2019 (3) TMI 769 - SC - Indian Laws

Dishonor of Cheque - cheque were returned unpaid either for the reason that the opening balance was insufficient or for the reason that the account was closed - section 138 of NI Act - Held that - The Trial Court concluded that the accused was successful in bringing rebuttal evidence to the requisite level of preponderance of probabilities; and observed that the complainant had failed to prove, beyond all reasonable doubt, that the cheques were issued in part payment of the loan amount of ₹ 22,50,000/-. The High Court observed that if the transaction in question was not reflected in the accounts and income-tax returns, that would at best hold the assesse or lender liable for action under the income-tax laws but, if the complainant succeeds in showing the lending of amount, the existence of legally enforceable debt cannot be denied. The High Court also observed that the issue regarding washing away of the cheques in rain water was of no significance when the accused had accepted his liability in clear terms. The High Court found that the defence plea of the accused that the money was given as hand loan by his friend Shri Jagdishbhai got falsified by the version of the said Shri Jagdishbhai, who was examined as a witness on behalf of the complainant. The High Court, therefore, set aside the impugned orders and, while convicting the accused-appellant for the offence under Section 138 of the NI Act, sentenced him in the manner noticed hereinbefore. Preponderance of probabilities - Held that - The accused has to bring on record such facts and such circumstances which may lead the Court to conclude either that the consideration did not exist or that its nonexistence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that the consideration did not exist. This Court has, time and again, emphasized that though there may not be sufficient negative evidence which could be brought on record by the accused to discharge his burden, yet mere denial would not fulfil the requirements of rebuttal as envisaged under Section 118 and 139 of the NI Act. In the case at hand, even after purportedly drawing the presumption under Section 139 of the NI Act, the Trial Court proceeded to question the want of evidence on the part of the complainant as regards the source of funds for advancing loan to the accused and want of examination of relevant witnesses who allegedly extended him money for advancing it to the accused. This approach of the Trial Court had been at variance with the principles of presumption in law. After such presumption, the onus shifted to the accused and unless the accused had discharged the onus by bringing on record such facts and circumstances as to show the preponderance of probabilities tilting in his favour, any doubt on the complainant's case could not have been raised for want of evidence regarding the source of funds for advancing loan to the accused-appellant. The High Court has conscientiously and carefully taken into consideration the views of the Trial Court and after examining the evidence on record as a whole, found that the findings of the Trial Court are vitiated by perversity. Hence, interference by the High Court was inevitable; rather had to be made for just and proper decision of the matter - the findings of the High Court convicting the accused-appellant for offence under Section 138 of the NI Act deserves to be, and are, confirmed. Question of punishment for the offence aforesaid - Held that - In the totality of the circumstances of this case and looking to the nature of offence which is regulatory in nature, while we find that the punishment as regards monetary terms calls for no interference but then, the sentence of imprisonment deserve to be modified - In the singular and peculiar circumstances of this case, where the matters relating to 7 cheques issued by the appellant in favour of respondent No. 2 for a sum of ₹ 3 lakhs each are being considered together; and the appellant is being penalised with double the amount of cheques in each case i.e., in all a sum of ₹ 42,00,000/-, in our view, the appellant deserves to be extended another chance to mend himself by making payment of fine, of course, with the stipulation that in case of default in payment of the amount of fine, he would undergo simple imprisonment for a period of one year. Appeal allowed in part.

Summary

Issues Involved:
1. Whether the accused issued and handed over the cheques towards a legal due amount.
2. Whether the cheques were dishonoured due to insufficient funds or account closure.
3. Whether the complainant served a demand notice to the accused and whether the accused failed to pay the cheque amount within the stipulated period.
4. Whether the accused committed an offense under Section 138 of the Negotiable Instruments Act.
5. Whether the High Court was justified in reversing the acquittal judgment of the Trial Court.
6. Whether the punishment awarded by the High Court was appropriate.

Detailed Analysis:

1. Issuance of Cheques Towards Legal Due Amount:
The complainant alleged that the accused, a trader of edible spices, borrowed ?22,50,000 and issued seven cheques of ?3,00,000 each towards repayment. These cheques were presented for collection but were dishonoured due to insufficient funds or account closure. The accused denied the transaction, claiming that the cheques and a blank stamp paper were fraudulently misused by the complainant and a mutual friend, Jagdishbhai.

2. Dishonour of Cheques:
The cheques issued by the accused were returned unpaid with endorsements stating "opening balance was insufficient" or "account was closed." The complainant served notices to the accused after the dishonour of the cheques but did not receive the requisite payment.

3. Service of Demand Notice and Failure to Pay:
The complainant served demand notices to the accused after the cheques were dishonoured. The accused either denied the transaction or did not respond, failing to make the payment within the stipulated notice period.

4. Offense Under Section 138 of the NI Act:
The Trial Court initially acquitted the accused, citing lack of documentary evidence for the loan, inconsistencies in the complainant's statements, and failure to prove the transaction beyond reasonable doubt. However, the High Court reversed this decision, holding that the presumption under Sections 118 and 139 of the NI Act was in favor of the complainant. The High Court found that the accused's defense was not credible and that the complainant had established a legally enforceable debt through oral and documentary evidence, including a written acknowledgment by the accused.

5. Justification for Reversing Acquittal:
The High Court observed that the Trial Court erred in its approach by requiring the complainant to prove his case beyond reasonable doubt despite the presumption under Sections 118 and 139 of the NI Act. The High Court found that the accused failed to rebut the presumption of a legally enforceable debt and that the complainant's case was supported by substantial evidence. The Supreme Court concurred, stating that the Trial Court's judgment was perverse and that the High Court rightly reversed it.

6. Appropriateness of Punishment:
The High Court sentenced the accused to one year of simple imprisonment and a fine of double the cheque amount (?6 lakhs per cheque), with a default stipulation of further imprisonment. The Supreme Court modified the sentence, maintaining the fine but allowing the accused two months to pay it. If the fine is not paid, the accused will undergo one year of simple imprisonment, with sentences running concurrently for all seven cases. The complainant will be compensated ?5.5 lakhs per case from the fine amount.

Conclusion:
The Supreme Court upheld the High Court's conviction of the accused under Section 138 of the NI Act but modified the sentence to provide the accused an opportunity to pay the fine within two months, failing which he would face imprisonment. The Trial Court's acquittal was found to be fundamentally flawed due to its misapplication of the presumption under Sections 118 and 139 of the NI Act.