2025 (1) TMI 469 - HC - Indian Laws

Dishonour of cheque - acquittal of offence under Section 138 of the Negotiable Instruments Act, 1881 - rebuttal of presumption under Sections 118 and 139 of the NI Act - HELD THAT - The present case relates to acquittal of an accused in a complaint under Section 138 of the NI Act. The restriction on the power of Appellate Court in regard to other offence does not apply with same vigor in the offence under NI Act which entails presumption against the accused. It is also well settled that once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque/ respondent received the cheque in discharge of a legally enforceable debt or liability are raised against the accused. In the present case, the ground on which the respondent has been acquitted is that since the money was advanced by the complainant and his children, the complainant himself was not entitled to the entire sum of money, that is, Rs. 7,00,000/-. The learned MM noted that the person in whose favour the cheque was issued must be entitled to the cheque amount or must have some special authorization to file a complaint qua the cheque of other person. It was noted that the present complaint was not maintainable qua Manish Gupta and Bhumika Gupta. Consequently, the learned MM noted that since the complainant himself was not entitled to the entire cheque amount thereby making the cheque amount more than the liability owed by the respondent, the respondent was liable to be acquitted. It is undisputed that the respondent had entered into the agreement with the complainant, pursuant to which the subject cheque was issued to the complainant. The subject cheque, on presentation, dishonoured for the reason Funds Insufficient. Thus, all the ingredients to constitute an offence under Section 138 of the NI Act are met - The respondent was obligated to raise a probable defence in order to rebut the presumptions raised against him under Section 139 and 118 of the NI Act. Except for contentions that the complainant was not competent to file the complaint, and that the respondent was not liable to the entire cheque amount towards the complainant, the respondent has failed to raise a probable defence to rebut the presumptions raised against him. Conclusion - The respondent failed to rebut the presumptions raised against him under Sections 139 and 118 of the NI Act. The impugned judgment dated 19.11.2018, acquitting the respondent of the offence under Section 138 of the NI Act is accordingly set aside - List on 16.01.2025 for further directions.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the complainant was authorized to file the complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) without a power of attorney from his children, who were also creditors.
Whether the presumption under Sections 118 and 139 of the NI Act was properly rebutted by the respondent.
Whether the cheque issued by the respondent was for a legally enforceable debt or liability.
Whether the acquittal of the respondent by the learned Metropolitan Magistrate (MM) was justified based on the evidence and legal principles.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Authorization to File the Complaint

Legal Framework and Precedents: Section 142 of the NI Act stipulates that a complaint must be filed by the "payee" or the holder in due course of the cheque. The complainant was the named payee on the cheque issued by the respondent.
Court's Interpretation and Reasoning: The court noted that the cheque was issued in the name of the complainant, making him the payee and thus competent to file the complaint.
Key Evidence and Findings: The agreement dated 06.02.2014 between the parties acknowledged the debt and the issuance of the cheque to the complainant.
Application of Law to Facts: The court concluded that the complainant, being the payee, was authorized to file the complaint irrespective of the absence of a formal power of attorney from his children.
Treatment of Competing Arguments: The respondent argued that the complainant needed authorization from his children, but the court found this argument unconvincing as the cheque was issued directly to the complainant.
Conclusions: The complainant was legally entitled to file the complaint under the NI Act.

Issue 2: Rebuttal of Presumptions under Sections 118 and 139 of the NI Act

Legal Framework and Precedents: Sections 118 and 139 of the NI Act create presumptions in favor of the holder of the cheque that it was issued for consideration and in discharge of a debt or liability.
Court's Interpretation and Reasoning: The court emphasized that the respondent must raise a probable defense to rebut these presumptions.
Key Evidence and Findings: The respondent's defense primarily relied on the lack of authorization and the alleged linkage of the cheque to a separate transaction, which the court found unsubstantiated.
Application of Law to Facts: The court determined that the respondent failed to present sufficient evidence to rebut the statutory presumptions.
Treatment of Competing Arguments: The respondent's arguments were deemed insufficient to shift the burden back to the complainant.
Conclusions: The respondent did not successfully rebut the presumptions under Sections 118 and 139.

Issue 3: Legally Enforceable Debt or Liability

Legal Framework and Precedents: A cheque must be issued for a legally enforceable debt or liability to attract Section 138 of the NI Act.
Court's Interpretation and Reasoning: The court found that the agreement and the issuance of the cheque established a legally enforceable debt.
Key Evidence and Findings: The agreement dated 06.02.2014 confirmed the debt and the cheque issuance, and the cheque was dishonored due to insufficient funds.
Application of Law to Facts: The court held that the cheque was issued for a legally enforceable debt, as evidenced by the agreement and the respondent's acknowledgment.
Treatment of Competing Arguments: The respondent's claim of separate conditions for cheque presentation was not supported by the agreement.
Conclusions: The cheque was issued for a legally enforceable debt, meeting the requirements of Section 138.

Issue 4: Justification of Acquittal by the Learned MM

Legal Framework and Precedents: The appellate court must find the trial court's judgment perverse or unsustainable to overturn an acquittal.
Court's Interpretation and Reasoning: The court found the MM's judgment unsustainable due to misapplication of legal principles regarding authorization and presumptions.
Key Evidence and Findings: The MM's reliance on the lack of authorization and the supposed insufficiency of liability was incorrect.
Application of Law to Facts: The appellate court determined that the MM failed to properly apply the presumptions and legal standards under the NI Act.
Treatment of Competing Arguments: The appellate court found the respondent's defenses insufficient to justify the acquittal.
Conclusions: The acquittal was unjustified, and the appellate court set aside the MM's judgment.

3. SIGNIFICANT HOLDINGS

Preservation of Crucial Legal Reasoning: "Since the cheque was issued in the name of the complainant, and the respondent after being cognizant of the fact that the money was owed to the complainant and his children had issued the cheque in the name of complainant alone, the complainant was competent to file and prosecute the case against the respondent."
Core Principles Established: The payee of a cheque is competent to file a complaint under Section 138 of the NI Act, and statutory presumptions must be rebutted with credible evidence.
Final Determinations on Each Issue: The complainant was authorized to file the complaint, the respondent failed to rebut the presumptions, the cheque was for a legally enforceable debt, and the acquittal by the MM was overturned.

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