2025 (3) TMI 1 - HC - Indian Laws

Appeal allowed as statutory presumptions under Sections 118(a) and 139 NI Act favor complainant until rebutted

Gujarat Ambuja Cements Ltd. Versus Shree Lakshmi Venkatesh Cargo Movers And Consultants

Delhi HC allowed appeal against acquittal under Section 138 NI Act. Trial court erroneously held complainant failed to establish legally enforceable debt ... Dishonour of Cheque - respondent has been acquitted of the offence under section 138 of the Negotiable Instruments Act, 1881 - misinterpretation and misapplication of the statutory presumption contained in sections 118 and 139 of the NI Act - complainant was competent to depose in relation to the matter or not - HELD THAT:- As per section 118 (a) of the NI Act, a statutory presumption must be drawn in favour of a complainant that every negotiable instrument (such as a cheque) is made or drawn for consideration until the contrary is proved by the accused person - Section 139 of the NI Act goes further to cast the onus on the accused of proving that a cheque was not received by a holder in discharge of a debt or other liability owed. The learned Magistrate has opined that the defence sought to be raised by the respondent that the subject cheques were being held by the appellant as ‘security’ was “a sham defence”. Furthermore, the learned Magistrate has, in so many words, also recorded that the respondent admits to the issuance of the subject cheques and the signatures appearing thereon. However, in what is evidently a complete misinterpretation, misconstruction and misapplication of the statutory presumption contained in sections 118 (a) and 139 of the NI Act, and as interpreted by the courts, the learned Magistrate then proceeds to hold that the appellant (complainant) had failed to establish that there was a legally enforceable debt. In the opinion of this court, this inference drawn by the learned Magistrate is at complete odds with the foundational presumptions contained in sections 118 (a) and 139 of the NI Act, which presumptions hold good unless and until the contrary is proved by the accused person. The fact that the cheques were issued as ‘security’ is answered in the MoM dated 17.10.1997 and letter dated 08.11.1997, whereby the respondent has admitted to owing a debt of about Rs. 94 lacs to the appellant, which would entitle the appellant to encash the subject cheques for the sum of Rs. 30 lacs towards part-payment of the debt. Therefore, the respondent cannot be heard to say that the subject cheques, which were admittedly issued as ‘security’ towards a possible future debt, cannot be encashed to satisfy a part of such debt, which debt stands admitted in the afore-noted MoM and letter. Conclusion - i) The statutory presumption under Sections 118 and 139 of the NI Act was not rebutted by the respondent, and the Magistrate's judgment was based on a misinterpretation of these provisions. ii) The defense of 'blank signed' cheques as security is invalid, as the cheques were issued towards a debt acknowledged by the respondent. The dismissal of the criminal complaints by the learned Magistrate is unsustainable in law and deserves to be set aside - Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:1. Whether the criminal complaint filed by M/s Gujarat Ambuja Cements Ltd. was maintainable.2. Whether the authorized representative (AR) of the complainant had the requisite authorization and knowledge to prosecute the criminal complaints.3. Whether the respondent was liable for a legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).4. Whether the cheques in question were issued as 'blank signed' cheques and could be used towards discharge of any liability.ISSUE-WISE DETAILED ANALYSIS1. Maintainability of the ComplaintThe Court found the complaint maintainable. The respondent argued that the complainant company had undergone several name changes and amalgamations, which should affect its right to prosecute. However, the Court held that simple name changes and amalgamations do not affect the rights and liabilities of the parties involved. The applications for name changes had been allowed previously, and those orders had attained finality.2. Authorization of the ARThe respondent challenged the authorization of the AR, arguing that the AR did not have specific authorization and lacked knowledge of the transactions. The Court found no material infirmity in the authorization of the AR, as the Power of Attorney contained necessary averments and the AR's knowledge was derived from the records maintained by the complainant.3. Legal Liability Under Section 138 of the NI ActThe legal framework under Sections 118 and 139 of the NI Act creates a presumption in favor of the holder of a cheque that it was issued for consideration and in discharge of a debt. The burden of proof lies on the accused to rebut this presumption.The Court noted that the respondent admitted to issuing the cheques and the signatures on them. However, the Magistrate erroneously placed the burden on the complainant to prove the existence of a legally enforceable debt, contrary to the statutory presumption. The Court highlighted that the respondent's defense of the cheques being issued as security was not substantiated by evidence, and the respondent failed to rebut the presumption of debt under Sections 118 and 139.4. 'Blank Signed' Cheques as SecurityThe respondent argued that the cheques were 'blank signed' and issued as security, not for discharging any debt. The Court referred to the Supreme Court's rulings in Bir Singh vs. Mukesh Kumar and K. Ramesh vs. K. Kothandaraman, which held that even a blank cheque voluntarily signed and handed over attracts the presumption under Section 139. The Court found that the respondent had admitted to a debt of about Rs. 94 lacs in the Minutes of Meeting and a subsequent letter, which justified the encashment of the cheques for Rs. 30 lacs as part-payment.SIGNIFICANT HOLDINGSThe Court's significant holdings include:1. The complaint by M/s Gujarat Ambuja Cements Ltd. was maintainable despite name changes and amalgamations.2. The AR of the complainant was duly authorized to prosecute the complaints.3. The statutory presumption under Sections 118 and 139 of the NI Act was not rebutted by the respondent, and the Magistrate's judgment was based on a misinterpretation of these provisions.4. The defense of 'blank signed' cheques as security was invalid, as the cheques were issued towards a debt acknowledged by the respondent.Final DeterminationsThe Court set aside the Magistrate's judgment acquitting the respondent and convicted the respondents under Section 138 read with Section 141 of the NI Act. The matters were remanded back to the Magistrate for sentencing, with parties directed to appear for sentencing on 25th February 2025. The criminal appeals were disposed of accordingly. Pending applications were also disposed of.