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2023 Supreme(Kar) 1142
IN THE HIGH COURT OF KARNATAKA
J.M.Khazi, J.
Khaleel Khan P – Appellant
Versus
Shankarappa – Respondent
Criminal Revision Petition No. 1456 of 2022
Decided On : 03-11-2023
Shanmukha G.C., Advocate, Pranav Ravi, Advocate, Chandini S., Advocate
The presumption of a legally recoverable debt under the N.I. Act can be rebutted by the accused, and the burden then shifts to the complainant to prove the existence of the debt and his financial capacity, which must be established beyond reasonable doubt.
Headnote:
CRIMINAL REVISION - CHEQUE DISHONOUR - N.I. ACT, Sec. 138; Cr.P.C, Sec. 397, 401 - The court discussed the provisions of Section 138 of the Negotiable Instruments Act, which penalizes the dishonour of a cheque for insufficient funds, and Sections 397 and 401 of the Criminal Procedure Code, which govern the powers of the High Court in revising lower court decisions. The court emphasized the presumption of a legally recoverable debt under Sections 118 and 139 of the N.I. Act, which shifts the burden of proof to the accused to demonstrate that no consideration was passed. The court found that the complainant failed to prove his financial capacity to lend the amount, leading to the acquittal of the accused.
Fact of the Case:
The accused was convicted under Section 138 of the N.I. Act for issuing a cheque that was dishonoured due to insufficient funds. The complainant alleged that he lent Rs.5 lakhs to the accused, who issued a cheque in repayment. The accused contested the claim, asserting that the cheque was misused and that the complainant lacked the financial capacity to lend such an amount.
Finding of the Court:
The court found that the complainant failed to establish the existence of a legally enforceable debt. The evidence presented by the complainant was inconsistent, and he did not prove his financial capacity to lend the money. The court noted that the accused successfully rebutted the presumption of debt, shifting the burden back to the complainant, who did not meet the required standard of proof.
Issues: Whether the complainant proved the existence of a legally enforceable debt and his financial capacity to lend Rs.5 lakhs to the accused, and whether the accused successfully rebutted the presumption under the N.I. Act.
Ratio Decidendi: The court reiterated that under Sections 118 and 139 of the N.I. Act, there is a presumption that a cheque is issued in discharge of a legally recoverable debt. However, this presumption can be rebutted by the accused, shifting the burden back to the complainant to prove the debt and his financial capacity, which he failed to do.
Final Decision: The court allowed the Criminal Revision Petition, set aside the judgments of the lower courts, and acquitted the accused of the charges under Section 138 of the N.I. Act.
Key Points: - Under Sections 118 and 139 of the Negotiable Instruments Act, there is a presumption that a cheque is issued in discharge of a legally recoverable debt, which can be rebutted by the accused (!) . - When the accused challenges the complainant's financial capacity, the complainant must prove the existence of the debt and his financial capacity beyond reasonable doubt, and the burden shifts to him after the accused rebuts the presumption (!) . - Failure by the complainant to prove his financial capacity, despite the accused raising the defence, leads to acquittal as the required standard of proof is not met (!) .
What is the presumption available under the Negotiable Instruments Act regarding a cheque issued for a debt, and how can it be rebutted?
What are the obligations of the complainant to prove financial capacity to lend when the accused challenges the loan claim?
What is the effect of the accused failing to provide a reply to a legal notice regarding cheque dishonour on the burden of proof?
JUDGMENT
1. This Criminal Revision Petition filed under Sec. 397 and 401 of the Cr.P.C, is by the accused challenging his conviction and sentence imposed by the trial Court in CC.No.601/2017 for the offence punishable under Sec. 138 of N.I.Act, which came to be confirmed by the Sessions Court in Crl.A.No.51/2021. The trial Court sentenced the accused to pay fine of Rs.6.00 lakhs in default to undergo simple imprisonment for six months. Out of the fine amount realized, the trial Court has directed that Rs.5, 95, 000.00 to be paid to the complainant by way of compensation.
2. For the sake of convenience, the parties are referred to by their rank before the trial Court.
3. Complainant filed a private complaint under Sec. 200 Cr.P.C against the accused, alleging offence punishable under Sec. 138 of N.I. Act, contending that he and accused are well known to each other. On 11/7/2017, accused for the purpose of repaying loan taken for construction of his house requested for loan of Rs.5.00 lakhs. Complainant agreed for the same and on the same day advanced loan of Rs.5.00 lakhs. In this regard accused executed a demand Promissory Note-cumConsideration Receipt, agreeing to repay the same with interest at 2% p.a.
3.1 On the next day that is on 12/7/2017, accused issued a cheque for Rs.5.00 lakhs with a direction to present it on 18/9/2017. Accordingly on 18/9/2017, complainant presented it through Corporation Bank, Arasikere branch. However, it was dishonoured on the ground "Funds insufficient". The complainant brought this fact to the notice of the accused. He did not make any arrangement for paying the amount due. Therefore, on 22/9/2017, complainant got issued a legal notice to the accused calling upon him to pay the amount due. Despite due service of the notice, the accused has neither chosen to pay the amount nor sent any reply. Without any alternative complaint is filed.
4. Accused appeared before the trial Court and contested the matter. Though he admits that the cheque in question belongs to him drawn on his account maintained with his banker and it bears his signatures, he has disputed that he borrowed hand loan of Rs.5.00lakhs and executed demand Promissory Note-cumConsideration Receipt on 11/7/2017 and on the next date he had issued the cheque in question towards repayment of the said loan. Accused has taken up a specific defence that the son of complainant was running chit fund business and he had participated in the said chit fund transaction and issued the cheque/Demand Promissory Note and misusing the same, the complainant has filed the complaint. The accused has also contended that complainant is not having financial capacity to advance him Rs.5.00 lakhs.
5. Accused pleaded not guilty and claimed trial.
6. In order to prove the allegations against the accused, complainant has examined himself as PW-1. He has examined one witness to the demand Promissory Note as PW-2 and got marked Ex.P1 to 7.
7. During the course of his statement under Sec. 313 Cr.P.C accused has denied the incriminating evidence.
8. He has examined himself as DW-1 and relied upon Ex.D1.
9. Vide the judgment and order dtd. 11/2/2021, the trial Court convicted the accused and sentenced him to pay fine of Rs.6.00 lakhs in default to undergo simple imprisonment for six months.
10. Accused took the matter in appeal before the Sessions Court in Crl.A.No.51/2021. Vide the impugned judgment and order dtd. 7/11/2022, the Sessions Court dismissed the appeal and thereby confirmed the order of the trial Court.
11. Being aggrieved by the orders of the trial Court as well as the Sessions Court, the accused is before this Court contending that the findings of both orders are contrary to the well settled principles of law and is liable to be set aside. Both courts have failed to appreciate the fact that there was no legally enforceable debt to attract the provisions of Sec. 138 of N.I. Act. The Courts below have failed to consider the discrepancies and contradictions i
