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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
M. NAGAPRASANNA, J.
Sri Rajiv S/o Sangappa Kadapatti Director M/s. Jamkhandi Sugars Ltd. – Appellant
Versus
State Bank Of India – Respondent
Criminal Petition No.6481 of 2022 C/W Criminal Petition No.7203 of 2022
Decided on : 06-10-2023
Cheque Bounce - Negotiable Instruments Act 1881 - Section 138 - The Court examines the liability of the accused for the dishonoured cheque under Section 138 of the Negotiable Instruments Act 1881. The Court refers to precedents and interprets Section 139 of the Act to hold that the presumption of liability applies to the drawer of the cheque unless evidence is adduced to rebut the presumption. The Court also considers the renewal of loan documents and the personal guarantee of the Directors as evidence of their involvement in the transaction.
Fact of the Case:
The petitioners are challenging the proceedings instituted for offences punishable under Section 138 of the Negotiable Instruments Act 1881. The petitioners argue that the cheque was presented after the death of the person who issued it and is therefore not valid. The Bank argues that the petitioners, as office bearers of the Company, cannot escape liability for the dishonoured cheque. The Court examines the facts and holds that the other accused cannot feign ignorance of the cheque issued by the Chairman and that the death of the signatory does not absolve the accused of their liability. The Court refers to precedents and holds that a cheque issued as security can be presented for encashment if the loan has become due and payable. The Court also holds that the presumption of liability under Section 139 of the Act applies to the drawer of the cheque unless evidence is adduced to rebut the presumption. The Court dismisses the petitions.
Finding of the Court:
The Court examines the facts and legal principles related to the dishonoured cheque and the liability of the accused. The Court refers to precedents and interprets Section 139 of the Negotiable Instruments Act 1881 to hold that the presumption of liability applies to the drawer of the cheque unless evidence is adduced to rebut the presumption. The Court also considers the renewal of loan documents and the personal guarantee of the Directors as evidence of their involvement in the transaction. The Court rejects the argument that the cheque is invalid due to the death of the signatory and holds that the accused cannot escape liability for the dishonoured cheque.
Ratio Decidendi: The death of the signatory to a cheque does not absolve the other accused of their liability for the dishonoured cheque. A cheque issued as security can be presented for encashment if the loan has become due and payable. The presumption of liability under Section 139 of the Negotiable Instruments Act 1881 applies to the drawer of the cheque unless evidence is adduced to rebut the presumption.
Result: The Court dismisses the criminal petitions and holds that the observations made in the order are only for the purpose of considering the case under Section 482 of the Cr.P.C. and do not bind or influence any other proceeding between the parties.
ORDER :
The petitioners are before this Court calling in question proceedings in C.C.No.3095 of 2021. Criminal Petition No.6481 of 2022 is preferred by accused Nos. 3, 4 and 6 and Criminal Petition No. 7203 of 2022 is preferred by accused Nos. 1, 2 and 5. Therefore, both these petitions cover a challenge by accused Nos. 1 to 6. The challenge is to the proceedings instituted for offences punishable under Section 138 of the Negotiable Instruments Act 1881 (‘the Act’ for short).
2. Facts adumbrated are as follows:-
The 1st petitioner in Criminal Petition No.7203 of 2022 is M/s Jamkhandi Sugars Limited (hereinafter referred to as ‘the Company’ for short). The other accused -accused Nos. 2 to 6 are Directors/office bearers of the Company. The Company in the year 2013 approaches the respondent/State Bank of India (hereinafter referred to as ‘the Bank’ for short) seeking assistance/finance for harvesting and transportation of the products of the Company and seek credit facility. The credit facility so sought was granted to the Company by the Bank. The business goes on. On 06-01-2018 an application is made by the Company to the Bank for approval of renewal of harvesting and transportation of credit facility for a tie up with JSL for an amount of Rs.65/-crores. On 25-01-2018 the application filed by the Company was processed and credit facility was resolved to be granted against security. A cheque was issued by the Chairman on behalf of the Company for an amount of Rs.90/-crores as security amount to the finance/credit facility of Rs.65/-crores. The Chairman then was Siddappa B.Nyamagouda/Siddu Nyamagouda. The cheque was signed by the Chairman. After issuance of the said cheque, the Chairman dies on 28-03-2018.
3. On the death of the Chairman, accused No.2 becomes the Chairman of the Company pursuant to the resolution of the Board of Directors. After accused No.2 takes over as Chairman renewal and execution of loan related documents then existed between the Bank and the Company were executed. The execution of loan documents is by accused Nos. 2 to 6. Business goes on. Necessary installments towards the loan are not paid. It becomes sticky and the account is declared as non-performing asset. On the account being declared a non-performing asset, the cheque that was in possession of the Bank was presented for its realization on 24-03-2021. The cheque gets dishonoured for want of sufficient funds. The dishonouring of the cheque leads the Bank to cause a legal notice upon the accused including the Company on 27-03-2021.
4. The Company then replies to the notice on 15-04-2021 denying the liability and contending that the cheque is presented after the death of the person who has signed it. The Bank then registers a private complaint invoking Section 200 of the CrPC against all the accused on 10-05-2021. The concerned Court in terms of its order dated 16-10-2021 takes cognizance of the offence and issues summons to the accused. Issuing of summons leads these accused to this Court in these petitions. This Court in terms of an order dated 18-02-2022 grants an interim order of stay of further proceedings in Criminal Case No.3095 of 2021.
5. Heard Sri.B.O.Chandrashekar, learned counsel appearing for petitioners in Crl.P.No.6481 of 2022; Sri.V.M.Sheelavant, learned counsel appearing for petitioners in Crl.P.No.7203 of 2022 and Sri.Abhilash.R., learned counsel appearing for respondent-Bank in both the cases.
6. The learned counsel Sri V M Sheelavant appearing for petitioners would vehemently contend that the liability was guaranteed by issuance of a cheque by the then Chairman in his personal capacity. The cheque is signed by the Chairman. The Chairman dies on 28-03-2018 and the cheque is presented on 24-03-2021 for its realization. He would, therefore, contend that the cheque is presented after the death of the person who had issued it and is, therefore, not valid in the eye of law. He would submit that the entire proceedings that are initiated on the str
The death of the signatory to a cheque does not absolve the other accused of their liability for the dishonoured cheque. A cheque issued as security can be presented for encashment if the loan has be....
The crucial consideration is whether at the time of presentation of the cheque for encashment, there was a legally enforceable debt or liability due to the complainant from the accused. The nomenclat....
The issuance of a cheque signifies a legally enforceable debt under Section 138 of the N.I. Act, and the burden to prove otherwise lies with the accused, not the complainant.
A legally enforceable debt must exist at the time of cheque presentation for liability under Section 138 of the N.I. Act to arise.
A cheque issued as security can incur liability under Section 138 if a legally enforceable debt exists at the time of its presentation.
The presumption of issuance under Section 139 of the Negotiable Instruments Act requires the accused to prove the contrary if the cheque's signature is admitted, which was not done in this case.
(1) Cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance.(2) When a cheque is issued and is treated as ‘security’ ....
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