2022 (5) TMI 304 - HC - Indian Laws

Petitioner's Appeal Dismissed in Cheque Bounce Case

Mohammad Rafiq Wani Versus Ghulam Nabi Khan

The petitioner's challenge against conviction under Section 138 of the Negotiable Instruments Act was dismissed. The court upheld the conviction, ... Dishonor of Cheque - insufficiency of funds - discharge of legally enforceable debt or a security cheque - contradictory covenants in the agreement or not - Section 29 of the Contract Act - HELD THAT:- The petitioner has filed the instant petition under Section 561-A of Cr.P.C. read with Section 435 of J & K Cr.P.C. invoking inherent and revisional jurisdiction of this Court. So, while approaching this case, it has to be borne in mind that it is only if there is any illegality or impropriety writ large in the impugned orders passed by the courts below or there has been any failure of justice resulting from the aforesaid orders that this Court would step in and invoke its inherent or revisional jurisdiction. The concurrent findings of fact recorded by the learned courts below cannot be gone into by re-appreciating the evidence on record unless the findings of the learned courts below are patently illegal and perverse. The legal position as regards the question as to whether proceedings under Section 138 of the NI Act can be initiated in case a cheque issued by way of security is dishonoured for insufficiency of funds, has been a topic of discussion in a number of cases. In Sampelly Satyanarayna Rao v. Indian Renewable Energy Development Agency Ltd. [2016 (9) TMI 867 - SUPREME COURT], the Supreme Court has, while answering the issue as to what constitutes a legally enforceable debt and other liability as contained in section 138 of N.I. Act held that Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court. In the instant case, as per the agreement dated 5th March, 2013, it was clearly indicated therein that the petitioner owed a sum of Rs. 9.50 lacs to respondent. It was further agreed by the parties that the petitioner would liquidate the aforesaid amount and that he had issued the cheque in question as security to the respondent. The agreement also provides that the petitioner would be bound to deposit the sum in the savings bank account of the respondent maintained with J & K Bank Aircargo Branch to liquidate the aforesaid liability. The agreement also provides that the petitioner would pay the amount of Rs. 9.50 lacs to respondent positively. From the foregoing covenants of the agreement, there is no manner of doubt about the fact that the petitioner owed a sum of Rs. 9.50 lacs to respondent at the time when he issued the cheque in question in favour of the respondent. Learned counsel for the petitioner has harped on the expression 'security' used in the agreement and he has laid much emphasis on the covenant which provides that the cheque in question would not be presented for encashment - The cheque in question has been, admittedly, issued by the petitioner in favour of the respondent as security to discharge his liability. Once the petitioner failed to discharge his liability, the respondent had no option but to present the cheque for encashment. The covenant that the cheque in question is not to be presented for encashment is to be ignored and its enforcement has to be avoided in order to give effect to the intention and purport of the covenants of the agreement. It cannot be stated that the respondent has failed to prove that the cheque in question was not dishonoured for insufficiency of funds. In any case, if petitioner had sufficient funds in his account at the relevant time, it was always open to him to produce statement of account while leading his evidence in defence. Having failed to do so, it has to be presumed that whatever is stated in the memo of dishonour of cheque in question is correct. The argument of learned counsel for the petitioner is, therefore, rejected - Petition dismissed. Issues Involved:1. Legality of the conviction under Section 138 of the Negotiable Instruments Act.2. Nature of the cheque as a security instrument.3. Validity of the agreement dated 5th March 2013.4. Sufficiency of evidence regarding the dishonor of the cheque.Detailed Analysis:1. Legality of the Conviction under Section 138 of the Negotiable Instruments Act:The petitioner challenged the judgment dated 21.06.2017 by the Judicial Magistrate 1st Class (Forest Magistrate), Srinagar, and the judgment dated 20.03.2019 by the Appellate Court (2nd Additional Sessions Judge, Srinagar), which upheld the Magistrate's decision. The petitioner was convicted under Section 138 of the Negotiable Instruments Act and sentenced to one year of simple imprisonment and a fine of Rs. 13.00 lacs, which was reduced to six months by the Appellate Court while maintaining the fine. The court held that the cheque issued by the petitioner was in discharge of a legally enforceable debt, thus attracting the provisions of Section 138.2. Nature of the Cheque as a Security Instrument:The petitioner argued that the cheque was issued as security and not meant for encashment, as per the agreement dated 5th March 2013. The court referred to various Supreme Court judgments, including *Sampelly Satyanarayna Rao v. Indian Renewable Energy Development Agency Ltd.* and *Sripati Singh vs. State of Jharkhand and Ors.*, which clarified that a cheque issued as security could still be presented for encashment if a legally enforceable debt existed at the time of its presentation. The court concluded that the nomenclature of the cheque as 'security' would not negate its enforceability under Section 138 if the debt was due.3. Validity of the Agreement Dated 5th March 2013:The petitioner contended that the agreement was void under Section 29 of the Contract Act due to contradictory covenants. The court rejected this argument, stating that the agreement clearly indicated the petitioner's liability to pay Rs. 9.50 lacs to the respondent. The court emphasized that the covenants should be interpreted to give effect to the agreement's purpose, noting that the petitioner had acknowledged his debt and agreed to pay it. The clause stating the cheque would not be presented for encashment was deemed unenforceable to uphold the agreement's intent.4. Sufficiency of Evidence Regarding the Dishonor of the Cheque:The petitioner argued that the bank manager's testimony, stating he had not seen the petitioner's account, undermined the memo indicating the cheque was dishonored due to insufficient funds. The court dismissed this argument, noting that modern internet banking allows bank officials to verify account balances online without physically accessing the account. The court held that the petitioner failed to produce any evidence to contradict the memo, implying the memo's correctness.Conclusion:The court found no merit in the petitioner's arguments and dismissed the petition. The trial court was directed to proceed with executing the sentence as modified by the Appellate Court. A copy of the order was sent to the trial court for compliance.