2025 (6) TMI 1345 - HC - Indian Laws

Accused acquitted in Section 138 cheque bounce case after successfully rebutting statutory presumption of debt

M/s. P.S. Apparels (India) Represented by its Admin Manager, Mr. K. Rajangam Versus Annapurni Hariharan @ Mrs. Sumathi, W/o. Mr. T.S. Hariharan, M/s. Zaida Exports, Chennai

The Madras HC dismissed a criminal appeal in a Section 138 NI Act case. The trial court convicted the accused based on statutory presumption after cheque ... Dishonour of Cheque - discharge of a legally enforceable debt or liability under Section 138 of the Negotiable Instruments Act or not - complainant was duly authorised to file the complaint on behalf of the partnership firm or not - cheque issued under coercion - HELD THAT:- On perusal of the MOU, it is seen that there is nothing in the MOU recorded to show how if any loss sustained to be calculated and fixed. In fact, the MOU states three months prior notice to be given before termination of MOU. Further there is no arbitration clause and as per Ex.D2 dated 03.08.2011, the MOU was unilaterally and abruptly cancelled, the accused sent a mail in this regard. As per MOU, business arrangement commenced on 02.02.2011 and it was terminated by 02.08.2011. What was the job work done, what are the materials given, How job work was not satisfactory or materials returned with any delay, nothing stated in the complaint. When PW1, specifically questioned in this regard he is unable to give any answer. On compulsion and force the cheque obtained, explained by accused during 313 of Cr.P.C. questioning. In this case, the liability not fixed and hence, the cheque/Ex.P2 issued in discharge of the liability cannot be taken as proved. The statutory presumption dislodged by the accused by cross examination of PW1, examining of defence witnesse, producing documents. Thereafter, it is for the complainant to prove his case but failed to do so. Further, it is to be seen that in this case the cheque/Ex.P2 is said to have been given for the loss caused by the accused, who accepted to share 50% loss and issued the cheque. What is the loss, how it was arrived at, whether loss assessed, deliberated or adjudicated, there is no materials. The trial Court had gone by the statutory presumption and convicted the accused but the Sessions Court by a well reasoned, detailed judgment finding the conviction of the trial Court perverse, set aside the same. Conclusion - Once the issuance of the cheque and signature admitted presumption in favour of the complainant comes to play that there exists legally enforceable debt or liability. However, this statutory presumption can be rebutted by the accused by adducing evidence on a preponderance of probabilities. This Court finds no reason to interfere with the judgment of the Lower Appellate Court, which had acquitted the respondent/accused from the above charges. Accordingly, the judgment passed by the learned XVIII Additional Sessions Judge, City Civil Court, Chennai in Crl.A.No.334 of 2019 dated 13.08.2021 discharge the accused from all charges is hereby confirmed - the Criminal Appeal is dismissed. 1. ISSUES PRESENTED and CONSIDERED- Whether the cheque issued by the accused was in discharge of a legally enforceable debt or liability under Section 138 of the Negotiable Instruments Act (N.I. Act).- Whether the complainant was duly authorised to file the complaint on behalf of the partnership firm, considering the authorisation letter and the knowledge of the witness examined.- Whether the statutory presumption under Section 139 of the N.I. Act in favour of the complainant applies and if the accused successfully rebutted this presumption.- Whether the complainant proved the existence and quantum of loss allegedly suffered due to the accused's actions, including the basis for the accused agreeing to share 50% of the loss.- Whether the issuance of the cheque was voluntary or under coercion or compulsion, especially in light of the accused's defence that the cheque was given as security during the sale of industrial shed and not for any debt.- Whether the arbitration clause in the Memorandum of Understanding (MOU) barred filing of a complaint under Section 138 of the N.I. Act without invoking arbitration.- Whether the trial Court's conviction was justified on the evidence and whether the Lower Appellate Court was correct in setting aside the conviction.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the cheque was issued in discharge of a legally enforceable debt or liability under Section 138 of the N.I. ActThe legal framework mandates that for conviction under Section 138, the cheque must be issued for discharge of a legally enforceable debt or liability. Section 139 of the N.I. Act creates a statutory presumption that the cheque was issued for such debt once the cheque and signature are admitted.The complainant's case was that the accused had a business relationship under a MOU dated 02.02.2011, wherein the accused was a sick unit and the complainant extended a loan of Rs. 20,00,000/- to revive the unit. The accused failed to honour the job work and caused loss to the complainant. The accused agreed to share 50% of the loss and issued a cheque for Rs. 11,60,000/- as compensation. The cheque was dishonoured twice for 'Exceed Arrangement' and statutory notice was issued.The accused admitted issuance of the cheque but contended it was forcibly obtained during a dispute arising from the sale of an industrial shed, and not for any debt. The accused also produced the MOU and other documents to show the loan was repaid and that the cheque was given as security to overcome the complainant's objection to the sale.The Court noted that the complainant failed to produce the MOU originally relied upon, and the representative witness was not privy to the transaction details or the basis for the loss or the 50% sharing agreement. The complainant did not produce any documentary evidence or communication specifying the loss or its calculation. The accused's defence was supported by documentary evidence, including the