2023 (1) TMI 928 - HC - Indian Laws

Accused convicted under Section 138

The accused failed to rebut the statutory presumption under Sections 118 and 139 of the N.I. Act. The High Court set aside the judgment of acquittal by ... Presumption under Section 139 of the Negotiable Instruments Act - onus of rebuttal on the drawer - service of demand notice by registered post and deemed service - material alteration and validity of negotiable instruments - presentation period and limitation under Section 138 of the Negotiable Instruments Act - post-dated cheque and penal liability - effect of Section 269-SS of the Income Tax Act on enforceability of loan transactions - appellate reappreciation of evidence in appeals against acquittalPresumption under Section 139 of the Negotiable Instruments Act - onus of rebuttal on the drawer - Complainant discharged initial burden that the cheque was issued for lawful discharge of debt and the onus shifted to the accused to rebut the presumption. - HELD THAT: - The Court found that the cheque (Ex.P1) bearing the accused's signature was produced, and its dishonour for insufficiency of funds was established by bank memos and the demand notice sequence (paras 9, 11, 12). Relying on the settled position that proof of issuance and dishonour discharges the initial statutory burden, the Court held that the trial court's narrower reading of the earlier decision cited by it was inconsistent with later authoritative pronouncement; accordingly the initial presumption under Section 139 stood established and the burden shifted to the accused to rebut it (paras 9, 11, 12). [Paras 9, 11, 12]Initial presumption under Section 139 established; burden shifted to accused to rebut.Service of demand notice by registered post and deemed service - Demand notice (Ex.P5) was duly served by posting to the accused's correct address and receipt by a family member amounted to deemed service. - HELD THAT: - The Court noted that Ex.P5 was posted to the accused's ordinary residence and was received by a family member (Ex.P6). Although the accused's own signature did not appear on the acknowledgement, there was no dispute that the recipient was his wife and that the address was his residence. Applying the principle of Section 27 of the General Clauses Act regarding service by post, and in the absence of contrary evidence, the Court held that service was effected (para 13). [Paras 13]Demand notice held to be duly served (deemed service).Material alteration and validity of negotiable instruments - The alleged overwriting in the year on the cheque did not amount to a material alteration rendering the cheque invalid. - HELD THAT: - The trial court's finding of material alteration was examined. The appellate Court observed that the bank did not refuse payment on account of any alteration; dishonour was for insufficiency of funds. The overwriting of a digit in the year was not shown to be a material alteration affecting enforceability, particularly when the cheque was otherwise presented and dishonoured on substantive grounds (para 14). [Paras 14]Alleged alteration not material; cheque not void on that ground.Presentation period and limitation under Section 138 of the Negotiable Instruments Act - post-dated cheque and penal liability - Presentation of the post dated cheque was within the applicable statutory period and the claim was not time barred. - HELD THAT: - The accused had delivered a post dated cheque dated 07.12.2010. The cheque was presented within the six month period applicable prior to the RBI change, and thus presentation complied with Section 138(a)'s prescription as applicable to the date in question. Reliance on authority holding that issuing a post dated cheque does not absolve the drawer of penal consequences supported the conclusion that the trial court's finding of time bar was unsustainable (para 16). [Paras 16]Cheque presentation timely; debt not barred by limitation.Effect of Section 269-SS of the Income Tax Act on enforceability of loan transactions - Contravention of Section 269-SS does not render the loan transaction ipso facto illegal or the debt unenforceable for purposes of Section 138 of the N.I. Act. - HELD THAT: - The appellate Court reviewed the object and scope of Section 269 SS and related authorities, concluding that the provision prescribes mode of acceptance and was introduced to curb unaccounted money but does not declare cash loans beyond the threshold to be illegal or unenforceable. The trial court's reliance on Section 269 SS to hold the cheque issued for an unenforceable debt and thereby to treat the presumption as rebutted was held to be legally unsustainable (paras 17-19). [Paras 17, 18, 19]Section 269 SS contravention does not automatically render the debt unenforceable for Section 138 proceedings.Onus of rebuttal on the drawer - appellate reappreciation of evidence in appeals against acquittal - Accused failed to satisfactorily rebut the statutory presumption