2020 (12) TMI 313 - HC - Indian Laws

Dishonor of Cheque - legally enforceable debt or not - Rebuttal of presumptions - whether the offence punishable under Section 138 of the N.I.Act is made out against the accused? - Sections 118 and 139 of the N.I.Act - HELD THAT - Section 118 of the N.I.Act provides certain presumptions to be raised laying down some special rules of evidence relating to presumptions. The presumption, therefore, is a matter of principle to infuse credibility to negotiable instruments including cheques and to encourage and promote the use of negotiable instruments in financial transactions. Section 118 of the N.I.Act provides presumptions to be raised until the contrary is proved, (i) as to consideration, (ii) as to date of instrument, (iii) as to time of acceptance, (iv) as to time of transfer, (v) as to order of indorsements, (vi) as to appropriate stamp, and (vii) as to holder being a holder in due course. That apart, Section 139 of the N.I.Act provides that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 of the N.I.Act for the discharge, in whole or in part, of any debt or other liability. Applying the definition of the word 'proved' in Section 3 of the Evidence Act to the provisions of Sections 118 and 139 of the N.I.Act, it becomes evident that in a trial under Section 138 of the N.I.Act, a presumption will have to be made that every negotiable instrument was made or drawn for consideration and that it was executed for discharge of debt or liability once the execution of negotiable instrument is either proved or admitted. The civil court held that the complainant herein was not the owner of the vehicle and the accused was the registered owner of the vehicle. According to the civil court, an owner of the vehicle cannot lease the vehicle to himself. It was further held that the outstanding amount covered under Ext.P4 cheque which was produced as Ext.A5 in the civil case was not proved. Rightly or wrongly, the civil court entered a finding that the amount covered under Ext.P4 was not recoverable from the accused. The said finding has not been set aside in a process known to law. The finding has become conclusive between the parties. Sitting in revision, this Court has no jurisdiction to examine the correctness of the decision taken by the civil court. Going by the tenor of judgment, it is clear that, what was covered under Ext.P4 is not a legally enforceable debt. In the case on hand, the accused admitted execution of Ext.P4 cheque. His contention is that the amount covered under Ext.P4 is not a legally enforceable debt. The accused adduced evidence before the trial court to show that Ext.P4 cheque had not been issued towards discharge of a legally enforceable debt, but was issued by way of security or any other reason on account of some business transaction between the complainant and the accused. The burden on the part of the accused has been discharged by producing Exts.D1 to D8 before the trial court. DW1 adduced evidence before the trial court to show that he was the owner of the vehicle and the vehicle was repossessed on 22.11.97 illegally by the complainant. He also produced Ext.D7 passbook issued by the complainant - It is true that the standard of proof required in the criminal and civil proceedings are entirely different. Civil cases are decided on the basis of the preponderance of evidence. In a criminal case the entire burden lies on the prosecution and the prosecution is bound to prove the offence beyond reasonable doubt. In Ext.D1 civil case, the cause of action for institution of suit was on the basis of Ext.P4 cheque issued by the accused in favour of the complainant pursuant to a business transaction between the complainant and the accused. The prosecution under Section 138 of the N.I.Act also initiated on the same set of facts. This Court is of the view that the amount covered under Ext.P4 cheque is not a legally enforceable debt and the finding in Ext.D2 judgment is relevant under the Scheme of the Evidence Act to decide this case. Further, the accused as DW1 adduced evidence to rebut the presumption contemplated under Sections 118 and 139 of the N.I.Act. DW1 adduced evidence to prove that he issued several cheques in favour of the complainant pursuant to the transactions between the parties as security and one of the cheques was utilized by the complainant to file the complaint under Section 138 of the N.I.Act - the accused discharged his burden under Sections 118 and 139 of the N.I.Act to prove that the cheque had not been issued towards a legally enforceable debt. Thus, the trial court as well as the appellate court wrongly appreciated the evidence on record. When the conviction and sentence imposed by the courts below against the revision petitioner/accused are based on untenable grounds, it would be just and proper for the High Court to interfere with the findings of the courts below in exercise of powers under Section 401 of the Cr.P.C. The conviction and sentence imposed against the revision petitioner/accused by the trial court as well as the appellate court are set aside. The revision petitioner/accused is found not guilty of the offence punishable under Section 138 of the N.I.Act and he is acquitted thereunder - criminal revision petition is allowed.

Summary

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act.
2. Rebuttal of presumptions under Sections 118 and 139 of the N.I. Act.
3. Impact of civil court judgment on criminal proceedings.

Issue-wise Detailed Analysis:

1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act:
The core issue was whether the cheque issued by the accused was for a legally enforceable debt. The trial court and the appellate court found the accused guilty under Section 138 of the N.I. Act, concluding that the cheque was issued for discharging a debt or liability. The complainant's case was that the accused defaulted on a lease agreement, leading to the issuance of a cheque, which was dishonored due to insufficient funds. Consequently, a statutory notice was sent, and upon non-payment, the complaint was filed.

2. Rebuttal of presumptions under Sections 118 and 139 of the N.I. Act:
The judgment emphasized the presumptions under Sections 118 and 139 of the N.I. Act, which favor the holder of the cheque, assuming it was issued for consideration and in discharge of debt unless proven otherwise. The accused admitted to issuing the cheque but claimed it was given as security and not for a legally enforceable debt. The accused presented evidence, including a civil court judgment (Ext.D2), which dismissed the complainant's suit for the same amount covered by the cheque, establishing that the debt was not legally enforceable. The civil court found that the complainant was not the owner of the vehicle and the amount was not recoverable from the accused.

3. Impact of civil court judgment on criminal proceedings:
The civil court's judgment (Ext.D2) was pivotal, as it concluded that the amount covered by the cheque was not recoverable, thus impacting the criminal case. The High Court noted that the civil court's findings were final and unchallenged, making them relevant in determining the enforceability of the debt in the criminal proceedings. The High Court held that the amount found not recoverable by the civil court could not be enforced through Section 138 of the N.I. Act. The accused successfully rebutted the presumptions under Sections 118 and 139 by demonstrating that the cheque was issued as security and not for an enforceable debt.

Conclusion:
The High Court allowed the criminal revision petition, setting aside the conviction and sentence imposed by the lower courts. It found the accused not guilty under Section 138 of the N.I. Act, acquitting him and ordering the refund of any fine amount deposited. The judgment underscored the importance of the civil court's findings in determining the enforceability of the debt in criminal proceedings under the N.I. Act.