2018 (10) TMI 103 - HC - Indian Laws

Dishonor of Cheque - offence punishable under section 138 of the N.I. Act - existence of loan in dispute - hire purchase agreement. Held that - It is the admitted case that the present hire purchase agreement Ex-R1 was entered into by the parties concerned for the previous transaction. At the same time it is relevant to point out here that the accused has not denied his signatures in any of the exhibits meant for the monetary liability upon the complainant. However, even in the cross examination the accused has not deposed that under some cloudy circumstances, he was constrained to put his signatures. Moreover, admittedly no reply was given to the statutory demand notice issued by the complainant and the accused has not disputed the existence of the Ex-R1 then he is liable to answer and to give explanation as to why Ex-R1 came to light. As a prudent person he ought not to have entered into such an agreement by putting his signature. No doubt when the accused has not denied the execution of Ex-R1 and the contents thereon, then in the considered opinion of this court, he is liable to disprove the case of the complainant as the complainant has shifted the burden to prove the case upon the accused. It is seen form the records that quite numbers of cheques were issued followed by the execution of Ex-R1. Apart from that the transactions are supported by other documents as admitted by either parties. At this juncture, it is relevant to point out here that though the counsel for the accused denied the passing of consideration; he has no answer as to why the statutory demand notice was not replied properly and why legal action was not taken as against the complainant. Moreover these aspects are to be answered properly by the accused as the accused is the executant of all the documents including the cheques. Whether Section 139 of N.I. Act will aid the appellant company? - Held that - Admittedly the accused company had not denied the execution of subject cheques and the signatures therein. Thus it is needless for this Court to say that the respondents company had not rebutted the presumption provided under Sections 118 and 139 of N.I. Act - In the instant case, the initial burden of proving the case of the complainant has been completed when the complainant has proved the execution of cheques and other supporting documents by the accused. Then the burden is shifted to the accused to disprove the case of the complainant. As for as the burden to disprove the case of the complainant, the accused is expected to let in reliable documentary evidence and the mere and bare denial will not be suffice to hold that the accused has disproved the case of the complainant successfully. Apart from that the accused has not denied the causing of statutory demand notice, but he has admitted that no reply was offered by him - Though the accused is not legally expected to cause a reply notice, but to disprove the case of the complainant he ought to have taken the steps and stands which are taken during the course of trial. Apart from that section 20 of the N.I. Act would make it clear that once the issuance of cheque is admitted, then it is for the accused to disprove the case of the complainant, hence this court is under the compulsion to reiterate that the mere and bare denial alone would not help the accused to get rid of the case. Therefore the presumption as contemplated under section 139 of N.I. Act is in favour of the complainant. Since the N.I. Act is a self contained law the same will not get diluted simply for the reason of appointing liquidator and the death of the Managing Director especially in the existence of one of the Director who is the 3rd respondent herein. The 3rd accused / 3rd respondent is convicted and sentenced to undergo Simple Imprisonment of 6 Months each of the following cases and the Sentences are Ordered to run Concurrently - the respondents herein shall pay fine amount of ₹ 5,000/- in each cases to the appellant / complainant, in default to pay the fine amount mentioned, the 3rd accused shall undergo one month Simple Imprisonment in each case and the Compensation shall be paid by the respondents / accused to the appellant / complainant - Appeal allowed.

Summary

Issues Involved:
1. Whether the cheques issued by the accused company were supported by consideration.
2. Whether the presumption under Sections 118 and 139 of the Negotiable Instruments Act (N.I. Act) was rebutted by the accused.
3. The impact of the death of the 2nd accused and the winding up of the respondent’s company on the liability under the N.I. Act.

Issue-Wise Detailed Analysis:

1. Whether the cheques issued by the accused company were supported by consideration:

The complainant company, engaged in money lending for vehicle and machinery purchases, entered into a Hire Purchase Agreement with the accused company. The accused issued several cheques towards the installment of the loan amount. However, the cheques were dishonored with the endorsement "Refer to Drawer." The complainant issued a statutory legal notice, to which the accused did not respond. The accused contended that the cheques were issued for security purposes and not supported by consideration as no loan was actually disbursed. The trial court acquitted the accused, holding that the cheques were not supported by consideration.

2. Whether the presumption under Sections 118 and 139 of the N.I. Act was rebutted by the accused:

The appellate court noted that the accused did not deny the execution of the cheques or the Hire Purchase Agreement (Ex-R1). The court emphasized that under Section 118(a) of the N.I. Act, it is presumed that every negotiable instrument was made for consideration, and under Section 139, it is presumed that the holder of a cheque received it for the discharge of a debt or liability. The court referenced the Supreme Court judgment in Hiten P. Dalal vs. Bratindranath Banerjee, which clarified that these presumptions place the evidential burden on the accused to prove otherwise. The appellate court found that the accused failed to rebut these presumptions as they did not provide a plausible explanation or documentary evidence to disprove the complainant's case. The accused's mere denial and failure to reply to the statutory notice were insufficient to rebut the presumption of consideration.

3. The impact of the death of the 2nd accused and the winding up of the respondent’s company on the liability under the N.I. Act:

During the pendency of the appeals, the 2nd accused died, and the appeals against him abated. Additionally, the respondent's company was wound up, and an Official Liquidator was appointed. The court held that the winding up of the company and the death of the Managing Director did not absolve the company of its liability under the N.I. Act. The court emphasized that the company, represented by the 3rd accused (another Director), remained liable for the proceedings. The N.I. Act, being a self-contained law, ensures that the liability persists despite the company's liquidation or the death of its Managing Director.

Conclusion:

The appellate court allowed the criminal appeals, convicting the 3rd accused and sentencing him to six months of Simple Imprisonment for each case, with the sentences to run concurrently. The accused were also ordered to pay a fine of ?5,000 in each case and compensation to the complainant as specified in the tabular column. The court reiterated that the presumption under Sections 118 and 139 of the N.I. Act favored the complainant and that the trial court erred in not appreciating the total circumstances and legal aspects surrounding the case.