Showing posts with label cheque bounce. Show all posts
Showing posts with label cheque bounce. Show all posts

28 September 2020

In cheque dishonor case; failure of complainant to give satisfactory reply about his financial capacity to pay/give the amount; is a probable defence on behalf of the accused

We having noticed the ratio laid down by this Court in above cases on Sections 118(a) and 139, we now summarise the principles enumerated by this Court in following manner:-
(i) Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability.
(ii) The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.
(iii) To rebut the presumption, it is open for the accused to rely on evidence led by him or accused can also rely on the materials submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely.
(iv) That it is not necessary for the accused to come in the witness box in support of his defence, Section 139 imposed an evidentiary burden and not a persuasive burden.
(v) It is not necessary for the accused to come in the witness box to support his defence.[Para No.23]

In cheque dishonor case; failure of complainant to give satisfactory reply about his financial capacity to pay/give the amount; is a probable defence on behalf of the accused
 Applying the preposition of law as noted above, in facts of the present case, it is clear that signature on cheque having been admitted, a presumption shall be raised under Section 139 that cheque was issued in discharge of debt or liability. The question to be looked into is as to whether any probable defence was raised by the accused. In cross-examination of the PW1, when the specific question was put that cheque was issued in relation to loan of Rs.25,000/- taken by the accused, the PW1 said that he does not remember. PW1 in his evidence admitted that he retired in 1997 on which date he received monetary benefit of Rs. 8 lakhs, which was encashed by the complainant. It was also brought in the evidence that in the year 2010, the complainant entered into a sale agreement for which he paid an amount of Rs.4,50,000/- to Balana Gouda towards sale consideration. Payment of Rs.4,50,000/- being admitted in the year 2010 and further payment of loan of Rs.50,000/- with regard to which complaint No.119 of 2012 was filed by the complainant, copy of which complaint was also filed as Ex.D2, there was burden on the complainant to prove his financial capacity. In the year 2010-2011, as per own case of the complainant, he made payment of Rs.18 lakhs. During his cross-examination, when fina>ncial capacity to pay Rs.6 lakhs to the accused was questioned, there was no satisfactory reply given by the complainant. The evidence on record, thus, is a probable defence on behalf of the accused, which shifted the burden on the complainant to prove his financial capacity and other facts.[Para No.24]

10 September 2020

If accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution u/s.138 of N.I. Act can fail

With regard to the facts in the present case, we can also refer to the following observations in M.M.T.C. Ltd. and Anr. v. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234 (Para. 19):

"... The authority shows that even when the cheque is dishonoured by reason of stop payment instruction, by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the `stop payment' instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. ..."
(emphasis supplied)[Para No.13]

If accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution u/s.138 of N.I. Act can fail
    In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat (supra) may not be correct. However, this does not in any way cast doubt on the correctness of the decision in that case since it was based on the specific facts and circumstances therein. As noted in the citations, this is of course in the nature of a rebuttable presumption and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption which favours the complainant. Section 139 of the Act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of improving the credibility of negotiable instruments. While Section 138 of the Act specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under Section 139 is a device to prevent undue delay in the course of litigation. However, it must be remembered that the offence made punishable by Section 138 can be better described as a regulatory offence since the bouncing of a cheque is largely in the nature of a civil wrong whose impact is usually confined to the private parties involved in commercial transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the accused/defendant cannot be expected to discharge an unduly high standard or proof. In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden. Keeping this in view, it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for doing so is that of `preponderance of probabilities'. Therefore, if the accused is able to raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not need to adduce evidence of his/her own.[Para No.14]

09 September 2020

Complaint u/s. 138 of N.I. Act for cheque bounce is maintainable if cheque is presented and gets dishonoured for the second time after the period of first demand notice is expired

The expression ‘cause of action’ appearing in Section 142 (b) of the Act cannot therefore be understood to be limited to any given requirement out of the three requirements that are mandatory for launching a prosecution on the basis of a dishonoured cheque. Having said that<, every time a cheque is presented in the manner and within the time stipulated under the proviso to Section 138 followed by a notice within the meaning of clause (b) of proviso to Section 138 and the drawer fails to make the payment of the amount within the stipulated period of fifteen days after the date of receipt of such notice, a cause of action accrues to the holder of the cheque to institute proceedings for prosecution of the drawer.[Para No.20]

    There is, in our view, nothing either in Section 138 or Section 142 to curtail the said right of the payee, leave alone a forfeiture of the said right for no better reason than the failure of the holder of the cheque to institute prosecution against the drawer when the cause of action to do so had first arisen. Simply because the prosecution for an offence under Section 138  must on the language of Section 142 be instituted within one month from the date of the failure of the drawer to make the payment does not in our view militate against the accrual of multiple causes of action to the holder of the cheque upon failure of the drawer to make the payment of the cheque amount. In the absence of any juristic principle on which such failure to prosecute on the basis of the first default in payment should result in forfeiture, we find it difficult to hold that the payee would lose his right to institute such proceedings on a subsequent default that satisfies all the three requirements of Section 138.[Para No.21]

