2019 (2) TMI 662 - HC - Indian Laws

Dishonor of Cheque - insufficient funds - the petitioner s contention in the complaint is that the respondent failed to deposit the amount of ₹ 20,25,000/- that was collected from the borrowers but has failed to examine any such borrower to prove that they made the payment to the respondent for the repayment of loan - section 138 of NI. Held that - The petitioner company failed to explain why the stamp papers for the loan agreement were purchased almost three years prior to the execution of loan documents. Moreover, the loan agreement is a void contract for want of consideration. It is evident that the consent of the respondent was obtained through misrepresentation thus making the loan agreement between the petitioner and respondent void under Section 19 of the Indian Contract Act. As per the loan agreement dated 8th January 2013 the loan amount was for ₹ 20,25,000/- whereas the cheque in question for an amount of ₹ 26,63,037/- was presented on 16th May 2013. The petitioner company has failed to explain how the liability increased from ₹ 20,25,000/- to ₹ 26,63,037/- within a period of five months. Therefore, the legal demand notice was not a valid notice as it was a demand for more than the actual loan amount and would not fasten any criminal liability on the respondent - Findings of the learned Metropolitan Magistrate acquitting the respondent, based on the facts cannot be said to be perverse warranting interference by this Court. Leave to appeal petition is dismissed.

Summary

Issues: Judgment on acquittal under Section 138 of the Negotiable Instruments Act based on insufficiency of evidence and legal validity of loan agreement and demand notice.

Analysis:
1. Background and Allegations: The petitioner, a financing company, filed a complaint against the respondent for dishonoring a cheque issued as repayment for a loan. The respondent failed to comply with repeated demands for repayment, leading to the complaint under Section 138 of the Negotiable Instruments Act.

2. Evidence Presented: The petitioner submitted various documents as evidence, including the loan agreement, cheque, returning memo, legal demand notice, and other relevant records to establish the case against the respondent. The respondent, on the other hand, claimed innocence and stated that he had issued a blank signed cheque to the petitioner at the time of employment.

3. Evaluation of Evidence: During the trial, it was revealed that the respondent was an employee of the petitioner company and worked as a Field Manager responsible for loan disbursal and recovery. However, crucial documents like the appointment letter, loan documents, and borrower payment details were not provided by the petitioner. This raised doubts about the authenticity and validity of the loan transaction.

4. Validity of Loan Agreement: The court noted discrepancies in the loan agreement, such as the stamp paper being purchased three years before the agreement date and the loan amount discrepancy. It was argued that the loan agreement lacked consideration and was void due to misrepresentation, rendering it legally unenforceable.

5. Legal Demand Notice: The legal demand notice issued by the petitioner demanded an amount higher than the actual loan, raising questions about its validity and the basis for criminal liability. The court found the notice to be invalid as it exceeded the loan amount, thus failing to establish a clear legal basis for the case against the respondent.

6. Judicial Decision: The Metropolitan Magistrate acquitted the respondent based on the lack of concrete evidence, discrepancies in the loan agreement, and the invalid legal demand notice. The High Court upheld the lower court's decision, stating that the findings were not perverse and did not warrant interference. The leave to appeal petition was dismissed, concluding the legal proceedings in favor of the respondent.