Borrower cannot escape from prosecution and criminal liability for the dishonour of cheque

[CA Bimal Jain]

The Hon’ble Karnataka High Court in SRI KARIBASAPPA VERSUS SRI MALLIKARJUN - 2023 (1) TMI 928 - KARNATAKA HIGH COURT set aside the acquittal order passed by the Trial Court and sentenced the accused to pay a fine of INR 2,00,000/- or to undergo imprisonment of 3 months. Further, prescribed a list of grounds that wouldn’t exempt the borrower to escape from the prosecution and criminal liability for the dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881 (“the NI Act”).

Facts:

Sri Karibasappa (“the Appellant”) was approached by Sri Mallikaarjun (“the Respondent” or “the Accused”) on February 7, 2010 to give a loan of INR 2,00,000/- for its contract work. The loan was given by the Appellant on the assurance that the Respondent will return the amount within 9 months. The Respondent issued a cheque dated December 7, 2010 to discharge his debt which was presented by the Appellant for collection on January 27, 2011 and the same was dishonoured due to insufficient funds vide bank endorsement dated January 28, 2011.

Thereafter, a demand notice was issued by the Appellant dated March 14, 2011 (“the Impugned Demand Notice”) which was received by the wife of the Respondent on March 16, 2011, however, the Respondent neither replied to the notice nor paid the money.

Consequently, a complaint was filed by the Appellant on April 29, 2011, wherein, the Trial Court vide order dated July 06, 2020 (“the Impugned Order”) acquitted the Respondent from the charge levelled under Section 138 of the NI Act on the grounds that:

1. the Impugned Demand Notice was not given to the Respondent;
2. there is material alteration in the Cheque;
3. the date as to when money was given has not been stated in the complaint;
4. the debt is time barred;
5. the transaction is hit by Section 269-SS of the Income Tax Act, 1961 (“the IT Act”); and
6. the Cheque dated December 7, 2010 was issued by the Respondent as security for the loan of INR 50,000/-

Being aggrieved, this appeal has been filed by the Appellant challenging the correctness and legality of the acquittal order passed by the Trial Court.

Issue:

Whether the Respondent is liable to be charged under Section 138 of the NI Act for dishonour of cheque while discharging his debt?

Held:

The Hon’ble Karnataka High Court in SRI KARIBASAPPA VERSUS SRI MALLIKARJUN - 2023 (1) TMI 928 - KARNATAKA HIGH COURT held as under:

• Stated that, the Impugned Demand Notice was issued at the residential address of the Respondent and was received by his wife therefore, when the Impugned Demand Notice is posted to the correct address and received by the family member and in absence of any contrary evidence, it will have to be held that there is deemed service of notice.
• Further stated that, the alleged alteration in overwriting the '2nd figure' while showing the year does not amount to material alteration, which can render the Cheque as invalid, more particularly, when the Bank has not refused to honour the Cheque on the alleged alteration in showing the year.
• Noted that, there is no legal requirement to plead as to the date on which Respondent approached the Appellant for seeking money. The date on which the payment made is material and that has to be pleaded, which has been done by the Appellant in the complaint.
• Observed that, though the postdated Cheque was delivered by the Respondent on February 7, 2010 mentioning the date as December 7, 2012, the said Cheque has been presented within the statutory period of time covered under Section 138(a) of the NI Act therefore, there is no question of debt being time barred.
• Further stated that, a cash loan in excess of the limit of INR 20,000/- in violation of Section 269SS of the IT Act does not make a loan an unenforceable debt.
• Further stated that, it is on the Respondent to prove that he has issued signed blank Cheque as a security for the loan of INR 50,000/- which he claims to have repaid with interest, by way of DD dated November 30, 2009, which the Respondent has failed to prove.
• Further observed that, the Respondent, by way of rebuttal evidence has failed to probablize its defence to disprove the statutory presumption available in favour of the Appellant. Such failure has proved the charge leveled against the Respondent for the offence under Section 138 of the NI Act.
• Set aside the Impugned Order.
• Convicted the Respondent for the offence under Section 138 of the NI Act and sentenced to pay fine of INR 2,00,000/- and held that, on default of payment of fine, the Respondent shall undergo imprisonment for three months to meet the ends of justice.

Relevant Provisions:

Section 138 of the NI Act:

“Dishonour of cheque for insufficiency, etc., of funds in the account-

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years’, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless-

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, 9 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation-For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.”

Section 269SS of the IT Act:

“Mode of taking or accepting certain loans, deposits and specified sum-

No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if,-

(a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or

(b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),

is twenty thousand rupees or more:

Provided that the provisions of this section shall not apply to any loan or deposit or specified sum taken or accepted from, or any loan or deposit or specified sum taken or accepted by-

(a) the Government;

(b) any banking company, post office savings bank or co-operative bank;

(c) any corporation established by a Central, State or Provincial Act;

(d) any Government company as defined in clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette:

Provided further that the provisions of this section shall not apply to any loan or deposit or specified sum, where the person from whom the loan or deposit or specified sum is taken or accepted and the person by whom the loan or deposit or specified sum is taken or accepted, are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation- For the purposes of this section-

(i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii) “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) “loan or deposit” means loan or deposit of money;

(iv) “specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.”

(Author can be reached at [email protected])