Complaint u/s. 138 of N.I. Act for cheque bounce is maintainable if cheque is presented and gets dishonoured for the second time after the period of first demand notice is expired
    That brings us to the question whether an offence punishable under Section 138 can be committed only once as held by this Court in Sadanandan Bhadran’s case (supra). The holder of a cheque as seen earlier can present it before a bank any number of times within the period of six months or during the period of its validity, whichever is earlier. This right of the holder to present the cheque for encashment carries with it a corresponding obligation on the part of the drawer to ensure that the cheque drawn by him is honoured by the bank who stands in the capacity of an agent of the drawer vis-à-vis the holder of the cheque. If the holder of the cheque has a right, as indeed is in the unanimous opinion expressed in the decisions on the subject, there is no reason why the corresponding obligation of the drawer should also not continue every time the cheque is presented for encashment if it satisfies the requirements stipulated in that clause (a) to the proviso to Section 138. There is nothing in that proviso to even remotely suggest that clause (a) would have no application to a cheque presented for the second time if the same has already been dishonoured once. Indeed if the legislative intent was to restrict prosecution only to cases arising out of the first dishonour of a cheque nothing prevented it from stipulating so in clause (a) itself. In the absence of any such provision a dishonour whether based on a second or any successive presentation of a cheque for encashment would be a dishonour within the meaning of Section 138 and clause (a) to proviso thereof. We have, therefore, no manner of doubt that so long as the cheque remains unpaid it is the continuing obligation of the drawer to make good the same by either arranging the funds in the account on which the cheque is drawn or liquidating the liability otherwise. It is true that a dishonour of the cheque can be made a basis for prosecution of the offender but once, but that is far from saying that the holder of the cheque does not have the discretion to choose out of several such defaults, one default, on which to launch such a prosecution. The omission or the failure of the holder to institute prosecution does not, therefore, give any immunity to the drawer so long as the cheque is dishonoured within its validity period and the conditions precedent for prosecution in terms of the proviso to Section 138 are satisfied.[Para No.22]

10 August 2020

Insurance company is not liable to pay compensation to the claimants if cheque of premium issued by vehicle-owner is dishonored before the date of accident

On perusal of the entire record, it is not in dispute that respondent No.6, owner of the offending vehicle, has issued the cheque on 28.02.2014 for Rs.42,335/- towards payment of premium in respect of the offending vehicle. Pursuant to the same, the Insurer has issued a cover note on the very same day. The Insurer deposited the said cheque with its banker on 10.03.2014 for encashment, but the same was dishonoured on 11.03.2014. The same was informed to the Insurer vide cheque return memo dated 11.03.2014. Thereafter, the Insurer has addressed Ex.B5 - letter dated 13.03.2014 to the owner by sending the same through registered post with acknowledgment due to the address furnished by the owner while issuing Ex.B1 - cover note. A copy of Ex.B5 was marked to the RTO informing about the dishonour of cheque as well as cancellation of cover note. The said letter was received by the owner vide Ex.B6, while the RTO under Ex.B7. In Ex.B6 - postal acknowledgment card, there is a signature in proof of receipt of Ex.B5 - letter. It further discloses that the article was booked vide RLAD No.RM838996406IN. The learned counsel for the claimants would contend that signature on Ex.B6 does not belong to respondent No.6 and, therefore, he has not received Ex.B5 - letter. But, the said contention cannot be accepted in view of Exs.B1, B5 and B6. Admittedly, Ex.B5 was sent to the address furnished by the owner under Ex.B1.[Para No.26]

Insurance company is not liable to pay compensation to the claimants if cheque of premium issued by vehicle-owner is dishonored before the date of accident
    From the above discussion, it is clear that the cheque issued under Ex.B2 was dishonoured and consequently Ex.B1, cover-note was cancelled by the Insurer. The Insurer also intimated about the dishonour of cheque as well as cancellation of policy to the owner as well as RTO by addressing a letter under Ex.B5 and the said letter was received by the owner under Ex.B6 while Ex.B7 discloses receipt of Ex.B5 letter by the RTO. Thus, there is no valid policy exists as on the date of accident i.e., 04.05.2014. Section 64-VB of the Insurance Act also says that no risk to be assumed unless premium is received in advance. In the present case, the Insurer has not received the premium and, therefore, the Insurer shall not assume any risk. As such, the Insurer is not liable to pay compensation to the claimants - legal heirs of the deceased.[Para No.31]

