2025 (7) TMI 473 - HC - Indian Laws

Dishonour of Cheque - challenge to judgment of acquittal - evidence to establish that there existed a legally enforceable debt or not - rebuttal of presumptions - HELD THAT - In the case of Maruti Udyog Ltd. Vs. Narender and ors. 1998 (7) TMI 707 - SC ORDER it was held that by virtue of section 139 of N.I. Act the court has to draw a presumption that the holder of the cheque received the cheque for discharge of a debt or liability until the contrary is proved. A similar view has also been taken by the Apex Court in K. N. Beena Vs. Muniyappan and another 2001 (10) TMI 1060 - SUPREME COURT where it has been held that under section 139 of N.I. Act the court has to presume in a complaint under section 138 that the cheque has been issued for a debt or liability. The language of section 138 of the N.I. Act makes it clear that the liberty was always with the complainant to make claim either whole or in part. The issue raised by accused that the cheque was issued towards security is clearly an afterthought as despite receipt of notice accused did not give any reply stating the same as security . Moreover it is now settled law that even if cheque is given towards security still it can be enforceable. Thus the impugned judgment is not based on the evidence and document placed before the court and the view taken by the court below is not reasonable and possible view on evidence. As such the same is liable to be set aside - appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the applicability and interpretation of section 138 of the Negotiable Instruments Act (N.I. Act), specifically:

1. Whether the cheque in question was issued in discharge of a legally enforceable debt or liability.

2. Whether the demand notice issued was valid and in conformity with statutory requirements.

3. Whether the presumption under section 139 of the N.I. Act that the cheque was issued for discharge of debt was rebutted by the accused.

4. The legal effect of a cheque issued as "security" and the circumstances under which such a cheque can be presented and attract liability under section 138.

5. Whether the absence of a money lending license and the nature of the loan transaction affected the maintainability of the prosecution under section 138.

6. The scope of appellate interference in a judgment of acquittal passed by the trial court.

Issue 1: Existence of a Legally Enforceable Debt or Liability

The legal framework mandates that for section 138 to be attracted, the cheque must be issued for the discharge of a legally enforceable debt or liability. Section 139 of the N.I. Act creates a presumption that the cheque was issued for discharge of such debt, which the accused can rebut by evidence.

The Court noted that the appellant produced a money receipt (Exhibit 3) acknowledging a loan of Rs. 6,50,000/- at 17% interest per annum. The accused did not challenge the signature or the authenticity of this receipt. Further, the accused admitted in examination under section 313 Cr.P.C. that he had taken a loan of Rs. 6,50,000/- for business purposes. The accused's only defense was that he had paid Rs. 2,50,000/- to the mediator and complainant, but he did not produce any evidence or witnesses to substantiate this claim.

The trial court had held that the complainant failed to prove the interest and tenure of the loan in the demand notice and affidavit, and that no loan termination notice was issued, creating doubt about the existing liability. However, the High Court observed that the complainant's failure to specify interest and tenure in the demand notice did not invalidate the claim, as the complaint and evidence clearly established the loan and interest terms. The Court relied on precedents which hold that the burden to prove non-existence of debt lies on the accused, and that the presumption under section 139 is strong.

The Court also addressed the contention that partial payment of interest by the accused negated the existence of liability. It held that partial payments do not extinguish the debt and that the outstanding amount remains recoverable. The complainant's claim of Rs. 6,50,000/- plus outstanding interest was thus maintainable.

Issue 2: Validity of the Demand Notice

The trial court had invalidated the demand notice on the ground that it did not specify the rate of interest or the outstanding dues. The appellant contended that the demand notice must request payment of the cheque amount and that the notice need not detail interest rates or other particulars.

The Court interpreted section 138 and its proviso, holding that the demand notice must be for the cheque amount. The absence of interest rate details in the notice does not invalidate it, especially when the cheque amount itself is undisputed. The Court found the trial court's reasoning erroneous and held that the demand notice was valid and complied with statutory requirements.

