2016 (8) TMI 1589 - HC - Indian Laws

Accused fails to rebut presumption under Sections 118 and 139 NI Act, found guilty for dishonoured cheque

Delhi HC allowed appeal in dishonour of cheque case. Trial court's finding that cheque was merely security cheque was set aside. Court held that accused ... Section 138 of the Negotiable Instruments Act - presumption under Section 139 of the Negotiable Instruments Act - rebuttal of statutory presumption - security cheque versus cheque issued in discharge of legally enforceable debt - effect of breach of Section 269SS of the Income Tax Act on enforceability of loanPresumption under Section 139 of the Negotiable Instruments Act - rebuttal of statutory presumption - Whether the presumption in favour of the complainant under Section 139 of the Negotiable Instruments Act was rebutted and whether the accused was thereby entitled to acquittal. - HELD THAT: - The trial court found that the presumption under Section 139 was rebutted taking into account absence of documentary proof of loan, alleged contravention of Section 269SS, differences in handwriting on the cheque and absence of written authorisation to present the cheque. The High Court held that the trial court erred in rejecting the unimpeached oral testimony of an independent and credible witness (CW-2) who identified the transaction, the handing over of cash and delivery of a fully filled cheque by the accused. The Court observed that absence of a written agreement or non-reflection of the cash transaction in the complainant's income-tax returns may be relevant where no other credible evidence exists, but where an independent witness establishes the loan transaction the presumption under Section 139 is not rebutted. The Court also held that lack of written authorisation to present the cheque is not a legal requirement and is not a valid ground to rebut the statutory presumption. [Paras 19, 20, 30, 32, 33]The presumption under Section 139 was not successfully rebutted; the trial court's finding to the contrary is set aside.Section 138 of the Negotiable Instruments Act - security cheque versus cheque issued in discharge of legally enforceable debt - Whether the cheque was merely a security cheque and therefore outside the ambit of Section 138, or whether it was issued in respect of an existing debt attracting penal liability on dishonour. - HELD THAT: - The Court examined the nature of the cheque and the surrounding facts, holding that a cheque given as security for a loan repayable in instalments may nonetheless be issued in respect of an existing debt because the debt existed on the date of issuance though repayment was deferred. Reliance was placed on precedent and reasoning that Section 138 does not distinguish between a cheque issued in discharge of an existing liability and a security cheque issued to secure an obligation which would crystallise on the due date. Given the established loan transaction and delivery of the cheque by the accused, the dishonour and non-payment despite service of statutory notice constituted an offence under Section 138. [Paras 9, 31, 33, 34]The cheque was not merely a non-actionable security cheque; Section 138 is attracted and the accused is guilty on the count of cheque dishonour.Effect of breach of Section 269SS of the Income Tax Act on enforceability of loan - Whether the fact that the loan was allegedly advanced in cash in contravention of Section 269SS of the Income Tax Act renders the transaction unenforceable and prevents recovery or criminal liability under Section 138. - HELD THAT: - The Court held that contravention of Section 269SS may attract penalty under the Income Tax Act (Section 271D) but does not render the transaction null and void or unenforceable. Citing authorities, the Court observed that the statutory regime prescribes fiscal consequences and penalties, not invalidation of the underlying civil obligation; thus a lender who advanced money in cash beyond statutory limits remains entitled to enforce the loan and seek remedy under the Negotiable Instruments Act. The object and penal scheme of the Income Tax provisions do not negate the complainant's right to recovery or the application of Section 138 where the statutory presumption is otherwise not rebutted. [Paras 24, 25, 26, 27, 29]Breach of Section 269SS does not render the loan transaction void or bar enforcement; it does not preclude prosecution under Section 138.Section 138 of the Negotiable Instruments Act - Sentence to be determined after conviction. - HELD THAT: - Having found the accused guilty of the offence under Section 138, the Court remitted the matter for consideration of sentence and directed personal presence of the accused on the listed date for hearing on sentence. [Paras 34, 35]Sentencing is deferred; matter listed for hearing on sentence on 24.08.2016 and the accused directed to remain personally present.Final Conclusion: Appeal allowed in part; the High Court set aside the trial court's finding that the presumption under Section 139 was rebutted, held that the cheque was issued in respect of an existing debt attracting Section 138, convicted the accused of the offence under Section 138 of the Negotiable Instruments Act and directed hearing on sentence to be fixed. Issues Involved:1. Grant of leave to appeal.2. Dismissal of complaint under Section 138 of the Negotiable Instruments Act.3. Rebuttal of legal presumption under Section 139 of the NI Act.4. Admissibility of loan transactions and compliance with Income Tax Act provisions.5. Credibility of witnesses and evidence presented.6. Determination of whether the cheque was a security cheque or issued for a legally enforceable debt.7. Relevance of written agreements and instructions for cheque presentation.8. Conviction under Section 138 of the NI Act.Issue-wise Analysis:1. Grant of Leave to Appeal:The court heard the learned counsel for both parties on the aspect of granting leave and subsequently granted the leave to appeal.2. Dismissal of Complaint under Section 138 of the NI Act:The appellant challenged the judgment dated 18.05.2015 by the Metropolitan Magistrate, which dismissed the complaint under Section 138 of the Negotiable Instruments Act and acquitted the respondents. The complaint was based on an alleged friendly loan of Rs. 10 lakhs given by the appellant's late husband to the accused, secured by a post-dated cheque which was dishonored upon presentation.3. Rebuttal of Legal Presumption under Section 139 of the NI Act:The trial court observed that the legal presumption under Section 139 of the NI Act stood rebutted. The court took into account several factors, including the complainant not being an income tax payee, the transaction being in cash, the absence of a written agreement, and the cheque being a security cheque.4. Admissibility of Loan Transactions and Compliance with Income Tax Act Provisions:The trial court noted that the loan transaction was in contravention of Section 269SS of the Income Tax Act, which mandates that loans above Rs. 20,000 should not be in cash. However, the appellant argued that the violation of Section 269SS does not render the loan unrecoverable through legal means.5. Credibility of Witnesses and Evidence Presented:The appellant presented three witnesses, including herself, an eyewitness (CW2), and her daughter. The trial court dismissed their testimonies, but the appellate court found CW2's testimony credible and unchallenged. CW2 confirmed the loan transaction and the issuance of the cheque by the accused.6. Determination of Whether the Cheque was a Security Cheque or Issued for a Legally Enforceable Debt:The trial court considered the cheque to be a security cheque, not issued for a present debt. The appellate court disagreed, stating that the cheque was issued in consideration of the loan and that the debt existed at the time of issuance.7. Relevance of Written Agreements and Instructions for Cheque Presentation:The trial court emphasized the absence of written instructions authorizing the cheque's presentation. The appellate court found this reasoning absurd, stating that such authorization is not a legal requirement and is unheard of in normal transactions.8. Conviction under Section 138 of the NI Act:The appellate court concluded that the respondent failed to rebut the presumption of an outstanding debt. The dishonor of the cheque and non-payment despite statutory notice constituted an offense under Section 138 of the NI Act. The respondent was thus held guilty.Conclusion:The appellate court allowed the appeal, set aside the trial court's judgment, and convicted the respondent under Section 138 of the NI Act. The case was listed for a hearing on the aspect of the sentence, with the respondent required to be present in court.