by proving the cheque was only security for an earlier loan and that repayment had been made; trial court's acceptance of that defence was erroneous and acquittal was set aside. - HELD THAT: - Although the accused asserted that the cheque was given as security for an earlier alleged loan of Rs.50,000 and that repayment (with very large claimed interest) had been made by DD (Ex.D1), the Court found that the accused did not establish necessary particulars (timing, agreed rate of interest, credible explanation for the claimed quantum of repayment). The appellate Court re appreciated the evidence, applying the principle that while caution is warranted in appeals against acquittal, the appellate Court may reverse where the accused's rebuttal fails to probabilize the defence. The accused's evidence and documents were held insufficient to discharge the onus of rebuttal (paras 20-24). [Paras 20, 21, 22, 23, 24]Accused failed to rebut the presumption; acquittal set aside and accused convicted under Section 138.Final Conclusion: The appeal is allowed. The judgment of acquittal is set aside; the accused is convicted under Section 138 of the Negotiable Instruments Act and sentenced by the High Court to pay the fine imposed by the Court, failure of which attracts the specified period of imprisonment; trial court records to be returned to the trial court for compliance. Issues Involved:1. Service of Demand Notice2. Material Alteration in the Cheque3. Date of Loan Transaction4. Debt Being Time-Barred5. Violation of Section 269-SS of Income Tax Act6. Issuance of Cheque as SecurityAnalysis:1. Service of Demand Notice:The accused contended that the Demand Notice (Ex.P5) was not served to him, and the signature on the acknowledgment card (Ex.P6) was not his. The notice was served to the accused's residential address and received by S.M. Haralgi, who was identified as the accused's wife. The court held that service was deemed effective under Section 27 of the General Clauses Act, 1897, as the notice was correctly addressed and received by a family member.2. Material Alteration in the Cheque:The Trial Court observed a material alteration in the cheque (Ex.P1) regarding the year '2010.' However, the bank dishonored the cheque due to insufficient funds, not because of the alteration. The High Court held that the alteration did not render the cheque invalid, especially since the bank did not refuse to honor it on this ground.3. Date of Loan Transaction:The Trial Court noted that the complaint did not specify the date when the loan was given. However, the High Court found that the complaint did mention that the accused approached the complainant on 07.02.2010 and requested a loan of Rs.2,00,000/-, which was given on the same date. The High Court held that there was no legal requirement to plead the date of approach, only the date of payment, which was adequately stated.4. Debt Being Time-Barred:The Trial Court held that the debt was time-barred under Section 19 of the Limitation Act. The High Court disagreed, noting that the cheque was issued on 07.12.2010 and presented within the statutory period of six months. The court cited the Supreme Court's decision in Bir Singh vs. Mukeshkumar, which held that post-dated cheques do not absolve the drawer of the penal consequences under Section 138 of the N.I. Act.5. Violation of Section 269-SS of Income Tax Act:The Trial Court found the transaction in violation of Section 269-SS of the Income Tax Act, which requires loans above Rs.20,000/- to be made through account payee cheques or drafts. The High Court clarified that Section 269-SS does not render such transactions invalid or unenforceable; it only prescribes the mode of acceptance. The court cited the Supreme Court's decision in Assistant Director of Inspection Investigation vs. A.B. Shanti and a Karnataka High Court decision, which held that Section 269-SS does not invalidate the loan transaction.6. Issuance of Cheque as Security:The accused claimed that the cheque was issued as security for a loan of Rs.50,000/- taken in 2006-2007, which he repaid with interest amounting to Rs.2,50,000/-. The High Court found that the accused failed to establish the nexus between the alleged loan and the issuance of the cheque as security. The court noted that the accused did not provide specifics about the loan agreement or the interest rate and found the explanation of paying Rs.2,00,000/- as interest on a Rs.50,000/- loan within three years unreasonable.Conclusion:The High Court found that the accused failed to rebut the statutory presumption under Sections 118 and 139 of the N.I. Act. The judgment of acquittal by the Trial Court was set aside, and the accused was convicted under Section 138 of the N.I. Act. The accused was sentenced to pay a fine of Rs.2,00,000/- or undergo imprisonment for three months in default of payment. The Registry was directed to send a copy of the judgment and the Trial Court records back to the Trial Court.