2016 (4) TMI 828 - SC - Indian Laws

Complaint under Section 138 of the Negotiable Instruments Act, 1881 - dishonor of cheques - Held that - Once the appellant files a complaint on the basis that he was holding the cheques as holder in due course which were admittedly given by the respondent to the appellant and the said cheques were dishonoured when they were presented for encashment to the Bank and he, further, is able to establish that due notice of the dishonour of the said cheques was given to the respondent as provided in law, there was a clear presumption in favour of the appellant that the money was due under the said cheques.It may be noted that there is no defence to the effect that the cheques were not issued by the respondent or the cheques do not bear its signatures or they were not presented properly for encashment. It was not even necessary for the appellant to produce any document to the effect that it had fulfilled the obligation under the agreement which was entered into between the parties.The case was founded on the dishonour of the two cheques and not on the basis of the said agreement.Further, it was not a civil suit which was filed on the basis of the said agreement or any demand was raised for money on the ground that the agreement had been fulfilled.The case is that the payment was not released.It is here where the High Court has fell in legal error. We are, therefore, of the opinion that the dishonour of the aforesaid cheques in the aforesaid manner clearly establish that the amount was due to the appellant and it is the respondent which has failed to discharge its obligation. This is more so, when in the legal notice, specific averment was made by the appellant that the appellant had discharged its obligation under the contract and only thereupon, the cheques were issued and the respondent had not even replied to the said notice. We, thus, set aside the orders of the courts below and hold that the respondent has committed an offence in terms of the provisions under Section 138 of the Act.The respondent shall pay to the appellant the amount due with interest at the rate of 9 per cent from the date of filing of the complaint within two months

Summary

Issues Involved:
Complaint under Section 138 of the Negotiable Instruments Act, 1881 - Dishonored cheques - Failure to prove material supply - Presumption under Section 139 of the Act - Legal error by lower courts - Appellant's entitlement to payment.

Analysis:
The appellant filed a complaint under Section 138 of the Negotiable Instruments Act, alleging non-payment by the respondent for material supplied as per an agreement. The respondent issued cheques which were dishonored, leading to a legal notice and subsequent complaint. The trial court and High Court dismissed the complaint citing lack of proof of material supply, which the appellant contested. The appellant argued that once cheques are issued, there is a legal presumption of debt owed, supported by Section 139 of the Act. The lower courts erred in requiring proof of material supply before applying this presumption, as the focus should be on dishonored cheques, not the underlying agreement.

The appellant contended that upon dishonor of the cheques, notice given, and status as a holder in due course established, the burden shifts to the respondent to disprove the debt. The High Court's error lay in demanding proof of fulfilling the agreement, which was unnecessary for a Section 138 complaint based on dishonored cheques. The appellant's claim was solely on non-payment, not on contract fulfillment. The courts should have relied on the legal presumption in favor of the holder of dishonored cheques, rather than demanding additional proof of performance under the agreement.

The Supreme Court held that the dishonor of the cheques established the respondent's failure to discharge its obligation, especially when the appellant had fulfilled its contractual duties as per the legal notice. The respondent's non-response to the notice further supported the appellant's claim. Consequently, the Court set aside the lower courts' decisions, finding the respondent guilty under Section 138 of the Act. The respondent was ordered to pay the due amount with interest, and failure to comply within two months would result in double the cheque amount plus accrued interest being payable to the appellant. The appeal was allowed in favor of the appellant, emphasizing the legal presumption and the respondent's default in payment obligations.