2023 (11) TMI 1409 - HC - Indian Laws

Proceedings quashed as cheques for suit settlement, not legally enforceable debt, no offence under Section 138 NI Act

HC held that cheques issued by petitioners were not for a legally enforceable debt, as no amount had been borrowed and the cheques were given only in ... Dishonour of cheque - cheque was issued in settlement of a suit - existence of legally enforceable debt or not - HELD THAT:- The petitioner by the letter dated 06.11.2019, requested not to present the cheque. The said letter was received by the respondent and others. However the cheques were presented for collection. Therefore, the petitioner issued stop payment letter to their banker. Therefore, the alleged cheques were not at all issued for any legally enforceable debt, no amount was borrowed by the petitioners. In fact, on receipt of the statutory notice, the petitioner categorically replied by the reply notice dated 23.02.2020 - However, it was not received by the respondent. Therefore, no offence is made out as against the petitioners under Section 138 of NI Act, since the alleged cheques were not issued for legally enforceable debt. The proceedings on the file of the learned Judicial Magistrate Court-II, Ponneri, is hereby quashed and the Criminal Original Petition stands allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the complaint under Section 138 of the Negotiable Instruments Act could be sustained when the cheques in question were not issued towards a 'legally enforceable debt or other liability'. (2) Whether continuation of the proceedings under Section 138 of the Negotiable Instruments Act was an abuse of process when the complainant was not a legal heir or otherwise connected to the underlying property transaction, and the cheques were allegedly misused. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Existence of 'legally enforceable debt or other liability' under Section 138 of the Negotiable Instruments Act Interpretation and reasoning (a) The Court examined the origin and nature of the property and the subsequent transactions. The property originally belonged to one Kanniyammal as her self-acquisition under multiple registered sale deeds in 1965. (b) A grandchild of Kanniyammal had obtained a settlement deed which was later cancelled, after which a registered power of attorney was executed in favour of a third party, who, with the knowledge of the family members, sold the entire property to the accused/petitioners by a registered sale deed in 2008. (c) The petitioners later entered into a tripartite agreement with a developer and executed a registered sale deed in favour of the developer in 2015. (d) Certain persons, claiming to be legal heirs of Kanniyammal, instituted a civil suit challenging the sale deeds in favour of the petitioners and the subsequent conveyances. In order to settle the dispute, amounts were agreed to be paid to such legal heirs, and cheques were issued in that context. (e) The Court noted that the respondent/complainant was admittedly not a legal heir of Kanniyammal and had no connection with the property. Despite this, she set up the complaint on the basis of cheques which were stated to have been issued towards settlement with one of the legal heirs in the civil dispute. (f) The Court accepted the petitioners' stand that the respondent had misused the cheques which were issued to one of the legal heirs, and that there was no borrowing or independent liability owed by the petitioners to the respondent. It was specifically observed that 'the respondent no way connected with the property and also she is not a legal heir of the said Kanniammal' and that 'the alleged cheques were not at all issued for any legally enforceable debt.' (g) The Court took note of the petitioners' contemporaneous reply notice, which recounted that: (i) cheques had initially been issued to certain claimants as legal heirs of Kanniyammal; (ii) after some cheques were realised and others became time-barred, fresh cheques were issued upon return of the old ones; (iii) immediately thereafter, a rival claim was raised by other persons asserting to be legal heirs, supported by documents; and (iv) in view of the rival claims, the petitioners issued a written communication dated 06.11.2019 to the respondent and others specifically instructing them not to present the cheques until the legal heirship issue was sorted out, and simultaneously instructed their banker to stop payment. (h) On the basis of these facts, the Court held that the cheques in question were not issued in discharge of any debt or liability legally enforceable in favour of the respondent/complainant. Conclusion The foundational requirement under Section 138 of the Negotiable Instruments Act, namely issuance of cheques towards a 'legally enforceable debt or other liability' in favour of the complainant, was held to be absent. Consequently, no offence under Section 138 was made out against the petitioners. Issue (2): Legality of continuation of criminal proceedings under Section 138 of the Negotiable Instruments Act in the circumstances of alleged misuse of cheques Interpretation and reasoning (a) The Court considered that the complainant, having no status as a legal heir of the original owner and no independent privity or transaction establishing liability of the petitioners towards her, initiated proceedings based on cheques allegedly issued in favour of one of the legal heirs in a compromise context. (b) The Court accepted the petitioners' contention that the respondent misused the cheques despite having received a written intimation dated 06.11.2019 not to present them, and despite being informed of rival legal-heir claims. (c) The Court noted that the petitioners had, prior to presentation of the cheques, communicated to their banker a stop-payment instruction and had also given a detailed reply to the statutory notice, reiterating the absence of liability to the respondent and the existence of rival claims. (d) On these facts, the Court concluded that continuing the prosecution in S.T.C. No. 62 of 2021, when the statutory ingredients of Section 138 were not satisfied and the complainant had no enforceable right against the petitioners, would amount to unwarranted and unjustified criminal proceedings. Conclusion As the cheques were not supported by any legally enforceable debt or liability in favour of the complainant and were allegedly misused in the context of disputed heirship and prior warning not to present them, the continuation of the criminal proceedings was held to be unsustainable. The proceedings in S.T.C. No. 62 of 2021 were quashed, and the petition was allowed, with connected miscellaneous petitions closed.