Issue 3: Rebuttal of Presumption under Section 139 of the N.I. Act

The accused claimed the cheque was issued as security and not for discharge of debt, and that the cheque was presented prematurely. The Court examined the legal position that mere assertion of issuance as security does not automatically rebut the presumption under section 139; cogent evidence is required.

The Court relied on authoritative precedents, including Sripati Singh v. State of Jharkhand, which clarified that a cheque issued as security can be presented if the loan or liability is not discharged before the due date. The Court emphasized that the cheque's presentation and dishonour attract section 138 liability unless the accused proves prior discharge or an altered situation.

In the instant case, the accused failed to produce any evidence to prove repayment or altered circumstances. His statement about paying Rs. 2,50,000/- was uncorroborated. The Court held that the defense of issuance as security was an afterthought and insufficient to rebut the presumption.

Issue 4: Effect of Partial Payment and "Altered Situation" Defense

The accused contended that partial payment and an "altered situation" disentitled the complainant from prosecution. The Court referred to the judgment in Dasharath Bai Trikam Bhai Patel v. Hitesh Mahendra Bhai Patel, which requires proof of prior discharge or altered circumstances to avoid presentation of a security cheque.

The Court found no evidence in the record to establish such altered situation or complete discharge of liability. The partial payments made were acknowledged but did not extinguish the debt. Therefore, the accused's defense failed.

Issue 5: Absence of Money Lending License and Legality of Loan Transaction

The accused argued that the complainant, being a Hindu Undivided Family (HUF) without a money lending license, could not legally lend money or claim interest, citing the Bengal Money Lenders Act, 1940.

The Court observed that the complainant did not produce any license or business documents, and the loan was described as a "friendly loan." However, the N.I. Act does not require the complainant to be a licensed money lender to maintain prosecution under section 138. The Court did not find this argument sufficient to bar prosecution, especially as the loan transaction was admitted and acknowledged by the accused.

The Court also noted that the complainant's failure to disclose the loan and interest in income tax returns did not invalidate the debt or the cheque's enforceability under the N.I. Act.

Issue 6: Scope of High Court's Interference in Judgment of Acquittal

The accused contended that the High Court should not interfere with the trial court's acquittal if a reasonable view is possible on evidence. The Court acknowledged this principle but found that the trial court's judgment was not a reasonable or possible view given the evidence and documents produced.

The Court emphasized that the trial court failed to properly apply the presumption under section 139 and ignored the documentary evidence and admissions by the accused. Therefore, interference was justified.

Significant Holdings:

"By virtue of section 139 of N.I. Act, the court has to draw a presumption that the holder of the cheque received the cheque for discharge of a debt or liability until the contrary is proved."

"Even if cheque is given towards security, still it can be enforceable."

"When a cheque is issued as security pursuant to a financial transaction, if the loan amount is not repaid before the due date, the cheque can be presented and dishonour attracts section 138 consequences."

"The burden of proving non-existence of debt or that the cheque was not issued for discharge of liability lies on the accused."

"Partial payments do not extinguish the debt and the outstanding amount remains recoverable."

"The demand notice under section 138 must be for the cheque amount; absence of interest rate or other details in the notice does not invalidate it."

"The High Court can interfere with an acquittal if the judgment is not a reasonable view on evidence and the presumption under section 139 is ignored."

Final Determinations:

1. The cheque was issued in discharge of a legally enforceable debt or liability.

2. The demand notice issued was valid and complied with statutory requirements.

3. The accused failed to rebut the presumption under section 139 of the N.I. Act.

4. The defense of cheque issued as security and premature presentation was rejected due to lack of evidence of prior discharge or altered situation.

5. The absence of a money lending license and failure to declare the loan in income tax returns did not bar prosecution under section 138.

6. The High Court set aside the acquittal and convicted the accused under section 138 of the N.I. Act, sentencing him to pay a fine of Rs. 12 lakhs or face imprisonment.