Dishonour of Cheque | Not filling details in cheque, Non-filing of ITR by complainant, Handing over cheque as security, etc.: Delhi Court discards all defence, orders conviction under S. 138 NI Act  

Saket Courts, Delhi: Swati Gupta, Metropolitan Magistrate (South) NI Act, convicted the accused for an offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881. While delivering the judgment, the Court reiterated the well-settled position of law and discarded various defence taken by the accused.

Factual Matrix

The accused approached the complainant since he needed funds to expand his business. The complainant granted a loan of Rs 76.24 lakhs to the accused and the parties executed a memorandum of understanding (MoU) in that respect. Later, in order to discharge his liability, the accused issued a cheque of Rs 5 lakhs. On presenting for encashment, the cheque was returned unpaid by the bank with the remark “funds insufficient”. Thereafter, the complainant sent a legal notice to the accused but he did not pay the amount of dishonoured cheque. Hence, the complainant moved the Court with a complaint under Section 138 of NI Act. The accused disputed his liability.

Law, Analysis and Decision

Ingredients of the offence

Before delving into the facts, the Court discussed the settled position of law applicable to the proceedings under Section 138 of NI Act. It was reiterated that to establish the offence under Section 138, the complainant must prove:

(i) the accused issued a cheque on an account maintained by him with a bank;

(ii) the said cheque has been issued in discharge, in whole or in part, of any legal debt or other liability, which is legally enforceable;

(iii) the said cheque has been presented to the bank within a period of three months from the date of cheque or within the period of its validity;

(iv) the aforesaid cheque, when presented for encashment, was returned unpaid/dishonoured;

(v) the payee of the cheque issued a legal notice of demand to the drawer within 30 days from the receipt of information by him from the bank regarding the return of the cheque;

(vi) the drawer of the cheque failed to make the payment within 15 days of the receipt of the aforesaid legal notice of demand.

The Court was of the opinion that the complainant discharged his initial burden and established the ingredients of the offence under Section 138 against the accused. In his statement under Section 313 CrPC, the accused admitted receiving the demand notice on his permanent address.

Not filling details in the cheque

The accused had admitted his signatures on the cheque but disputed filling any details of the cheque. The Court was of the opinion that such plea, even if true, had no bearing on the presumption against him. Reliance was placed on the Supreme Court decision in Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, wherein it was held that filling of persons by any person other than the accused would not invalidate the cheque and shall attract the presumption under Section 139 of NI Act.

Rebutting the presumption

On rebuttal of mandatory presumption, the Court noted that the presumption under Section 139 cannot be rebutted upon a mere denial. It can be rebutted by the accused only be leading cogent evidence. Reliance was placed on K.N. Beena v. Muniyappan, (2001) 8 SCC 458. It was observed:

“the presumptions may be rebutted by the accused either by leading direct evidence and in exceptional cases, from the case set out by the complainant himself i.e. from the averments in his complaint, in the statutory notice and even the evidence adduced by the complainant during the trial.”

The Court also noted that the burden of proof is to be discharged by the accused on preponderance of probabilities.

Cheque given as ‘security’

In his defence, the accused claimed that the cheque was given as security and whatever amount was invested by the complainant, he took away assets of the business of the accused against the same and as such there was no liability towards the complainant.

The Court observed it to be a settled law that:

“handing over of cheques by way of security per se does not extricate the accused from the discharge of liability arising from such cheques.”

Even otherwise, the Court found that the accused did not led any cogent evidence to prove such plea.

Contradictions in complainant’s testimony

The accused averred that the complainant’s case was not believable as there were contradictions in his testimony. He contended that during cross-examination, the complainant stated that the loan was given for the purpose of business while in his affidavit, he termed the loan as a friendly loan.

The Court found that the complainant consistently stated that the loan was given for the purpose of investment in business of the accused. It was considered opinion of the Court that mere terming of the loan as friendly in one sentence of his testimony was not a contradiction so material as to discredit the entire case of the complainant.

Loan amount disputed

The accused disputed the loan amount claiming that it was not Rs 76.24 lakhs but much less. The Court was of the opinion that the accused was not able to prove this plea. He admitted the execution of MoU which specified the loan amount as Rs 76.24 lakhs. Thus, there being a written document to that effect, the accused could not be allowed to verbally contradict or vary the terms of the same in light of Section 92 of the Evidence Act, 1872.

Non-filing of ITR by the complainant

The accused contended that the complainant did not file his Income Tax Return along with the complaint which rendered the fact of alleged loan transaction improbable.

The Court found that during complainant’s cross-examination, no suggestion was put to him on the aspect of non-filing of ITR or to question if the loan was disclosed in the ITR or not or to challenge the transaction of loan on the basis of the same. The complainant duly placed on record the MoU executed between the parties, which was admitted by the accused. Thus, the Court held that non-filing of ITR by the complainant was of no consequence.

Financial capacity of the complainant

The accused contended that the statement of account of complainant’s business during the relevant period when the loan was allegedly given, showed a balance of about Rs 6800, which showed that the complainant had no financial capacity to extend a loan of Rs 76.24 lakhs.

On this, the Court found that the complainant was running two businesses and the financial capacity of the complainant could not be held to be questionable only because balance in one of his business accounts was less. Further, during cross-examination of the complainant, the accused never questioned his source of funds or financial capacity. Thus, a mere allegation that financial capacity of the complainant was not adequate as one of his business accounts had low balance did not hold water.

The remaining defence taken by the accused was also discarded by the Court as either not proved or not relevant.

In such a view of the matter, the Court concluded that the accused miserably failed to rebut the mandatory presumptions under Section 118(a) and Section 139 of NI Act even on a preponderance of probabilities, while the complainant succeeded in proving his case beyond a reasonable doubt. Accordingly, the accused was held guilty and was convicted for the offence under Section 138 of the Negotiable Instruments Act. [Zikrur Rahman Khan v. Anwar Ahmad, Complaint Case No. 470901 of 2016, dated 11-11-2021]