2025 (3) TMI 185 - SC - Indian Laws

Rejection of application filed by the appellant herein seeking leave to appeal against the judgment and order - acquittal of the offence punishable under Section 138 of the Negotiable Instruments Act - issuance of statutory notice - HELD THAT - It is inclined to remand the matter to the High Court it is not proposed to say anything further. However all that we want to say at this stage is that the High Court while declining to grant leave should have kept in mind Section 139 of the NI Act as well as Section 118 of the NI Act. The High Court should have tried to consider the case of the complainant applying the two provisions to the facts of the case more particularly having regard to the evidence on record oral as well as documentary. This aspect has not been touched even by the Trial Court and therefore it was necessary for the High Court to look into it closely. The impugned order passed by the High Court is set aside - Appeal disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core issue presented in this case was whether the respondents were guilty of the offense under Section 138 of the Negotiable Instruments Act (NI Act) for issuing a dishonored cheque. The specific legal questions considered included:

• Whether the statutory requirements under Section 138 of the NI Act were met, including the issuance of a statutory notice and the failure to pay the demanded amount.
• Whether the Power of Attorney of the complainant company was a competent witness to testify about the transactions.
• Whether the presence of an arbitration clause in the agreement between the parties affected the proceedings under the NI Act.
• Whether the complainant provided sufficient evidence, including details of goods, statement of accounts, and commission details, to support its claim.
• Whether the High Court erred in not granting special leave to appeal against the acquittal by the Trial Court.

ISSUE-WISE DETAILED ANALYSIS

1. Statutory Requirements under Section 138 of the NI Act

- Legal Framework and Precedents: Section 138 of the NI Act mandates that a cheque must be presented within its validity period, and upon dishonor, a notice must be served to the drawer demanding payment within 15 days. Failure to pay within this period constitutes an offense.

- Court's Interpretation and Reasoning: The Trial Court found deficiencies in the complainant's statutory notice, such as the absence of reference to a crucial letter dated 23.09.2008.

- Key Evidence and Findings: The dishonored cheque and the statutory notice were central to the case. The complainant argued that the notice was appropriately served, but the Trial Court disagreed.

- Application of Law to Facts: The Trial Court concluded that the statutory notice did not comply with the requirements of Section 138, thus weakening the complainant's case.

- Conclusions: The Trial Court's decision was influenced by procedural lapses in the statutory notice, leading to the respondents' acquittal.

2. Competency of the Power of Attorney as a Witness

- Legal Framework and Precedents: A witness must have personal knowledge of the facts to testify competently.

- Court's Interpretation and Reasoning: The High Court noted that the Power of Attorney lacked personal knowledge of the transactions, undermining the complainant's case.

- Key Evidence and Findings: The Power of Attorney's inability to withstand cross-examination was a critical factor in the High Court's decision.

- Application of Law to Facts: The High Court emphasized the need for a competent witness to substantiate the claim under Section 138.

- Conclusions: The lack of a competent witness with personal knowledge was a significant reason for denying leave to appeal.

3. Arbitration Clause in the Agreement

- Legal Framework and Precedents: The presence of an arbitration clause typically requires disputes to be resolved through arbitration before resorting to litigation.

- Court's Interpretation and Reasoning: The Trial Court suggested that the complainant should have invoked arbitration first, although this was not a decisive factor.

- Key Evidence and Findings: The agreement containing the arbitration clause was part of the documentary evidence.

- Application of Law to Facts: The Trial Court's reference to the arbitration clause indicated a procedural expectation that was not met.

- Conclusions: While not central to the decision, the arbitration clause was noted as a procedural consideration.

4. Sufficiency of Evidence Provided by the Complainant

- Legal Framework and Precedents: The burden of proof lies on the complainant to establish the facts constituting the offense under Section 138.

- Court's Interpretation and Reasoning: The Trial Court found the complainant's evidence insufficient, particularly the lack of a statement of accounts and details of goods and commissions.

- Key Evidence and Findings: The absence of detailed financial records and transaction specifics weakened the complainant's case.

- Application of Law to Facts: The Trial Court concluded that the evidence did not substantiate the alleged debt, leading to acquittal.

- Conclusions: The insufficiency of evidence was a critical factor in the respondents' acquittal.

5. High Court's Denial of Special Leave to Appeal

- Legal Framework and Precedents: Under Section 378(4) of the Criminal Procedure Code, special leave is required to appeal an acquittal.

- Court's Interpretation and Reasoning: The High Court denied leave, focusing on the Power of Attorney's lack of personal knowledge and the overall insufficiency of evidence.

- Key Evidence and Findings: The High Court's decision was based on the same evidentiary deficiencies noted by the Trial Court.

- Application of Law to Facts: The High Court applied the standard for granting leave, finding the complainant's case lacking.

- Conclusions: The denial of leave was based on procedural and evidentiary shortcomings.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court emphasized the importance of applying Section 139 and Section 118 of the NI Act, which presume the validity of the cheque and the debt unless proven otherwise.

- Core Principles Established: The presumption of liability under Section 138 can be rebutted by demonstrating procedural deficiencies and lack of evidence.

- Final Determinations on Each Issue: The Supreme Court set aside the High Court's order, granting leave to appeal and remanding the case for reconsideration, emphasizing the need for a detailed examination of the evidence in light of Sections 139 and 118 of the NI Act.

The Supreme Court directed the High Court to prioritize the appeal, given the extensive time elapsed since the original proceedings, and to dispose of the matter within three months.