2016 (1) TMI 951 - SC - Indian Laws

Dishonor of cheque / Promissory Note - Conviction of respondent u/s 138 of the Negotiable Instruments Act, 1881 and dismissed Criminal Appeal No.10 of 2012 filed by the Complainant/Appellant. - It is not in dispute that the execution of the Promissory Note and the endorsement made by the Respondent has been satisfactorily proved at the trial. Concurrent findings recorded by the trial court and the first appellate court to that effect conclude the factual part of the controversy. The only question that survives in the above background is whether the cheques issued by the Respondent were meant to discharge, in whole or part, any debt or other liability within the meaning of Section 138 of the Negotiable Instruments Act, 1881. Held that - It was acknowledged and a promise was made to liquidate the same within one month. Failure on the part of the debtor to do so could lead to only one result, viz. presentation of the cheques for payment and in the event of dishonour, launch of prosecution as has indeed happened in the case at hand. The argument that the respondent had no liability to liquidate the debt owed by Nazimul Islam, has not impressed us. What is important is whether the cheques were supported by consideration. Besides the fact that there is a presumption that a negotiable instrument is supported by consideration there was no dispute that such a consideration existed in as much as the cheques were issued in connection with the discharge of the outstanding liability against Nazimul Islam. At any rate the endorsement made by the respondent on the promissory note that the cheques can be presented for encashment after 25-09-2007 clearly shows that the cheques issued by him were not ornamental but were meant to be presented if the amount in question was not paid within the extended period. The High Court in our view fell in error in upsetting the conviction recorded by the Courts below who had correctly analysed the factual situation and applied the law applicable to the same. Conviction upheld - Decided in favor of appellant.

Summary

Issues:
1. Conviction under Section 138 of the Negotiable Instruments Act, 1881.
2. Interpretation of promissory note and endorsement.
3. Liability to liquidate debt.
4. Consideration for issued cheques.

Analysis:

Issue 1: Conviction under Section 138 of the Negotiable Instruments Act, 1881
The case involved an appeal arising from a judgment convicting the respondent under Section 138 of the Negotiable Instruments Act, 1881. The respondent had issued post-dated cheques as security, which were dishonored due to insufficient funds. The trial court convicted the respondent, sentencing him to imprisonment and compensation. The appellate court modified the sentence to a fine and compensation. The High Court set aside the conviction, leading to the current appeal before the Supreme Court.

Issue 2: Interpretation of promissory note and endorsement
The promissory note executed by the deceased acknowledged the liability to refund the amount received. The note specified the cheques issued as security and promised their return upon payment. The respondent endorsed the note, acknowledging the cheques issued by him and agreeing to their presentation after a specified date. The courts found the execution of the note and endorsement proven. The critical question was whether the cheques were meant to discharge any debt or liability under Section 138 of the Act.

Issue 3: Liability to liquidate debt
The Supreme Court affirmed that the cheques were connected to the debt owed by the deceased. The promissory note clearly acknowledged the debt and promised its settlement within a month, with interest. The cheques were post-dated to allow time for payment, indicating a direct link between the liability and the cheques. The court emphasized that failure to pay the debt led to the presentation of the cheques for payment, as evident in this case.

Issue 4: Consideration for issued cheques
The court rejected the argument that the respondent had no liability to liquidate the debt. It emphasized that the cheques were supported by consideration, as they were issued in connection with discharging the outstanding liability. The respondent's endorsement allowing presentation of cheques after a specific date reinforced the purpose of the cheques. The Supreme Court disagreed with the High Court's decision to overturn the conviction, stating that the lower courts correctly analyzed the factual situation and applied the relevant law.

In conclusion, the Supreme Court allowed the appeals, setting aside the High Court's decision on the respondent's conviction. The appellate court's order was restored, emphasizing the connection between the issued cheques and the debt owed, leading to the conviction under Section 138 of the Negotiable Instruments Act, 1881.