    As already discussed above, the accident is not in dispute. The claim was under Section 163A of the M.V. Act. The policy was cancelled as on the date of accident i.e., 04.05.2014. The policy was not in force as on the date of accident. Therefore, the appellant - Insurer is not liable to pay compensation to the claimants. It is respondent No.6, owner of the vehicle who is liable to pay compensation to the claimants. Thus, the finding of the Tribunal that the appellant - Insurer has to pay the compensation at the first place and recover the same from the owner is unsustainable.[Para No.37]

03 August 2020

Notice returned with endorsement 'house locked', 'shop closed', "addressee not available' is presumed to be dully served

It is clear from Section 27 of the General Clauses Act, 1897 and Section 114 of the Indian Evidence Act, 1972, that once notice is sent by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected. The requirements under proviso (b) of Section 138 stands complied, if notice is sent in the prescribed manner. However, the drawer is at liberty to rebut this presumption.[Para No.13]

    It is well settled that interpretation of a Statute should be based on the object which the intended legislation sought to achieve.
“It is a recognized rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonize with the object of the statute, and which effectuate the object of the Legislature. If an expression is susceptible of a narrow or technical meaning, as well as a popular meaning, the Court would be justifed in assuming that the Legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid"[Para No.14]
Notice returned with endorsement 'house locked', 'shop closed', "addressee not available' is presumed to be dully served
    This Court in catena of cases has held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station”, due service has to be presumed. Though in process of interpretation right of an honest lender cannot be defeated as has happened in this case. From the perusal of relevant sections it is clear that generally there is no bar under the N.I. Act to send a reminder notice to the drawer of the cheque and usually such notice cannot be construed as an admission of non-service of the first notice by the appellant as has happened in this case.[Para No.15]

19 July 2020

“account closed”, “payment stopped”, “referred to the drawer”, “signatures do not match”, “image is not found” attracts sec. 138 of N.I. Act

The above line of decisions leaves no room for holding that the two contingencies envisaged under Section 138 of the Act must be interpreted strictly or literally. We find ourselves in respectful agreement with the decision in NEPC Micon Ltd. (supra) that the expression “amount of money …………. is insufficient” appearing in Section 138 of the Act is a genus and dishonour for reasons such “as account closed”, “payment stopped”, “referred to the drawer” are only species of that genus. Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138, so also dishonour on the ground that the “signatures do not match” or that the “image is not found”, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act. This Court has in the decisions referred to above taken note of situations and contingencies arising out of deliberate acts of omission or commission on the part of the drawers of the cheques which would inevitably result in the dishonour of the cheque issued by them. For instance this Court has held that if after issue of the cheque the drawer closes the account it must be presumed that the amount in the account was nil hence insufficient to meet the demand of the cheque. A similar result can be brought about by the drawer changing his specimen signature given to the bank or in the case of a company by the company changing the mandate of those authorised to sign the cheques on its behalf.

09 July 2020

Sec.420 of IPC; in absence of elements of cheating, does not automatically extends the limitation of time barred complaint u/s. 138 of N.I.Act

Dishonor of cheque - demand notice issued - complainant alleges that after receipt of notice, accused assured for payment within two days but failed - complaint for the offences punishable u/s. 138 of N.I.Act and 420 of I.P.C. filed without any application for condonation of delay.

Held: If no elements of offence of 'cheating' are found in the complaint then cognizance has to be taken u/s.142(b) of N.I.Act. Sec.420 of IPC; in absence of elements of cheating, does not automatically extends the limitation of time barred complaint u/s. 138 of N.I.Act 


   In this regard, this Court is of the view that both in Section 138 and Section 142 of the NI Act, a special provision, distinct from the provisions of the CrPC in respect of limitation in taking cognizance has been made. It is apparent that the special statute rolls out distinctly different procedure. [Para No.6]

   It is equally well settled that if the special statute provides a different procedure, the provisions of the CrPC would not apply to the extent of inconsistency. [Para No.7]

Sec.420 of IPC; in absence of elements of cheating, does not automatically extends the limitation of time barred complaint u/s. 138 of N.I.Act
Having regard to Section 138 and Section 142 of the NI Act, if the cognizance of dishonor of cheque for insufficiency of fund is taken in absence of element of 'cheating', the cognizance has to be taken under Section 142(b) of the NI Act. [Para No.8]

23 April 2020

What are the consequences of non compliance of condition of deposit of 25% amount of compensation ordered while suspending sentence in cheque bounce case appeal against conviction?

When suspension of sentence by the trial court is granted on a condition, non- compliance of the condition has adverse effect on the continuance of suspension of sentence.
non-compliance-of-order
  The Court which has suspended the sentence on a condition, after noticing non- compliance of the condition can very well hold that the suspension of sentence stands vacated due to non-compliance. [Para No.18]





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