2010 (11) TMI 1113 - DSC - Indian Laws

Summary

Issues Involved:
1. Whether the trial court erred in convicting the accused for the offence u/s 138 of N.I. Act?
2. Whether the conviction and sentence of the trial court require interference?
3. What order should be passed?

Summary:

Issue 1: Conviction u/s 138 of N.I. Act
The appellants and the respondent were engaged in liquor business transactions. The appellants issued a cheque dated 31.3.2005 for Rs. 5,67,116/- which was dishonored due to insufficient funds. A legal notice was issued, and a reply was received. The trial court convicted the appellants based on the statutory presumption without appreciating the rebuttal evidence from the appellants. The appellants contended that the cheque was issued as security, not for debt discharge. The court held that the burden was on the appellants to prove the cheque was for security purposes, which they failed to do. The court cited the decision in Dr. B.V. Sampathkumar Vs Dr. K.G.V Lakshmi, stating that a cheque issued as security still attracts legal consequences u/s 138 of the Act.

Issue 2: Legality of Debt and Authorization to File Complaint
The appellants argued that the complaint was filed without proper authorization from all partners of the firm. The court referred to the decision in M.M.T.C Ltd. vs. Medchi Chemicals and Pharma (P) Ltd., stating that the absence of a power of attorney is a curable defect. The court found that the complaint was filed on behalf of the partnership firm, satisfying the eligibility criteria u/s 142 of the N.I. Act.

Issue 3: Enforceability of Debt under Karnataka Excise Act
The appellants argued that the debt was unenforceable under Rule 14 of the Karnataka Excise Licenses (General Conditions) Rules, 1967, which prohibits the sale of liquor on credit. The court agreed, stating that the debt arising from a credit sale of liquor is not legally enforceable. The court cited relevant case law, emphasizing that only legally enforceable debts are recoverable under the N.I. Act. The court concluded that the trial court erred in taking cognizance of the offence and convicting the accused.

Order:
The appeal is allowed. The conviction and sentence of the trial court are set aside. The appellants are directed to execute self-bonds for Rs. 25,000/- each with one surety for their appearance before the Hon'ble High Court of Karnataka in case of appeal. The records are to be sent to the lower court forthwith.