High Court convicts respondents under Section 138 NI Act, emphasizing liability presumption.

The High Court overturned the Trial Court's acquittal of the respondents under Section 138 of the Negotiable Instruments Act. The court found the respondents' defenses regarding the stolen cheque and stop payment instructions lacked credibility and evidence. Emphasizing the statutory presumption of liability under Sections 118 and 139 of the NI Act, the High Court convicted the respondent, imposing a fine and potential imprisonment for non-payment. The court directed the fine amount to be released to the appellant as compensation, highlighting the importance of replying to statutory notices in such cases.

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Issues Involved:
1. Acquittal of respondents under Section 138 of the Negotiable Instruments Act, 1881.
2. Presumption under Sections 118 and 139 of the NI Act.
3. Credibility of the respondent's defense regarding the stolen cheque.
4. Legal principles surrounding "stop payment" instructions.
5. Failure to reply to the statutory notice under Section 138 of the NI Act.

Detailed Analysis:

1. Acquittal of Respondents under Section 138 of the Negotiable Instruments Act, 1881:
The Trial Court acquitted respondents 2 and 3 based on two grounds: (i) there was cutting/interpolation on the date of the bill/invoice no. 254 dated 18.12.2010, and (ii) no other invoice was placed on record to show that the appellant and respondents had dealings up to December 2010.

2. Presumption under Sections 118 and 139 of the NI Act:
The appellant argued that under Sections 118 and 139 of the NI Act, there is a presumption against the accused in a case under Section 138, which the respondents failed to rebut with cogent evidence. The appellant relied on the Supreme Court's decision in Rangappa v. Sri Mohan, which emphasizes that once the execution of the cheque is admitted, a presumption arises that it is for a legally enforceable debt or liability.

3. Credibility of the Respondent's Defense Regarding the Stolen Cheque:
The respondent claimed the cheque was stolen by the appellant from her residential office and also mentioned that she had given stop payment instructions to her banker on 01.12.2010. However, the court found inconsistencies in her statements and noted that she did not provide any cogent evidence to support her defense. The court emphasized that mere statements without evidence do not suffice to rebut the presumption under Sections 118 and 139 of the NI Act.

4. Legal Principles Surrounding "Stop Payment" Instructions:
The court reiterated that even if "stop payment" instructions are given, the drawer/accused cannot avoid liability unless it is proven that there was no legally existing debt or liability at the time of the cheque's presentation. This principle was supported by the Supreme Court's ruling in M.M.T.C. Ltd. v. Medchl Chemicals and Pharma (P) Ltd., which held that the presumption under Section 139 is attracted even in cases of stop-payment instructions.

5. Failure to Reply to the Statutory Notice under Section 138 of the NI Act:
The appellant issued a legal notice dated 31.12.2010, which was duly served, but the respondents did not reply. The court noted that the failure to reply to the statutory notice leads to an inference that there was merit in the complainant's version, as supported by the Supreme Court in Rangappa's case.

Conclusion:
The court found that the Trial Court erred in its judgment by not properly appreciating the provisions of Sections 118 and 139 of the NI Act and the relevant case law. The respondent's inconsistent defenses and lack of evidence failed to rebut the statutory presumption of liability. Consequently, the High Court set aside the Trial Court's judgment, convicted the respondent under Section 138 of the NI Act, and imposed a fine of Rs. 3,45,044/-, with a provision for simple imprisonment for one year in case of non-payment. The court also directed that the fine amount, once realized, be released to the appellant as compensation.

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