2014 (4) TMI 1308 - HC - Indian Laws

Delhi HC upholds acquittal in Section 138 NI Act case where accused proved bona fide stop payment reasons

Icon Buildcon Pvt. Ltd. Versus Aggarwal Developers Pvt. Ltd. and Ors.

Delhi HC dismissed petition challenging acquittal under Section 138 NI Act for cheque dishonour. Cheques were initially dishonoured due to insufficient ... Dishonour of Cheque - insufficient funds - legally enforceable liability - acquittal of accused - no proper service of the notice - Section 138 of the Negotiable Instruments Act, 1881 - HELD THAT:- The Supreme Court in a series of decisions has dealt with the question of dishonour of cheques due to stop payment instructions. In the present case, on the first occasion when the cheques were returned dishonoured due to insufficient funds, IBPL did not initiate any action under Section 138 NI Act. It is only after the dishonour of the cheque on the third occasion on 29th March 2007 on account of the stop payment instructions that IBPL decided to initiate action under Section 138 NI Act. Therefore, for all practical purposes, the present cases must be treated as belonging to the category where the dishonour of the cheques was on account of stop payment instructions. In M.M.T.C. Limited v. Medchl Chemicals & Pharma (P) Limited [2001 (11) TMI 837 - SUPREME COURT], the Supreme Court clarified that dishonour on account of stop payment instructions would also be covered under Section 138 NI Act and that presumption under Section 139 NI Act would be attracted even in such a case. However, it was clarified that the said presumption is rebuttable. As long as the Respondents were able to show that the stop payment instructions were issued for bona fide reasons, no liability under Section 138 NI Act would be attracted - In the present case, however, IBPL did not urge before the trial Court that the offence under Section 138 NI Act was attracted due to insufficient funds. The proceedings under Section 138 NI Act were initiated only when the cheques when presented for the third time on 29th March 2007 were dishonoured on account of the stop payment instructions. No question was asked of the defence witnesses as to whether on the date of the presentation of the cheques in question for third time on 29th March 2007, the balance in the accounts of ADPL was sufficient to honour the cheques. In Laxmi Dyechem v. State of Gujarat [2012 (12) TMI 106 - SUPREME COURT], the issue was addressed in the context of dishonour of the cheque due to closure of the account. After referring to the decision of the Supreme Court in Rangappa v. Sri Mohan [2010 (5) TMI 391 - SUPREME COURT], it was held that 'even in such cases, the question whether or not there was a lawfully recoverable debt or liability for discharge whereof the cheque was issued would be a matter that the trial Court will examine having regard to the evidence adduced before it and keeping in view the statutory presumption that unless rebutted the cheque is presumed to have been issued for a valid consideration'. Recently in Indus Airways P. Ltd. v. Magnum Aviation P. Ltd. [2014 (4) TMI 464 - SUPREME COURT], the Supreme Court held that there is a fine distinction between the civil liability and criminal liability under Section 138 NI Act. In the present case, the depositions of CW-1 and CW-4 reveal that IBPL was aware even on the date of the agreement dated 24th February 2007 between it and ADPL that the properties in question were the subject matter of litigation. As spoken to by DW-2, there was a restraint order passed by the SDM on 16th January 2007 restraining the villagers from creating any third party interest. By the time the cheques were presented for payment for the third time, a restraint order was also passed by this Court. The Court finds that the conclusion reached by the trial Court that the Respondents could not be held guilty for the offence under Section 138 NI Act does not suffer from any legal infirmity - No grounds have been made out for grant of leave to appeal against the impugned judgment of the trial Court. Petition dismissed. Issues Involved:1. Legally enforceable liability under Section 138 of the Negotiable Instruments Act (NI Act).2. Dishonour of cheques due to stop payment instructions.3. Compliance with the conditions of the agreements to sell.4. Service of legal notice under Section 138 NI Act.Issue-wise Detailed Analysis:1. Legally enforceable liability under Section 138 of the Negotiable Instruments Act (NI Act):The court examined whether a legally enforceable liability existed at the time the cheques were issued by ADPL to IBPL. The trial court concluded that IBPL did not fulfill the conditions of the agreements to sell, as the landowners had not obtained the necessary 'no objection certificate' (NOC) from the concerned authorities. Consequently, IBPL could not transfer any right or title to the properties in question. Therefore, no legally enforceable liability arose when the cheques were issued, leading to the conclusion that the cheques were not issued for discharging a legally enforceable liability.2. Dishonour of cheques due to stop payment instructions:The cheques were initially dishonoured due to 'effects not yet cleared' and 'funds insufficient' before being dishonoured a third time due to 'payments stopped by the drawer.' The Supreme Court in M.M.T.C. Limited v. Medchl Chemicals & Pharma (P) Limited clarified that dishonour due to stop payment instructions is covered under Section 138 NI Act, with a rebuttable presumption under Section 139 NI Act. The drawer must show that stop payment instructions were issued for bona fide reasons. The court found that ADPL's stop payment instructions were bona fide due to the legal disputes and restraining orders affecting the properties.3. Compliance with the conditions of the agreements to sell:The trial court found that the agreements between IBPL and the landowners were not fully executed, as IBPL did not fulfill its obligations, and the landowners did not obtain the NOC. Additionally, the agreements did not bear signatures of any IBPL official. Thus, IBPL's rights were inchoate and contingent upon the fulfillment of these conditions, which were not met. Therefore, IBPL could not convey a valid transferable right to ADPL.4. Service of legal notice under Section 138 NI Act:The trial court also held that the legal notice issued by IBPL did not appear to be properly served upon the accused persons. Proper service of notice is a prerequisite under Section 138 NI Act, and the lack of proper service further weakened IBPL's case.Conclusion:The court upheld the trial court's decision, finding no legal infirmity in the acquittal of the respondents under Section 138 NI Act. The petitions seeking leave to appeal against the trial court's judgment were dismissed, and the trial court records were ordered to be sent back.