2015 (5) TMI 1246 - HC - Indian Laws

Appellate Court Upholds Conviction for Issuing Cheques to Discharge Debt, Emphasizes Legal Presumptions

Suresh Chandra Goyal Versus  Amit Singhal

The appellate court set aside the magistrate's judgment, ruling that the cheques were issued to discharge a debt as per the Memorandum of Understanding ... Dishonor of Cheque - discharge of legally enforceable debt or not - security cheques and could not form the basis of a complaint under Section 138 of the NI Act - HELD THAT:- The parties, admittedly, recorded the outstanding liability of the accused, existing on the date of the execution of the MOU (Ex. CW-1/4). In this light, it does not stand to reason as to why they would not record the repayment of the amount of Rs. 90,000/- in some form, if the money had actually been so returned by the accused to the complainant. Pertinently, CW-1 in his deposition stated that at the time of repayment of Rs. 1.5 lakhs in three instalments of Rs. 50,000/- each, not only three security cheques were returned by the complainant to the accused, but the accused also got the vouchers signed from the complainant. On this aspect, there was no challenge raised by the accused during the course of the complainants cross examination - it stands established beyond all reasonable doubt that the debt of Rs. 1.50 lakhs was outstanding and payable by the accused to the complainant when the three cheques in question were presented for payment. Whether the complaint of the appellant was maintainable under Section 138 of the NI Act since the cheques in question were 'security cheques'? - HELD THAT:- It has come in evidence that the cheques (Ex. CW-1/1, CW-1/2 & CW-1/3) were all filled up in all respects by the accused at the time of their being delivered to the complainant, simultaneously with the execution of the MOU (Ex. CW-1/4). The said original cheques are placed on the Trial Court Record which has been summoned and perused, and it is clear to the naked eye that they had been filled by the same person, and in the same ink. It is not even the case of the accused that these cheques were blank when given to the complainant, or that the appellant/complainant had filled them up subsequently. Even otherwise, merely because the cheque may be blank in some or all respects (except that it bears the signatures of the drawer), and the blanks may have been filled in by the drawee subsequently, that by itself does not invalidate the cheque. It cannot be said that a complaint under Section 138 NI Act would not lie in respect of such a cheque, consequent upon its dishonor for reason of insufficient funds. There is no magic in the word 'security cheque', such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a 'security cheque', the Magistrate would acquit the accused. The expression 'security cheque' is not a statutorily defined expression in the NI Act. In ICDS. LTD. VERSUS BEENA SHABEER [2002 (8) TMI 577 - SUPREME COURT], the cheque in question had been issued by the guarantor (wife) of the principal debtor (husband) in respect of a hire purchase agreement entered into by the principal debtor with the complainant for purchase of a car. The cheque in question was issued by the guarantor towards part payment to the appellant/complainant - in this case Supreme Court laid emphasis on the use of the word, 'any'-which suggests that, if, for whatever reason a cheque drawn on an account maintained by the drawer with the banker in favour of another person for the discharge of any debt or other liability is dishonoured, the liability under Section 138 NI Act cannot be avoided. The Supreme Court also emphasized that the legislature had been careful enough to use not only the expression 'discharge, in whole or in part, of any debt', but has also included the expression 'other liability' in the language of Section 138 NI Act. The Supreme Court held that the issue regarding the liability of a guarantor and the principal debtor being co-extensive, was out of purview of Section 138 of the NI Act and did not call for any discussion. In Sai Auto Agencies through its partner Dnyandeo Ramdas Rane v. Sheikh Yusuf Sheikh Umar, [2010 (2) TMI 1243 - BOMBAY HIGH COURT], the defence of the respondent/accused was that, in relation to purchase of a tractor and equipments from the appellant, five blank cheques were given only as security. The respondent claimed that the complainant had already received the entire purchase consideration, and that the cheque in question was without consideration. The Court rejected the defence of the accused that the entire consideration stood paid to the appellant supplier. Thus, the defence that the cheques in question Ex. CW-1/1, CW-1/2 and CW-1/3 were issued as 'security' cheques has no force in the facts and circumstances of this case, as, on the date when the said cheques were issued simultaneously with the execution of the MOU (Ex. CW-1/4), the debt of Rs. 1.5 lacs was outstanding. The appellant was well within his rights to enforce the security in respect