2025 (5) TMI 393 - HC - Indian Laws

Dishonour of Cheque - issuance of security cheque or the cheque was issued in discharge of a legally enforceable debt or liability? - burden of prove - rebuttal of presumptions - HELD THAT - It was laid down by the Hon ble Supreme Court in Malkeet Singh Gill v. State of Chhattisgarh 2022 (7) TMI 1455 - SUPREME COURT that the revisional court is not an appellate jurisdiction and it can only rectify the patent defect errors of jurisdiction or the law. The accused did not dispute in his statement recorded under Section 313 of Cr.P.C. that he had issued the cheque in favour of the complainant. He claimed that the cheque was issued as a security. His witness Sanjeev Chauhan also stated in his affidavit (Ex. DW1/A) that the accused had handed over a blank signed cheque and Mangalsutra as security to the complainant. Therefore the issuance of the cheque is not in dispute. It was laid down by this Court in Naresh Verma vs. Narinder Chauhan 2019 (10) TMI 1578 - HIMACHAL PRADESH HIGH COURT that where the accused had not disputed his signatures on the cheque the Court has to presume that it was issued in discharge of legal liability and the burden would shift upon the accused to rebut the presumption. The accused claimed that he had issued a blank signed cheque. The complainant denied this fact in his crossexamination. The statement of Sanjeev Chauhan (DW-1) is not reliable as noticed above. It was suggested to the complainant in his cross-examination that the cheques were kept as security with Rewa Dass but he was not examined to establish this fact. Hence the version that a blank signed cheque was issued as security is not established - In any case it was laid down by the Hon ble Supreme Court in Bir Singh v. Mukesh Kumar 2019 (2) TMI 547 - SUPREME COURT that a person is liable for the commission of an offence punishable under Section 138 of the N.I Act even if the cheque is filled by some other person - the learned Courts below had rightly held that the accused had failed to rebut the presumption attached to the cheque. The complainant stated that he issued a notice (Ex. CW1/D) to the accused asking him to pay the money. The accused stated in his statement recorded under Section 313 of Cr. P.C. that he had replied to the notice which means that the issuance of the notice and its receipt are not in dispute. Hence it is duly proved that the complainant had issued a notice to the accused which was received by him. The accused admitted in his statement recorded under Section 313 of Cr. P.C. that he had not paid any money to the accused. Thus another ingredient of the commission of an offence punishable under Section 138 of the NI Act that the accused had failed to pay the money despite the receipt of a valid notice for demand was also satisfied - it was duly proved on record that the accused had issued a cheque in favour of the complainant which was dishonoured with an endorsement of insufficient funds. The accused failed to pay the amount despite the receipt of a valid notice of demand. Therefore the necessary ingredients of Section 138 of the N I Act were duly satisfied and the accused was rightly convicted by the learned Trial Court which conviction was rightly affirmed by the learned Appellate Court. In the present case the amount of Rs.. 50, 000/- was awarded as compensation on the principal amount of Rs.. 4 lacs which is hardly sufficient to compensate the complainant for the expenses incurred by him for prosecuting the complaint or the deprivation of the interest on the amount loaned by the complainant. However no appeal was preferred by the complainant against the order of payment of compensation of Rs.. 4, 50, 000/- and no interference is required with this part of the sentence. Revision dismissed.

Summary

The core legal questions considered in this judgment revolve around the applicability of Section 138 of the Negotiable Instruments Act (NI Act) to the facts of the case. Specifically, the issues include: whether the cheque in question was issued in discharge of a legally enforceable debt or liability; the effect of the cheque being issued as security; the presumption under Sections 118(a) and 139 of the NI Act regarding the issuance of cheques; the burden of proof on the accused to rebut such presumption; the validity of the complainant's claim regarding the amount advanced; the dishonour of the cheque due to insufficient funds; and whether the accused failed to pay the amount despite receipt of a valid demand notice.

Regarding the first issue, the relevant legal framework comprises Sections 118(a), 139, and 146 of the NI Act. Section 118(a) presumes every negotiable instrument to have been made for consideration until the contrary is proved. Section 139 mandates a presumption in favor of the cheque holder that the cheque was issued for discharge of any debt or liability unless rebutted. Section 146 presumes the correctness of the memo of dishonour issued by the bank. The Court relied heavily on precedents including Malkeet Singh Gill v. State of Chhattisgarh and Basalingappa v. Mudibasappa, which clarify that these presumptions are rebuttable but impose an evidentiary burden on the accused to prove the contrary on a preponderance of probabilities. The Court emphasized that mere plausible explanations or denials in statements under Section 313 Cr.P.C. do not suffice to rebut the presumption.

