2025 (3) TMI 256 - SC - Indian Laws

Post-dated security cheques dishonour case under Section 138 NI Act sees partial liability after rent deduction allowed

M.S. NAGABHUSHAN Versus D.S. NAGARAJA

SC partially allowed appeal in dishonour of cheque case under Section 138 NI Act. Appellant-accused issued four post-dated security cheques totaling ... Dishonour of Cheque - Security Cheque against renting / leasing of property - whether the appellant-accused is liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for the dishonour of four post-dated cheques issued to the respondent-complainant, and whether the amount of compensation awarded by the lower courts was justified? - HELD THAT:- It is evident from the record that the appellant-accused was prosecuted for the dishonour of four post-dated cheques totalling to an amount of Rs.9,00,000/- which were issued by him in favour of the respondent-complainant and on presentation, had been dishonoured with an endorsement ‘funds insufficient’. In regard to the dishonour of these four post-dated cheques, the respondentcomplainant instituted four separate complaints. The trial Court convicted the appellant-accused under Section 138 of the NI Act concluding that the specific plea taken by the appellant-accused that he had repaid a sum of Rs.5,00,000/- to the respondentcomplainant was not controverted by the respondent-complainant by way of any rejoinder or counter to the reply notice submitted by the appellant-accused - the trial Court while convicting the appellantaccused for the offence punishable under Section 138 of the NI Act confined the sentence of fine, to Rs.3,00,000/- with simple interest @ 6% per annum from the date of the cheques till realisation, to be paid by the appellant-accused to the respondent-complainant. From the said amount of Rs.3,00,000/-, a sum of Rs.5,000/- was directed to be forfeited to the State Exchequer towards defraying expenses. In default, the appellant-accused was directed to undergo simple imprisonment for a period of one year. Despite the decree, the respondent-complainant failed to vacate the subject flat on which the appellant-accused, being the decree-holder, was compelled to institute execution proceedings. The Small Causes Court, Bengaluru after perusing the bailiff report which stated that the respondent-complainant(judgment debtor) had locked the subject flat, vide order dated 2nd January, 2020, directed police assistance to break open the locks in order to ensure that the decree is satisfied and possession of the subject flat is handed over to the appellant-accused(decree holder). In compliance of the aforesaid order, the locks were broken and possession of the subject flat was handed over to the appellant accused( decree holder) on 8th January, 2020. The appellant-accused was definitely not liable to refund the entire security deposit amount of Rs.9,00,000/- covered by the post-dated cheques, to the respondent-complainant because he was entitled to deduct the amount of due rent and maintenance from the said amount. Hence, the respondent-complainant failed to lead evidence to conclusively establish that the entire amount under the post-dated cheques was a legally enforceable debt against the appellantaccused. Conclusion - The appellant-accused was definitely not liable to refund the entire security deposit amount of Rs.9,00,000/- covered by the post-dated cheques, to the respondent-complainant because he was entitled to deduct the amount of due rent and maintenance from the said amount. The impugned judgments, dated 6th March, 2018 passed by the appellate Court and dated 8th July, 2024 passed by the High Court are hereby, quashed and set aside. The judgment dated 9th November, 2016 rendered by the trial Court is restored - Appeal allowed in part. ISSUES PRESENTED and CONSIDEREDThe core legal issue in this case revolves around whether the appellant-accused is liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for the dishonour of four post-dated cheques issued to the respondent-complainant, and whether the amount of compensation awarded by the lower courts was justified. The specific questions considered include:1. Whether the cheques issued by the appellant-accused constituted a legally enforceable debt or liability under the NI Act.2. Whether the enhancement of compensation from Rs.3,00,000/- to Rs.9,00,000/- by the appellate and High Court was justified.3. Whether the appellant-accused was entitled to deduct rent and maintenance dues from the security deposit covered by the cheques.ISSUE-WISE DETAILED ANALYSIS1. Legally Enforceable Debt under Section 138 of the NI ActRelevant Legal Framework and Precedents: Section 138 of the NI Act mandates that a cheque must be issued for the discharge of any debt or other liability, and its dishonour due to insufficient funds constitutes an offence.Court's Interpretation and Reasoning: The Court examined whether the cheques were issued for a legally enforceable debt. The appellant-accused contended that the cheques were given as security for the lease agreement and not for an enforceable debt, as the respondent-complainant did not vacate the flat and continued to occupy it without paying rent.Key Evidence and Findings: The respondent-complainant admitted during cross-examination that he had not vacated the flat and continued to occupy it without paying rent. The appellant-accused had filed a suit for ejectment and damages, which was decreed in his favour, further supporting his claim.Application of Law to Facts: The Court found that the appellant-accused was not liable for the full amount of the security deposit since the respondent-complainant had not vacated the flat, and thus, the cheques did not represent a legally enforceable debt.Treatment of Competing Arguments: The respondent-complainant argued that the cheques were issued for the refund of the security deposit. However, the Court concluded that due to the respondent-complainant's continued occupation of the flat without rent, the appellant-accused was entitled to deduct rent and maintenance from the deposit.Conclusions: The Court concluded that the appellant-accused was not liable under Section 138 of the NI Act as the cheques did not constitute a legally enforceable debt.2. Enhancement of CompensationRelevant Legal Framework and Precedents: The appellate and High Court had enhanced the compensation from Rs.3,00,000/- to Rs.9,00,000/- based on the dishonoured cheques.Court's Interpretation and Reasoning: The Court scrutinized the basis for compensation enhancement and found it unjustified given the circumstances of the case.Key Evidence and Findings: The evidence showed that the respondent-complainant continued to occupy the flat without paying rent, which affected the enforceability of the entire cheque amount.Application of Law to Facts: The Court determined that the enhancement was not warranted as the appellant-accused was entitled to deductions from the security deposit for unpaid rent and maintenance.Treatment of Competing Arguments: The respondent-complainant's argument for higher compensation was rejected as the evidence supported the appellant-accused's entitlement to deductions.Conclusions: The Court set aside the enhanced compensation and restored the trial court's original judgment.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Court emphasized that 'the appellant-accused was definitely not liable to refund the entire security deposit amount of Rs.9,00,000/- covered by the post-dated cheques, to the respondent-complainant because he was entitled to deduct the amount of due rent and maintenance from the said amount.'Core Principles Established:The judgment reinforced the principle that for a cheque to constitute a legally enforceable debt under Section 138 of the NI Act, the underlying obligation must be clear and uncontested. The entitlement to deductions for unpaid rent and maintenance was also affirmed.Final Determinations on Each Issue:The Court quashed the judgments of the appellate and High Court, restoring the trial court's decision, which confined the compensation to Rs.3,00,000/- with the appellant-accused entitled to deductions for unpaid rent and maintenance. The appeals were partly allowed, and the trial court was directed to ensure compliance with the judgment within two months.