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“Accused Is Held Liable if the Legally Recoverable Debt Is Not Rebutted” : Karnataka High Court

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On 23.12.2020, a Single Judge Bench of Hon’ble Justice P.N. Desai heard the case of Mohan Kumar v. Syed Mohd Ali. An appeal was filed under Sec 378(4) of CrPC, challenging the judgement of acquittal passed by the IV Addl. Civil Judge and JMFC Court, Gulbarga.

Facts of the Case

The Complainant, Mohan Kumar, and the Accused, Syed Mohd Ali, were good friends. On 15.07.2011, the Accused approached the Complainant and asked for a hand-loan of Rs.9,80,000/- for his business needs and other necessities. In view of the good relationship, the Complainant advanced the loan on the assurance of the Accused that he would repay the loan within a month. 

The Accused did not return the loan amount in spite of repeated requests. Then the Accused issued a cheque for a sum of Rs.9,80,000/- to the Complainant in the discharge of said debt or loan. The Complainant presented the said cheque for collection to the bank, but it was returned dishonoured with an endorsement as “funds insufficient”. 

The Accused did not give a proper answer to the complainant, hence the Complainant issued a legal notice which was returned with an endorsement that the notice was refused. Therefore, the Complainant filed a complaint against the Accused of the offence punishable under Section 138 (Dishonour of cheque for insufficiency, etc., of funds in the account) of Negotiable Instruments Act, 1881 (N.I. Act). After hearing both parties, the learned Trial Judge acquitted the Accused. Hence, the appeal was filed.

Contentions of the Appellant

The Learned Counsel for the Appellant submitted that the presumption under the Negotiable Instruments Act was available to the Complainant and the same was not rebutted by the accused either in the cross-examination or in the defence evidence. Further, no documents were produced to show that the complainant was running any chit business or chit transaction with the Accused. Further, the misuse of cheque defence was not proved, and a Stop payment notice was not given.

The Counsel referred to the following cases, to support his contentions :

  • APS Forex Services Pvt. Ltd. v. Shakti International Fashion Linkers & Ors AIR 2020 SC 945
  • Bir Singh v. Mukesh Kumar 2019 CRI. L.J 3227
  • H. G. Nagaraja v. H. Suresh Naika 2019 (4) AKR 562

Contentions of the Respondent

Learned counsel for the Respondent contended that no additional documents were taken by the complainant when a huge amount was alleged to have been given as a loan only on the basis of the cheque. 

Further, a plot was sold by the Complainant to the Accused, but the amount was not given, as the possession was not handed over. The blank cheque issued by the Accused was misused as there was no registered sale deed for the plot.

The Learned Counsel referred to the following cases:

  • Krishna Janardhan Bhat v. Dattatraya G. Hegde AIR 2008 SC 1325
  • Veerayya v. G. K. Madivalar 2012 (3) KCCR 2057
  • Shiva Murthy v. Amruthraj ILR 2008 KAR 4629

Court’s Observation

The Court observed that once a cheque is issued and signed by the Accused and if it is returned dishonoured stating that the amount in the account is “insufficient”, then there is a statutory presumption in favour of the holder of the cheque that the cheque which was issued for the enforcement of debt or liability is dishonoured.

The Court referred to the case of Bir Singh v. Mukesh Kumar 2019 CRI. L.J 3227, which held that:

“A person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for discharge of a liability.”

The Court referred to the case of H. G. Nagaraja v. H. Suresh Naika 2019 (4) AKR 562, which held that:

“When the presumption has been drawn under Section 139 of the N.I. Act about the legally recoverable debt and the said presumption has not been rebutted, then the case of the complainant stands proved and accused is liable to be convicted under Section 138 of the N.I. Act.”

The Court observed that the Complainant had failed to prove the debt and the Accused had substantiated his defence by a preponderance of probability as totally illegal, perverse, and not based on the evidence on record or the settled principles regarding appreciation of evidence.

Court’s Decision

The Court held that the Accused had committed an offence punishable under Section 138 of the Negotiable Instruments Act. Further, the Court found it fit to impose a double cheque amount as fine as a proper sentence. The Court ordered the Accused/Respondent to deposit the fine amount within a period of 30 days, failing which he would undergo simple imprisonment for a period of one year. Thus, the appeal was allowed. 

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