whereof the cheques in question were issued and to seek to recover the outstanding debt by encashment of the said cheques. Since the cheques in question were dishonoured upon presentation, the accused suffered all consequences as provided for in law and the appellant became entitled to invoke all his rights as created by law - the appellant was entitled to invoke Section 138 of the NI Act; issue the statutory notice of demand, and; upon failure of the accused to make payment in terms of notice of demand - to initiate the complaint under Section 138 of the NI Act. The learned Magistrate has returned findings of fact which are palpably wrong; its approach in dealing with evidence is patently illegal; its decision is based on an erroneous view of the law, and; the impugned judgment, if sustained, would lead to grave miscarriage of justice - the impugned judgment is set aside - accused is convicted of the offence under Section 138 of the NI Act. Issues Involved:1. Whether the cheques in question were issued in discharge of a debt or as security.2. Whether the findings of the learned Magistrate were legally sustainable.3. Applicability of Sections 91 and 92 of the Indian Evidence Act.4. The presumption under Sections 118 and 139 of the Negotiable Instruments Act.5. Scope of interference with a judgment of acquittal by an appellate court.Issue-wise Detailed Analysis:1. Whether the cheques in question were issued in discharge of a debt or as security:The appellant argued that the cheques were issued in discharge of a debt as evidenced by the Memorandum of Understanding (MOU) dated 26.06.2011, which acknowledged the debt of Rs. 3 Lakhs owed by the accused. The MOU stipulated repayment in six monthly installments of Rs. 50,000 each. The appellant had received Rs. 1.50 Lakhs and returned three cheques to the accused, while the remaining three cheques for Rs. 50,000 each were dishonored due to insufficient funds. The accused admitted liability for Rs. 60,000 but contested the amount of Rs. 1.50 Lakhs. The court held that the MOU (Ex. CW-1/4) clearly established the debt, and the cheques were issued in discharge of this debt, not merely as security.2. Whether the findings of the learned Magistrate were legally sustainable:The learned Magistrate's judgment was found to be misdirected in law. The Magistrate erred by doubting the existence of the debt and going behind the MOU (Ex. CW-1/4), which was not challenged by the accused. The Magistrate's approach was contrary to Sections 91 and 92 of the Indian Evidence Act, which restrict proof of the terms of a contract to the document itself. The Magistrate's conclusion that the cheques were security cheques and could not form the basis of a complaint under Section 138 of the NI Act was incorrect.3. Applicability of Sections 91 and 92 of the Indian Evidence Act:Sections 91 and 92 of the Indian Evidence Act were pivotal in this case. Section 91 mandates that when the terms of a contract are reduced to writing, no evidence other than the document itself is admissible to prove its terms. Section 92 prohibits any oral agreement or statement from contradicting, varying, adding to, or subtracting from the terms of the written contract. The court held that the MOU (Ex. CW-1/4) was conclusive evidence of the debt, and the accused could not contradict it by claiming the cheques were merely for security.4. The presumption under Sections 118 and 139 of the Negotiable Instruments Act:The court emphasized the presumptions under Sections 118 and 139 of the NI Act, which presume the existence of a legally enforceable debt or liability when a cheque is issued. The accused's mere assertion that the cheques were security cheques did not suffice to rebut this presumption. The accused needed to provide cogent evidence to disprove the presumption, which he failed to do. The court cited V.S. Yadav v. Reena, stating that the accused must provide evidence to support their defense and cannot rely solely on statements made under Sections 281 or 313 Cr.P.C.5. Scope of interference with a judgment of acquittal by an appellate court:The court referred to the Supreme Court's guidelines in Ghurey Lal v. State of Uttar Pradesh, which outline the conditions under which an appellate court may overturn a trial court's acquittal. The appellate court must have 'very substantial and compelling reasons' to do so, such as the trial court's conclusion being palpably wrong, based on an erroneous view of the law, or resulting in a grave miscarriage of justice. The court found that the learned Magistrate's judgment met these criteria, as it was based on a misinterpretation of the law and ignored material evidence.Conclusion:The appellate court set aside the impugned judgment, holding that the cheques were issued in discharge of a legally enforceable debt as per the MOU. The accused's defense that the cheques were security cheques did not hold, and the appellant was entitled to invoke Section 138 of the NI Act. The accused was convicted of the offense under Section 138 of the NI Act.