PROSECUTION FOR BOUNCING OF CHEQUE HANDED OVER TO OFFICIALS OF REVENUE DURING RAID ON PREMISES.

[Mr. M. GOVINDARAJAN]

                        Sec.138 of Negotiable Instruments Act deals with the dishonor of cheque for insufficiency of funds etc.,   It provides that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

                        Nothing contained in Sec.138 shall apply unless-

• the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
• the payee or the holder in due course, of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
• the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice

The explanation given to this section indicates that the words ‘debt or other liability’ means a legally enforceable debt or other liability.

                        From the reading of Sec. 138 it is clear that the following are the requirements needed to attract the penal consequences:

• there is a legally enforceable debt;
• the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presupposes a legally enforceable debt; and
• the cheque so issued had been returned due to insufficiency of funds.

The issue to be discussed in this article is that during the course of a raid a cheque  handed over to the Officials of the Revenue is bounded whether penal consequences will be there under the provisions of Sec. 138 of Negotiable Instruments Act.   The Delhi High Court gives answer in ‘Venna Ahuja V. Central Excise’ – 2011 (270) ELT 69 (Del).

                        The fact of the said case runs as follows:

                        The Central Excise Department had conducted a raid at the business premises also the residence of the petitioner on 06.05.2005.   The Department took in their possession certain documents.   They obtained statements of the petitioner’s husband and son, who had been running the business on behalf of the petitioner.   The Department also collected two post dated cheques bearing No. 135656, dated 11.05.2005 for Rs.15 lakhs and 135658, dated 13.05.2005 for Rs.20 lakhs from the petitioner.  These cheques were taken by the officials of the Department without passing any assessment order or quantifying the amount towards the excise duty.   On presentation one cheque bearing No. 135658, dated 13.05.2005 for Rs.20 lakhs was returned dishonored by the banker for the reason ‘exceeds arrangements’.  Since the cheque amount was not paid by the petitioner within the statutory period as provided under the Act despite receipt of legal notice dated 12.07.2005 the petitioner had committed offence under Section138 of the Act.

                        A complaint was filed by the Department against the petitioner.   The petitioner filed the present petition before the High Court under Section 482 of the Criminal Procedure Code seeking to quash the complaint under Section 138/142 of Negotiable Instruments Act, 1881 filed by the Department before the Additional Chief Metropolitan Magistrate, New Delhi.

                        The petitioner, before the High Court, put forth the following submissions:

• The cheque in question had not been handed over to the Department for discharging, in whole or in part, any debt or other liability;
• No excise duty wad due and payable as on the date of issue of cheque;
• No demand was pending as on the said date;
• During the raid the Officials alleged that there were some irregularities in the payment of excise duty and without quantifying the amount towards alleged evasion of excise duty they, by extending threat of arrest, collected two post dated cheques;
• The said cheques were taken without passing any assessment order or quantifying the amount towards the excise duty;
• On 02.11.2005 a show cause notice was issued to the petitioner demanding Rs.46,12,318/- under Section 11A(i) of Central Excise Act, 1944.  It was further stated in the show cause notice that in case no cause was shown against the action proposed to be taken, within 30 days, the case would be decided on merits without any further reference to them;
• Excise duty was quantified only on 02.11.2005;
• It is evident that neither any legally enforceable liability existed as on 06.05.2005 when the cheque in question was taken from the petitioner nor it existed when the cheque was presented for payment;
• No offence under Section 138/142 of the Act is made out against the petitioner for this reason.

The Department put forth the following contentions:

• The notice has already been framed against the petitioner by the Trial Court;
• The petitioner can either be convicted or acquitted after the trial and the complaint cannot be quashed at this stage;
• Under Section 139 of the Act a presumption arises that the cheque had been issued towards discharge of a legally enforceable liability;
• The presumption can be rebutted by the petitioner only on his defence during the trial.

After hearing both sides the High Court held as follows:

• It is evident that one of the essential ingredients to attract penal consequences under Sec. 138 is that cheque had been issued for discharge, in whole or in part, or any legally enforceable debt or liability;
• Sec. 139 of the Act raises a presumption in favor of holder of the cheque that the same had been issued for discharge, in whole or in part, of any debit or other liability;
• But the above said presumption is a rebuttable presumption;
• It is not necessary for the accused to rebut this presumption only by leading positive evidence, that is, by stepping in to the witness box or producing  any other witness in his defence;
• The presumption can be rebutted even from the material already brought on record;
• As on date of taking the cheque, no liability towards the excise duty was assessed as is evident from the perusal of show cause cum demand notice dated 02.11.2005 which had been issued after about six months of the issuance of cheque;
• The petitioner submitted in his petition that the case was on remand back, adjudicated by the Additional Commissioner, Delhi – II vide Order-in-Original No.56/2008-09, dated 30.01.2009, confirming the duty liabilities.   Aggrieved by the said O.I.O. the party has gone in appeal in CESTAT, New Delhi and the case is till date pending there;

From the above the High Court is of the view that the cheque in question had not been issued by the petitioner in discharge of the part liability towards the excise duty as has been claimed by the Department.  Since one of the essential ingredients of Section138 of the Act is not attracted in this case, the Court has no hesitation to conclude that the prosecution of the petitioner is bad in law and cannot be sustained.  The Court quashed the criminal complaint.