Legally unenforceable debt defeats cheque dishonour liability when the cheque arises from a prohibited credit liquor sale.

A cheque issued for a liquor sale on credit could not support liability under Section 138 of the Negotiable Instruments Act because Rule 14 of the Karnataka Excise Licenses (General Conditions) Rules, 1967 permits liquor sales only for cash. The statutory presumption under Section 139 was held rebuttable, and it could not sustain a conviction where the underlying debt was not legally enforceable. The objection that the complaint lacked proper authorisation or power of attorney was rejected as not fatal. The conviction and fine were set aside and the accused were acquitted.

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Issues: Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881 was sustainable when the cheque related to a liquor transaction on credit said to be prohibited by Rule 14 of the Karnataka Excise Licenses (General Conditions) Rules, 1967.

Analysis: The cheque was admitted, as was its dishonour and the statutory notice. The decisive question was whether the underlying liability was legally enforceable. The Court held that the statutory presumption under Section 139 of the Negotiable Instruments Act, 1881 operates only in respect of a cheque issued for discharge of a debt or other liability, and the accused may rebut that presumption by showing that the liability is not enforceable in law. On the evidence, the transaction was found to be a credit sale of liquor, whereas Rule 14 of the Karnataka Excise Licenses (General Conditions) Rules, 1967 prohibits sale of liquor except for cash. The Court further held that a debt arising from such a prohibited transaction is not legally recoverable and cannot form the basis of an offence under Section 138. The objection regarding absence of authorisation or power of attorney for filing the complaint was rejected as not fatal.

Conclusion: The conviction under Section 138 of the Negotiable Instruments Act, 1881 was not sustainable, and the appellant succeeded.

Final Conclusion: The appeal was allowed, the conviction and fine were set aside, and the appellants were acquitted of the offence under Section 138 of the Negotiable Instruments Act, 1881.

Ratio Decidendi: A cheque issued towards a liability arising from a transaction prohibited by law does not represent a legally enforceable debt, and the statutory presumption under Section 139 of the Negotiable Instruments Act, 1881 cannot sustain a conviction under Section 138 in such circumstances.

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