2016 (8) TMI 1589 - HC - Indian Laws

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

Sheela Sharma Versus Mahendra Pal

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 ... Dishonour of Cheque - cheque issued by the accused to the complainant in discharge of legally enforceable debt or liability - Security cheque or not - rebuttal of presumption - HELD THAT:- In the present case, the object of the parties when the transaction was entered into cannot be said to be to circumvent or defeat the purpose of the Income Tax Act. The defendant would not have issued the cheque in question had the object of the loan transaction been to defeat the provisions of the Income Tax Act. In cases where the complainant claims to have advanced a friendly loan in cash, and where the transaction of loan is not evidenced by any other documentary or other reliable evidence, no doubt, the aspect whether the availability of funds in cash with the complainant/lender, and its advancement as loan to the accused have been reflected in the income tax returns of the complainant/lender, or not, become relevant. If, the availability of funds, and the loan transaction itself is not so reflected, that factor is taken note of by the Court as relevant to hold that the presumption under Section 118 and 139 of the NI Act stands rebutted - In the present case, the loan transaction, though not recorded in an agreement, or a receipt or acknowledgement executed by the accused, and though not reflected in the income-tax returns of the complainant, is evidenced by the oral testimony of CW-2, who is an independent witness and highly credible. The cheque in question cannot be said to be merely a security cheque for the reason that the same was issued in consideration of the loan of Rs. 10 lacs taken by the respondent/accused from the appellant/complainant. Merely because the debt may have been repayable subsequently in instalments, it cannot be said that on the date of issuance of the cheque, the debt did not exist. The mode and manner of its repayment was all that was postponed. In any event, on the date of presentation of the cheque, the debt was crystallised and ascertained. It is unheard of, that in the normal course of transactions, the drawer of the cheque issues separate instructions to the holder/payee authorising him to deposit the cheque for encashment. Absence of such authorisation certainly cannot be taken as a factor against the complainant, so as to rebut the presumption under Section 118 and 139 of the NI Act - the finding returned by the Trial Court that the cheque in question was a security cheque, or that it was not issued in respect of an outstanding debt or liability, cannot be sustained and is set aside. The respondent/accused has not been able to rebut the presumption that there was an outstanding debt owed by the respondent accused to the appellant of Rs. 10 Lakhs, and the cheque was issued towards repayment thereof. Consequently, the dishonour of the said cheque, and non-payment of the amount despite service of statutory notice under Section 138, resulted in the commission of offence under Section 138 of the NI Act. The respondent is held guilty of commission of offence under Section 138 of the Negotiable Instruments Act - List on 24.08.2016 for hearing on the aspect of sentence. The respondent shall remain personally present in Court on the next date. 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.