2021 (4) TMI 1389 - HC - Indian Laws

Accused convicted under Section 138 NI Act after failing to prove cheques were security not debt payment

Karnataka HC set aside trial court's acquittal in dishonour of cheque case under Section 138 NI Act. Accused claimed cheques worth Rs. 10 crores were ... Dishonour of Cheque - main contention of the accused is that those two cheques were given as security and not towards debt or liability - Whether the Trial Judge has committed an error in acquitting the accused for the offence punishable under Section 138 of NI Act and whether it requires interference of this Court? - HELD THAT:- The payment is not disputed and also the issuance of the cheque is not disputed. It is also important to note that the dispute is in respect of the fact that he received an amount of Rs. 10 Crores to procure the land in favour of the complainant. In the cross-examination, the accused categorically admits that the land in Sy.No.114 of Arekere Village (old Sy.No.34) is shown as “kere angala”. Hence, it is clear that the property which has been shown in the document belong to the Government. However, he contend that he has purchased the land to the extent of 7 acres and odd and in respect of the said property also, he has not given any documents of clear title in respect of the said property. It is also important to note that the issuance of the cheque has not been disputed, but the only contention taken in the evidence and also in the defence is that the cheques were given as security. In order to probablize the case of the accused, no materials are placed before the Court in support of the contention that the cheques were given as security. On perusal of the records also, there is no any written document of agreement between the parties and though the document is placed before the Court that the cheques were given as security, but the fact that the amount of Rs. 10 Crores was received in order to procure the land in favour of the complainant is not in dispute. The fact that cheques were dishonoured and the endorsement was issued and thereafter, notice was issued and no payment was made in compliance of the demand is also not in dispute - Since the accused has admitted the issuance of the cheque and also the transaction, in the absence of the probable material before the Court, the accused has failed to prove his case on the preponderance of probabilities before the learned Magistrate. When the ingredients of the offence under Section 138 of NI is complied, the complainant also initiated the suit and the same has been decreed and an appeal is pending before this Court, both the proceeding are independent proceedings. The very conclusion of the learned Magistrate that cheques were issued for security is also erroneous. Without any material, the learned Magistrate has come to the conclusion that the cheques were issued towards the security and not for payment of debt or other liability and when the accused has accepted the receipt of Rs. 10 Crores from the complainant, the very reasoning given by the learned Magistrate requires to be interfered with by this Court. However, while sentencing the accused, this Court has to take note of the fact that the respondent herein is facing both criminal as well as civil proceedings whereas the civil suit has been decreed and the appeal is pending before this Court. The Court can give set-off as contemplated under Section 357(5) of Cr. P.C., if any amount is paid in view of the subject matter, in any proceedings initiated against the appellant. The judgment of acquittal passed by the learned Magistrate is hereby set aside and the accused is convicted for the offence punishable under Section 138 of the NI Act - Appeal allowed. Issues Involved:1. Whether the Trial Judge erred in acquitting the accused under Section 138 of the Negotiable Instruments Act.2. Whether the dispute between the parties is civil in nature or constitutes a criminal offence under Section 138 of the NI Act.Issue-Wise Analysis:1. Error in Acquittal under Section 138 of the NI Act:The appellant challenged the acquittal of the accused by the Trial Court for the offence under Section 138 of the Negotiable Instruments Act, which pertains to the dishonor of cheques. The appellant argued that the accused issued two cheques, each for Rs. 5 Crores, as a refund for an advance payment made by the appellant for securing a land deal. These cheques were dishonored due to insufficient funds, and despite issuing a legal notice, the accused failed to make the payment, thus triggering the cause of action under Section 138.The appellant contended that the Trial Court failed to consider the documentary evidence, which clearly indicated that the accused could not have procured the land as it was classified as a tank area by the State Revenue Authority. The appellant argued that the cheques were issued towards a legally enforceable debt, and the Trial Court's finding that the dispute was civil in nature resulted in a miscarriage of justice.The respondent, however, argued that the cheques were issued as security and not for a legally enforceable debt. The Trial Court accepted this argument, concluding that the transaction was civil, and the appellant could seek relief in a Civil Court.The High Court, upon reviewing the evidence, noted that the payment and issuance of cheques were undisputed. The accused admitted receiving Rs. 10 Crores and issuing the cheques but claimed they were for security. The High Court found no material evidence supporting the accused's claim that the cheques were not for a debt or liability. The presumption under Section 139 of the NI Act, which assumes the cheques were issued for discharge of debt or liability, was not rebutted by the accused. The High Court concluded that the Trial Court erred in its judgment by not invoking this presumption and thereby acquitted the accused incorrectly.2. Nature of the Dispute: Civil or Criminal:The Trial Court had concluded that the dispute was civil, based on the argument that the cheques were issued as security and not for a debt. The accused argued that the appellant had already filed a civil suit for recovery of money, which was decreed, and an appeal was pending. The respondent relied on several judgments to support the view that the remedy for any violation of an agreement should be sought in a Civil Court, not a criminal court.The High Court, however, found that the cheques were issued for a transaction involving the procurement of land, which the accused failed to secure. The accused's acknowledgment of the Rs. 10 Crores payment and the dishonored cheques indicated a criminal liability under Section 138. The High Court noted that the civil proceedings and the criminal case under Section 138 are independent, and the existence of a civil suit does not negate the criminal liability arising from the dishonored cheques.The High Court concluded that the Trial Court's view that the dispute was purely civil was erroneous. The cheques were issued for a liability, and their dishonor constituted an offence under Section 138 of the NI Act. The High Court set aside the Trial Court's judgment and convicted the accused, imposing a fine with a provision for imprisonment in default of payment. The Court also allowed for the fine to be considered in the pending civil proceedings.Order:The High Court allowed the appeal, set aside the Trial Court's acquittal, and convicted the accused under Section 138 of the NI Act. The accused was sentenced to pay a fine of Rs. 12 Crores within eight weeks, failing which he would undergo simple imprisonment for two years. The fine amount, once paid, could be adjusted in the civil proceedings.