enforceable debt or liability - presumption under Sections 118(a) and 139 of the NI Act - beyond a reasonable doubt - HELD THAT - It was laid down by the Hon ble Supreme Court in Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd. 2016 (9) TMI 867 - SUPREME COURT that issuing a cheque toward security will also attract the liability for the commission of an offence punishable under Section 138 of N.I. Act. Therefore the accused was rightly held liable based on the security cheques. The cheques were dishonoured with an endorsement insufficient funds . There is a presumption under Section 146 of the NI Act regarding the correctness of the memo of dishonour. The accused did not lead any evidence to rebut the presumption and the learned Courts below had rightly held that the cheques were dishonoured with endorsement insufficient funds . The complainant stated that he had issued a legal notice (Ex.CW1/G). He produced a postal receipt (Ex.CW1/H) and tracking report (Ex.CW1/J). Therefore it was duly proved that notice was served upon the accused. The complainant stated that the accused did not pay any amount despite the receipt of a valid notice of demand. The accused has not claimed that he had paid any amount after the issuance of the notice. He pleaded that the amount was paid before the presentation of the cheque which plea was not proved. Therefore it was duly proved on record that accused had issued the cheques in favour of the complainant to discharge his legal liability to repay the amount taken by him as loan the cheques were dishonoured with an endorsement insufficient funds and the accused failed to pay the amount despite the receipt of valid notice of demand. Therefore all the ingredients of Section 138 of the NI Act were duly satisfied and the accused was rightly convicted by the learned Trial Court which conviction was rightly upheld by the learned Appellate Court. Hence the sentence of imprisonment of six months is not excessive. Learned Appellate Court awarded an amount of Rs.15, 60, 000/- as compensation. The interest @9% on an amount of Rs.12, 60, 000/- for five years is Rs.5, 67, 000/-. Hence the amount of Rs.3, 00, 000/- awarded by the learned Appellate Court on the original amount of Rs.12, 60, 000/- cannot be said to be excessive. Therefore no interference is required with the sentence imposed by the learned Trial Court as modified by the learned Appellate Court. No other point was urged. Thus the present petition fails and the same is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the accused was liable for the offence under Section 138 of the Negotiable Instruments Act (NI Act) for dishonour of cheques issued towards repayment of a loan.

- Whether the presumption under Sections 118(a) and 139 of the NI Act that the cheque was issued for discharge of a legally enforceable debt or liability was rightly drawn and whether the accused successfully rebutted this presumption.

- Whether the plea of the accused that the cheques were issued as security and that the loan amount had been repaid was substantiated by evidence and could absolve him of liability.

- Whether the legal notice demanding payment was duly served and whether the accused failed to make payment within the stipulated time.

- Whether the sentence and compensation imposed by the Trial Court and Appellate Court were justified and proportionate.

- Whether the revisional jurisdiction of the High Court was properly exercised in reappreciating the evidence and interfering with the concurrent findings of the lower courts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability under Section 138 of the NI Act for dishonour of cheques issued towards repayment of loan

The legal framework mandates that dishonour of a cheque issued for discharge of a legally enforceable debt or liability attracts penal consequences under Section 138 of the NI Act. The complainant had advanced Rs.12,60,000/- to the accused, evidenced by an agreement and issuance of two security cheques. The cheques were presented and dishonoured with the endorsement "insufficient funds". The complainant issued a legal notice demanding payment, which was served on the accused, who failed to pay.

The Trial Court and Appellate Court found that all ingredients of Section 138 were satisfied. The accused did not dispute issuance of the cheques but claimed repayment and misuse of security cheques. However, he did not lead any defence evidence. The courts applied the presumption under Section 139 that the cheque was issued for discharge of debt, which the accused failed to rebut. The courts held that issuance of cheques as security does not absolve liability if the debt remains unpaid.

Thus, the accused was rightly held liable for offence under Section 138.

Issue 2: Presumption under Sections 118(a) and 139 of the NI Act and burden of proof

Sections 118(a) and 139 of the NI Act create a statutory presumption that every negotiable instrument, including a cheque, is issued for consideration and discharge of debt or liability, unless contrary is proved. The accused admitted signatures on the cheques and did not dispute the financial transaction. This triggered the presumption in favour of the complainant.

