Court’s Decision
The Calcutta High Court allowed the appeal filed under Section 372 of the Code of Criminal Procedure challenging the acquittal of the accused in a cheque dishonour case under Section 138 of the Negotiable Instruments Act. The Court convicted the respondent and sentenced him to pay a fine of ₹12,00,000 within 60 days, failing which he would undergo simple imprisonment for six months. The Court held that the cheque issued—even if as a security—was enforceable, as there existed a legally enforceable debt and the accused failed to rebut the presumption under Section 139 of the Act.
Facts
The complainant extended a friendly loan of ₹6,50,000 at 17% annual interest for one year to the respondent, who encashed the amount on 31 August 2015. Over the loan tenure, the respondent paid partial interest through four cheques totalling ₹47,830. When the loan matured, the respondent issued a cheque dated 18 August 2016 for ₹6,50,000 as repayment. Upon its presentation, the cheque was dishonoured due to insufficient funds. Despite service of legal demand notices, the respondent failed to pay, prompting the initiation of proceedings under Section 138 of the Negotiable Instruments Act. The Magistrate, however, acquitted the respondent citing deficiencies in the demand notice and lack of evidence regarding the loan tenure and interest.
Issues
- Whether the cheque was issued in discharge of a legally enforceable debt or liability.
- Whether the accused successfully rebutted the presumption under Section 139 of the Negotiable Instruments Act.
- Whether the loan advanced without a money lending licence was enforceable under law.
- Whether contradictions in the complaint and demand notice invalidated the prosecution under Section 138.
- Whether a cheque issued as a security can attract penal liability under Section 138.
Petitioner’s Arguments
The petitioner contended that the accused admitted to receiving ₹6,50,000 as loan and even paid partial interest. Exhibit 3, a money receipt signed by the accused, established the loan terms and interest. The cheque issued on 18 August 2016 was for repayment of this liability and was dishonoured due to insufficient funds. The petitioner argued that all ingredients under Section 138 were satisfied, and the burden of proof had shifted to the accused under Section 139. The trial court erred in treating the demand notice as invalid merely for not stating interest or tenure, as the Act requires only the cheque amount to be demanded.
Respondent’s Arguments
The respondent claimed that the cheque was issued only as security and not for discharging an actual liability. He argued that no due date was specified for repayment and no loan termination notice was given. The accused alleged that ₹2,50,000 was already repaid, and the cheque could not be presented before the loan matured. He cited contradictions in the complaint, affidavit, and demand notice regarding interest and tenure. He also argued that since the complainant (a Hindu Undivided Family) did not possess a money lending licence, the loan was illegal under the Bengal Money Lenders Act, 1940, and thus unenforceable. Reliance was placed on various judgments including Sripati Singh v. State of Jharkhand, Dasharath Bai Trikam Bhai Patel v. Hitesh Mahendra Bhai Patel, and D. Saroja v. A. Sukavanamma.
Analysis of the Law
The Court clarified that under Section 138 read with Section 139 of the N.I. Act, once issuance of a cheque is proved, the presumption is that it was issued in discharge of a legally enforceable debt. The burden lies on the accused to rebut this presumption. In this case, the accused neither denied the loan nor provided credible evidence of full repayment. The cheque was dishonoured and no reply denying liability was given to the demand notice. Mere assertion that the cheque was a “security” was held insufficient to rebut the statutory presumption.
Precedent Analysis
- Maruti Udyog Ltd. v. Narender – Held that Section 139 creates a presumption in favour of the holder of the cheque.
- K.N. Beena v. Muniyappan – Reiterated that burden lies on accused to rebut presumption under Section 139.
- M.M.T.C Ltd. v. Medchl Chemicals – Complaint need not specifically allege subsisting liability; burden lies on accused.
- Sripati Singh v. State of Jharkhand – Even a cheque issued as “security” is enforceable if loan not repaid before its presentation.
- Sampelly Satyanarayan Rao v. Indian Renewable Energy Development Agency – Post-dated cheques issued towards instalments fall under Section 138 if debt exists.
- I.C.D.S. Ltd. v. Beena Shabeer – Right to claim full or partial amount through cheque under Section 138 upheld.
Court’s Reasoning
The Court held that the complainant’s case was supported by the respondent’s admission in cross-examination and under Section 313 Cr.P.C. The money receipt (Exhibit 3) proved the existence of a loan. The respondent failed to produce any evidence of repayment beyond self-serving statements and did not even examine the alleged mediator Pramod Sharma. The contradictions pointed out by the trial court were minor and immaterial. Even if some interest was paid, the principal remained due, and hence the debt was legally enforceable on the cheque date.
The Court also found the demand notice valid under the Act. The claim that the cheque was issued as security was rejected as an afterthought. Citing Supreme Court decisions, the Court ruled that even cheques issued as security are actionable if no other payment is made before the due date.
Conclusion
The High Court reversed the trial court’s acquittal, convicted the accused under Section 138 of the Negotiable Instruments Act, and imposed a fine of ₹12,00,000, with a default sentence of six months simple imprisonment. The amount, if recovered, shall be treated as compensation payable to the complainant.
Implications
This judgment reaffirms the strict liability framework under Section 138 of the Negotiable Instruments Act. It clarifies that:
- Even cheques issued as security are enforceable if there is a legally enforceable debt at the time of presentation.
- Minor contradictions in complaint documents do not invalidate prosecution under Section 138.
- The presumption under Section 139 is robust and requires cogent rebuttal, not mere denials.
- The Court can reverse acquittal orders where evidence supports conviction, even with limited scope of interference.
Cases Referred and Their Relevance
- Maruti Udyog Ltd. v. Narender (1999) 1 SCC 113 – Presumption under Section 139.
- K.N. Beena v. Muniyappan (2001) 8 SCC 458 – Burden on accused to rebut presumption.
- M.M.T.C Ltd. v. Medchl Chemicals (2002) 1 SCC 234 – Complaint need not allege subsisting liability explicitly.
- I.C.D.S. Ltd. v. Beena Shabeer AIR 2002 SC 3014 – Endorsed right to partial or full claim under Section 138.
- Sripati Singh v. State of Jharkhand (2022) 18 SCC 614 – Security cheques enforceable.
- Sampelly Satyanarayan Rao v. Indian Renewal Energy (2016) 10 SCC 458 – Cheque given as security still valid under Section 138 if debt due.
FAQs
Q1. Can a cheque issued as security attract liability under Section 138 of the Negotiable Instruments Act?
Yes, if a legally enforceable debt existed at the time of presentation, even a cheque issued as security can lead to conviction under Section 138.
Q2. What level of proof is required by the accused to rebut the presumption under Section 139 of the Act?
The accused must provide cogent and credible evidence to rebut the presumption. Mere denial or claiming the cheque was issued as security is insufficient.
Q3. Does failure to specify interest or loan tenure in a demand notice invalidate the complaint under Section 138?
No. The law requires only that the cheque amount be demanded. Absence of details regarding interest or tenure in the notice does not render it invalid.
