2025 (6) TMI 1083 - HC - Indian Laws

Dishonour of Cheque - challenge to order of acquittal - legally enforceable debt or liability under Section 138 of the Negotiable Instruments Act or not - rebuttal of presumption - stoppage of payment instruction given by the accused to his bank - criminal liability under Section 138 or not - HELD THAT - The Complainant has to establish his case by raising a presumption and only then the burden will shift on the Accused. Here even though the trial proceeded on the presumption that the Accused had not denied the issuance of the cheque the Accused discharged his rebuttal evidence by issuing a reply notice adducing evidence and also marking the documents in support of his claim under Ex.D-1 to Ex.D-19 and thereby he had proved that there was sufficient amount in his account on the date of issuance of stop payment under Ex.D-18. Therefore as pointed in the reported decision relied by the learned Counsel for the Respondents in MMTC Ltd and another vs Medchl Chemicals and Pharma (P) Ltd and another 2001 (11) TMI 837 - SUPREME COURT the Accused had discharged the burden whereby stop payment is not attracted to the complaint filed by the Complainant under Section 138 of the Negotiable Instruments Act 1881 in this case. If stop payment is issued and there is no sufficient amount in the account of the Accused on the date of issuance of cheque or on the date of return of the cheque under the caption stop payment then it attracts Section 138 of the Negotiable Instruments Act 1881. Therefore the reasoning of the learned Judicial Magistrate Fast Track Court (Magisterial level) Hosur is found proper. It is on proper appreciation of evidence. Therefore the judgment of the learned Judicial Magistrate is to be confirmed. Conclusion - The Point for Consideration is answered against the Appellant/Complainant and in favour of the Accused. The judgment passed by the learned Judicial Magistrate Fast Track Court (Magisterial level) Hosur is found proper which does not call for any interference by this Court and the same is to be confirmed. The Criminal Appeal is dismissed as having no merits.

Summary

The core legal questions considered in this judgment revolve around the applicability of Section 138 of the Negotiable Instruments Act, 1881, in the context of a cheque dishonour case. Specifically, the issues include:

1. Whether the issuance of the cheque by the accused to the complainant constituted a legally enforceable debt or liability under Section 138 of the Negotiable Instruments Act.

2. Whether the stoppage of payment instruction given by the accused to his bank, resulting in the cheque being dishonoured, attracts criminal liability under Section 138.

3. Whether the complainant proved the existence of consideration or liability sufficient to sustain the complaint under Section 138.

4. The evidentiary burden and its discharge by the accused in rebutting the presumption of liability under Section 138.

5. The effect of the conditional nature of the cheque issuance and the subsequent failure of the complainant to fulfill the condition.

Issue-wise Detailed Analysis

1. Applicability of Section 138 of the Negotiable Instruments Act to the cheque issued

The legal framework under Section 138 of the Negotiable Instruments Act establishes that when a cheque is issued for the discharge of a legally enforceable debt or liability and is dishonoured due to insufficiency of funds or stop payment instructions, the drawer can be held criminally liable. The presumption under the Act is that the cheque was issued towards a debt or liability unless rebutted.

The Court examined the facts that the cheque for Rs.8,00,000/- was issued by the accused to the complainant in the context of a settlement relating to the development and sale of ancestral property. The complainant, as Power of Attorney holder for the legal heirs, claimed that the cheque was towards his share of the sale proceeds and development expenses incurred.

However, the accused contended that the cheque was issued conditionally - on the understanding that the complainant would bring all legal heirs of the deceased Narasimhaiah to affix their signatures on a confirmation deed resolving the dispute. The accused further claimed that the cheque was not issued towards any existing debt but as an advance or security to facilitate the settlement.

The Court noted that the cheque was returned with the endorsement "payment stopped by drawer," and the accused produced bank statements showing sufficient funds were available on the date of presentation, indicating that dishonour was not due to insufficiency of funds but due to the stop payment instruction.

The Court referred to precedents emphasizing that dishonour due to stop payment instructions can attract Section 138 liability only if there is a legally enforceable debt or liability. The Court found that the accused had discharged the burden of proof by adducing evidence that the cheque was conditional and that the complainant had not fulfilled the condition.