The courts relied on authoritative precedents which clarify that the presumption is rebuttable but the accused must produce evidence to raise a probable defence. Mere denial or assertion in the statement under Section 313 Cr.P.C. is insufficient. The accused did not lead any evidence to prove repayment or absence of liability.

Precedents emphasized that the standard to rebut is on the preponderance of probabilities, not beyond reasonable doubt, and the accused need not necessarily appear as witness but must produce some evidence. The accused's failure to do so led to upholding the presumption and conviction.

Issue 3: Plea that cheques were issued as security and repayment of loan

The accused contended that the cheques were issued as security and that the loan amount had been repaid. The courts examined this plea in light of settled law which holds that cheques issued as security also attract Section 138 liability if the debt remains unpaid. The courts cited rulings clarifying that a cheque issued as security is not "waste paper" and can be presented once the debt or instalment matures.

The complainant's evidence showed the loan was advanced and repayment was due, and the accused failed to repay. The accused did not provide evidence of repayment or any altered agreement. The courts held that the plea of repayment was unsubstantiated and the accused misused the security cheques. Hence, the plea was rejected.

Issue 4: Service of legal notice and failure to pay

The complainant produced postal receipts and tracking reports proving service of the legal notice demanding payment within 15 days. The accused did not dispute service but failed to make payment or produce evidence of payment after notice. The courts held that this fulfilled the requirement of notice under Section 138 and the accused's failure to pay constituted an offence.

Issue 5: Sentence and compensation imposed

The Trial Court sentenced the accused to simple imprisonment for six months and imposed a fine of Rs.19,00,000/- as compensation. The Appellate Court reduced the compensation to Rs.15,60,000/- considering the lapse of five years and loss of interest and litigation expenses.

The courts relied on Supreme Court precedents mandating that compensation under Section 138 be up to twice the cheque amount with simple interest at 9% per annum. The sentence of six months imprisonment was held to be deterrent and not excessive.

Issue 6: Scope of revisional jurisdiction and reappreciation of evidence

The High Court's revisional jurisdiction under Section 397 Cr.P.C. is limited to correcting patent defects, errors of jurisdiction or law, and not to reappreciate evidence or substitute its own view. The courts cited binding precedents emphasizing that concurrent findings of fact by Trial and Appellate Courts should not be disturbed unless there is perversity, gross illegality, or miscarriage of justice.

The accused's plea that the courts below erred in appreciating evidence was rejected as the accused failed to show any such error or miscarriage. The High Court held that the courts below correctly applied the law and appreciated evidence, and no interference was warranted.

3. SIGNIFICANT HOLDINGS

"Once signatures on the cheque are not disputed, the plea with regard to the cheque having not been issued towards discharge of lawful liability, rightly came to be rejected by learned Courts below."

"Section 139 of the Act enjoins the Court to presume that the holder of the cheque received the cheque for the discharge of any debt or liability. The burden was on the accused to rebut the aforesaid presumption."

"The accused's statement under Section 313 Cr.P.C. is not substantive evidence of defence, but only an opportunity for the accused to explain incriminating circumstances. Mere denial is insufficient to rebut presumption under Section 139."

"A cheque issued as security is not 'waste paper' and a complaint under Section 138 can be filed on its dishonour if the underlying debt or liability exists and is enforceable."

"The revisional jurisdiction of the High Court is limited and cannot be exercised to reappreciate evidence or substitute its own view when concurrent findings exist."

"The penal provision of Section 138 of the NI Act is deterrent in nature and intended to infuse credibility into negotiable instruments."

"Courts should uniformly levy fine up to twice the cheque amount along with simple interest at 9% per annum as compensation, unless special circumstances exist."

Final determinations:

- The accused was rightly convicted under Section 138 of the NI Act as all ingredients of the offence were proved beyond reasonable doubt.

- The statutory presumption under Sections 118(a) and 139 NI Act was correctly applied and the accused failed to rebut it by evidence.

- The plea of issuance of cheques as security and repayment of loan was unsubstantiated and rejected.

- The legal notice was duly served and the accused failed to pay within stipulated time.

- The sentence of six months imprisonment and compensation of Rs.15,60,000/- were justified and proportionate.

- The revisional jurisdiction was correctly exercised without disturbing concurrent findings of fact.