In the present case, the accused admitted issuance of the cheque and the dishonour with the endorsement of insufficient funds. The complainant produced the agreement evidencing the loan transaction and the cheque, which was presented and dishonoured. The accused claimed the cheque was issued as security and that only Rs. 3,70,000/- was advanced, not Rs. 4 lacs as per the agreement. However, the Court found the accused's evidence, including the testimony of his witness, unreliable and contradictory. The agreement executed by the parties, admitted by the accused, stated an advance of Rs. 4 lacs, and the accused did not lead substantive evidence to rebut this fact or to prove repayment of any part of the loan. The Court applied the principle from Sumeti Vij v. Paramount Tech Fab Industries that statements under Section 313 Cr.P.C. are not substantive evidence and cannot alone rebut the presumption under Section 139.

The Court also addressed the contention that the cheque was issued as security. It relied on authoritative judgments such as Hamid Mohammad v. Jaimal Dass, Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Ltd., and Sripati Singh v. State of Jharkhand, which establish that a cheque issued as security is not immune from the provisions of Section 138. If a legally enforceable debt exists on the date of issuance or presentation of the cheque, the dishonour attracts penal consequences. The Court noted that the accused did not claim repayment prior to the cheque's presentation nor any altered arrangement exempting liability. Therefore, the cheque was rightly treated as a negotiable instrument issued for discharge of debt or liability.

Another issue was whether the accused could avoid liability by alleging that the cheque was a blank signed cheque filled in by the complainant. The Court referred to the Supreme Court's decision in Bir Singh v. Mukesh Kumar, which holds that even a blank cheque voluntarily signed and handed over attracts the presumption under Section 139 unless rebutted by cogent evidence. Further, the accused did not allege coercion, theft, or undue influence. The complainant denied the blank cheque assertion, and the accused's witness was found unreliable. Thus, the presumption remained unrebutted.

The dishonour of the cheque with the endorsement "insufficient funds" was also not disputed by the accused and was supported by the memo of dishonour, which enjoys a statutory presumption of correctness under Section 146 of the NI Act. The accused admitted receipt of the statutory demand notice but failed to make payment, fulfilling another essential ingredient of Section 138.

On the scope of revisional jurisdiction, the Court reiterated the principles from Malkeet Singh Gill and State of Gujarat v. Dilipsinh Kishorsinh Rao, emphasizing that revision is not an appellate review and interference is limited to patent errors of law or jurisdiction. The concurrent findings of fact by the Trial and Appellate Courts are entitled to deference unless there is a manifest error. The Court found no such error here.

Regarding sentencing and compensation, the Court noted the deterrent purpose of Section 138, as emphasized in Bir Singh v. Mukesh Kumar. The sentence of six months' simple imprisonment and compensation of Rs. 4,50,000/- was held appropriate, considering the delay and the complainant's loss of interest and litigation expenses. The Court referred to M/S Kalamani Tex v. P. Balasubramanian, which recommends compensation up to twice the cheque amount with interest at 9% per annum, but since no appeal was filed against compensation, no interference was warranted.

The Court conclusively held that all ingredients of Section 138 were duly proved: issuance of the cheque, dishonour due to insufficient funds, receipt of notice by the accused, and failure to pay the amount. The accused failed to rebut the statutory presumption of debt/liability. The plea of issuance as security or blank cheque was not substantiated. The judgments of the Trial and Appellate Courts were affirmed.

Significant holdings include the following verbatim excerpts:

"The words 'unless the contrary is proved' which occur in this provision make it clear that the presumption has to be rebutted by 'proof' and not by a bare explanation which is merely plausible."

"Section 139 of the NI Act is an example of reverse onus clause and therefore, once the issuance of the cheque has been admitted and even the signature on the cheque has been admitted, there is always a presumption in favour of the complainant that there exists legally enforceable debt or liability and thereafter, it is for the accused to rebut such presumption by leading evidence."

"A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance... If the loan amount is not repaid in any other form before the due date... the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow."

"Even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt."

"The penal provision of Section 138 of the Negotiable Instruments Act is intended to be a deterrent to callous issuance of negotiable instruments such as cheques without serious intention to honour the promise implicit in the issuance of the same."

Core principles established are that the presumption under Sections 118(a) and 139 of the NI Act arises upon admission of signature and issuance of cheque, shifting the burden on the accused to rebut on a preponderance of probabilities; issuance of cheque as security does not absolve liability under Section 138 if a debt or liability exists; blank signed cheques handed over voluntarily attract the same presumption; and revisional courts have limited scope to interfere with concurrent findings of fact.

Final determinations are that the accused was rightly convicted under Section 138 of the NI Act, the cheque was issued in discharge of a legally enforceable debt, the accused failed to rebut the statutory presumption, the cheque was dishonoured due to insufficient funds, the statutory demand notice was duly served and received, and the accused failed to pay the amount. The sentence and compensation awarded were appropriate. The revision petition was dismissed.