2020 (9) TMI 694 - HC - Indian Laws

Dishonor of Cheque - acquittal of the accused - legally enforceable debt or not - Section 138 of Negotiable instruments Act, 1881 - HELD THAT - If a cheque is issued in terms of an agreement and the same is dishonored, the amount of the cheque, constitute legally enforceable debt, as the agreement is legally enforceable between the parties - When the complainant is successful in proving the existence of legally recoverable debt and issuance of Ex. P1-cheque and also dishonor of the same, presumption under Sections 118 and 139 of the Act comes into operation and it is for the accused to rebut these legal presumptions. In the present case, accused has not made any attempt to rebut the presumption. When he admitted the agreement-Ex.P6 and also issuance of the cheque Ex. P1, it cannot be said that there is no legally recoverable debt. Even though accused cross examined PW1 through his counsel and got examined himself as DW1, nothing has been placed before the Court to rebut the presumption or to substantiate the contention that he has not taken over the business of the company nor he has acted as managing director or that he has not availed loan either from KSFC or from SBI or his contention that his signatures were obtained by the complainant on the blank papers and documents - there are no bonafides in the contentions raised by the accused in his defence. The opinion formed by the trial Court that the agreement in question is dated 09.02.2005, whereas the cheque in question dated 10.05.2007 and therefore there was no legally enforceable debt at the time of issuance of cheque, cannot be accepted. The terms and conditions in Ex. P6 itself makes it clear that the accused had agreed to make payment in installments and the manner in which the said payments are to be made, are clearly explained and agreed between the parties in the agreement - the finding of the trial Court that there was no legally recoverable debt and acquitting the accused on the said ground is illegal and perverse. The impugned judgment of acquittal passed by the trial Court is set aside. The accused who is the respondent herein is convicted for the offence punishable under Section 138 of the Act - Appeal allowed.

Summary

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881.
2. Validity of the agreement between the parties.
3. Dishonor of the cheque and subsequent legal actions.
4. Trial Court's judgment of acquittal.

Issue-Wise Detailed Analysis:

1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881:
The appellant contested the trial court's finding that there was no legally enforceable debt. The trial court concluded that the accused was not liable under Section 138 of the Act because the shares were not transferred, and thus, no debt existed. However, the appellate court highlighted that the issuance of the cheque was in terms of an agreement (Ex. P6), which constitutes a legally enforceable contract. The court cited the Supreme Court's decision in *RIPUDAMAN SINGH VS. BALKRISHNA* (2019) 4 SCC 767, stating that cheques issued under an agreement to sell are enforceable debts.

2. Validity of the agreement between the parties:
The agreement (Ex. P6) was admitted by both parties, wherein the accused agreed to purchase shares for ?13,00,000/-. The agreement detailed the payment schedule, including the issuance of cheques. Despite the accused's claim that shares were not transferred, the court noted that the agreement's terms were not disputed, and the issuance of the cheque (Ex. P1) was in line with the agreement. The court emphasized that the agreement's enforceability does not depend on the physical transfer of shares but on the contractual obligations agreed upon.

3. Dishonor of the cheque and subsequent legal actions:
The complainant presented the cheque for ?3,50,000/- on 14.05.2007, which was dishonored due to insufficient funds. A legal notice was issued to the accused on 13.06.2007, demanding payment within 15 days, which was not complied with. The court found that the complainant successfully proved the issuance and dishonor of the cheque, invoking the presumption under Sections 118 and 139 of the Act, which the accused failed to rebut. The court noted that the accused admitted to the agreement and the issuance of the cheque during cross-examination.

4. Trial Court's judgment of acquittal:
The trial court acquitted the accused, reasoning that the shares were not transferred, and thus, no legally enforceable debt existed. The appellate court found this reasoning flawed, as the agreement explicitly allowed for the recovery of installments through prosecution or civil suits. The court concluded that the trial court's judgment was illegal and perverse, as it overlooked the contractual obligations and the legal presumption under the Act.

Conclusion:
The appellate court set aside the trial court's judgment of acquittal, convicting the accused under Section 138 of the Act. The accused was sentenced to six months of simple imprisonment and fined ?6,00,000/-, with ?4,50,000/- to be paid as compensation to the complainant. The judgment emphasized the enforceability of contractual obligations and the legal presumption of debt under the Negotiable Instruments Act.