MOU, correspondence, payment proof, passport entries, and sale deed.The Court held that the statutory presumption under Section 139 was rebutted by the accused through credible evidence and cross-examination of the complainant's witness. The complainant failed to independently prove the existence or quantum of debt/liability in respect of the cheque amount.Issue 2: Whether the complainant was duly authorised to file the complaintThe complainant was a partnership firm represented by a Manager (Admin) who produced an authorisation letter (Ex.P1) signed by only one partner. Earlier, the complaint was filed by another manager without a clear authorisation. The accused challenged the validity of the authorisation, pointing to the absence of a power of attorney or seal of the firm, and lack of proof that all partners consented to prosecute.The trial Court held that the representative was authorised, but the Lower Appellate Court found the complainant's representative was not sufficiently knowledgeable about the transactions and that the authorisation was questionable. The Court reiterated the principle from precedents that the authorised officer or power of attorney holder verifying the complaint must have personal knowledge of the transaction. Lack of such knowledge undermines the complaint's foundation.Issue 3: Application of Section 139 presumption and burden of proofThe complainant relied on admission of the cheque and signature to invoke the presumption under Section 139. The accused argued that this presumption was rebutted by evidence showing the cheque was not for discharge of debt but was a security instrument obtained under duress.The Court emphasized that Section 139 imposes a reverse burden on the accused to prove, on a preponderance of probabilities, that the cheque was not issued for discharge of debt. The accused successfully discharged this burden by producing documents, explaining the circumstances of issuance, and challenging the complainant's failure to prove the debt.Issue 4: Whether the complainant proved the loss and basis of 50% sharingThe complainant failed to produce any documents or evidence explaining how the loss of Rs. 23,25,000/- was calculated, or how the accused agreed to share 50% of the loss. The MOU did not contain any clause regarding loss sharing or arbitration. The complainant's witness was unaware of the details of the transactions, payments, or losses and admitted to needing to consult management for information. The accused produced emails and communications showing the MOU was unilaterally cancelled and the business relationship terminated abruptly.The Court held that the complainant's failure to prove the loss or the basis of liability was fatal to its case under Section 138.Issue 5: Whether the cheque was issued voluntarily or under coercionThe accused's defence was that the cheque was issued by her son to overcome the complainant's objection to the sale of an industrial shed and was not intended to discharge any debt. The accused was out of the country when the cheque was issued, as supported by passport records. The accused explained the issuance was under pressure and not for any liability.The Court found this explanation credible and supported by evidence, thereby negating the presumption that the cheque was issued for a debt.Issue 6: Arbitration clause and its effect on filing complaint under Section 138The accused contended that the MOU contained an arbitration clause and that the complainant was required to invoke arbitration before filing a complaint under Section 138. However, the MOU produced by the accused did not contain an arbitration clause. The Court noted this and observed that the complainant's argument on arbitration was misplaced.Issue 7: Whether the trial Court's conviction was justified and the correctness of the Lower Appellate Court's acquittalThe trial Court convicted the accused relying on the statutory presumption and the complainant's evidence. The Lower Appellate Court set aside the conviction on the ground that the complainant failed to prove the debt or liability and that the complainant's witness lacked knowledge of the transactions. The appellate Court found the trial Court's judgment perverse in light of the evidence.The High Court concurred with the Lower Appellate Court's reasoning, emphasizing the complainant's failure to discharge the evidentiary burden and the accused's successful rebuttal of the presumption. The High Court confirmed the acquittal and dismissed the appeal.3. SIGNIFICANT HOLDINGS'Once the issuance of the cheque and signature admitted presumption in favour of the complainant comes to play that there exists legally enforceable debt or liability. However, this statutory presumption can be rebutted by the accused by adducing evidence on a preponderance of probabilities.''The authorised officer or power of attorney holder verifying the complaint must have personal knowledge and must have witnessed the transaction to prove the contents of the complaint. Lack of such knowledge shakes the root of the case under Section 138 of the N.I. Act.''Failure by the complainant to produce books of accounts, stock registers or documentary evidence to prove the existence and quantum of legally enforceable debt renders a case under Section 138 liable to be dismissed.''A claim for damages does not give rise to a legally enforceable debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority.''The statutory presumption under Section 139 of the N.I. Act is a reverse onus clause and the accused can rebut it by showing on preponderance of probabilities that the cheque was not issued for discharge of any debt or liability.''The complainant failed to prove the loss or the basis of liability, and the accused successfully rebutted the presumption by producing credible evidence, thereby justifying the acquittal by the Lower Appellate Court.''The cheque was issued under coercion as security to overcome the complainant's objection to the sale of industrial shed and not for any debt, supported by evidence including passport records and sale documents.'