2. Existence and proof of consideration or liability

The complainant claimed to have spent Rs.16,00,000/- on developing the property and to have a right to 30% of the gains, with the remaining 70% to the legal heirs. However, the Court observed that the complainant failed to produce documentary evidence supporting this claim. The complainant also admitted in cross-examination that he had not furnished documents proving the investment or the agreed profit-sharing arrangement.

The Court also considered the settlement deed and confirmation deed executed between the parties, which indicated that the cheque issuance was part of an arrangement contingent on the complainant bringing all legal heirs to sign the confirmation deed. The Court found that since the complainant did not bring all the legal heirs to sign, the condition precedent to the cheque's unconditional payment was not fulfilled.

Thus, the Court concluded that there was no established prior liability or debt enforceable against the accused at the time of cheque issuance.

3. Effect of conditional issuance of cheque and failure to fulfill condition

The Court emphasized that the accused's evidence showed the cheque was issued on the promise that the complainant would secure signatures of all legal heirs on the confirmation deed, which was a condition precedent to payment. The complainant's failure to fulfill this condition justified the accused's instruction to stop payment to the bank.

The Court noted that the learned Judicial Magistrate had rightly found that the accused's defense was more probable and credible, especially given the complainant's admissions and lack of documentary proof of investment or entitlement.

The Court further observed that the accused had expressed willingness to pay the amount if the complainant brought the legal heirs to sign the deed, reinforcing that the cheque was not an unconditional payment of a debt.

4. Burden of proof and rebuttal evidence

Under Section 138, the initial burden lies on the complainant to establish issuance and dishonour of the cheque. Once established, a presumption of liability arises, shifting the burden to the accused to rebut it.

In this case, the accused presented substantial documentary evidence (Ex.D-1 to Ex.D-19), including the confirmation deed, settlement agreement, bank statements showing sufficient funds, and the stop payment notice to the bank.

The Court found that the accused successfully rebutted the presumption of liability by proving the conditional nature of the cheque and the complainant's failure to fulfill the condition, thereby negating the existence of a legally enforceable debt at the time of cheque issuance.

5. Treatment of competing arguments and conclusions

The complainant argued that the cheque was issued towards a legally enforceable debt and that the accused's failure to honor it violated Section 138. The complainant also relied on a prior decree in a civil suit and a related appeal settled amicably to assert the legitimacy of the claim.

The accused contended that the cheque was conditional, not for an existing debt, and that the complainant failed to meet the condition precedent. The accused also pointed to the availability of sufficient funds and the issuance of stop payment instructions as evidence negating dishonesty or liability.

The Court gave weight to the accused's documentary evidence and the complainant's admissions in cross-examination, finding the accused's defense more probable. The Court held that the ingredients of Section 138 were not attracted since no debt or liability existed at the time of cheque issuance, and the cheque was issued as part of a conditional settlement arrangement.

Significant Holdings

"The cheque was issued on condition that the Complainant will bring the three legal heirs of late Narasimmiah to affix their signature declaring that they have no right or interest in the property upon receipt of Rs.8 lakhs. When they did not come forward to sign the documents, there is no obligation on the part of the Accused to honour the cheque."

"The learned Judicial Magistrate rightly held that there was no consideration passed on to the Accused and therefore, the stoppage of payment of the cheque will not attract the ingredients of Section 138 of the Negotiable Instruments Act, 1881."

"The Accused had discharged the burden whereby stop payment is not attracted to the complaint filed by the Complainant under Section 138 of the Negotiable Instruments Act, 1881 in this case. If stop payment is issued and there is no sufficient amount in the account of the Accused on the date of issuance of cheque or on the date of return of the cheque under the caption stop payment, then it attracts Section 138 of the Negotiable Instruments Act, 1881."

"The defense of the Accused is more probable and the stop payment letter issued by the second Accused was found justified."

"The ingredients of the offence under Section 138 of the Negotiable Instruments Act, 1881 had not been attracted as there was no proper liability. The Accused only made an offer subject to a condition and that condition had not been fulfilled by the Complainant."

The Court confirmed the acquittal of the accused, holding that the judgment of the learned Judicial Magistrate was proper and did not warrant interference. The appeal was dismissed for lack of merit.