Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(KAR) 9687

HIGH COURT OF KARNATAKA
MS JUSTICE J.M.KHAZI, J
M/S MOKSH AGARBATTI CO., – Appellant
Versus
M/S SRI BASAVESHWARA TRADERS – Respondent
CRL.A 116/2015

Advocates:
SRI. S G BHAGAVAN, ADVOCATE; SRI. MEGHACHANDRA D N, ADVOCATE; SRI. KHETAN BANGERA, ADVOCATE

Cheques issued as security are enforceable under Section 138 of the N.I. Act, and the presumption of liability under Section 139 must be rebutted by the accused.

Headnote:(A) Code of Criminal Procedure, 1973 - Section 378(4) - Negotiable Instruments Act, 1881 - Section 138 - Appeal against acquittal - Complainant's appeal challenging trial Court's dismissal of complaint for dishonour of cheques - Accused stopped payments, resulting in dues of Rs.12,59,522/- - Cheques issued as security were dishonoured - Trial Court's findings deemed perverse for not appreciating evidence - Appeal allowed; accused convicted and sentenced. (Paras 1, 10, 31, 33)

(B) Presumption under Section 139 of N.I. Act - The court held that the presumption operates in favor of the complainant, placing the burden on the accused to rebut it. (Paras 19, 21.1)

Facts of the case:
The complainant, a partnership firm, supplied goods to the accused, who failed to make payments, leading to dishonour of cheques presented for Rs.12,00,000/- against dues of Rs.12,59,522/-. Legal notice issued, but no payment made. (Paras 3, 4, 10)

Findings of Court:
The trial Court's judgment was found to be perverse, failing to appreciate the evidence and erroneously concluding that the cheques were issued merely as security. (Paras 31, 32)

Issues: Whether the trial Court erred in acquitting the accused despite evidence of dishonoured cheques and the existence of debt. (Paras 10, 29)

Ratio Decidendi: The court emphasized that cheques issued as security are still covered under Section 138 of the N.I. Act, and the presumption of liability under Section 139 must be rebutted by the accused. (Paras 21.1, 22)

Result: Appeal allowed; the accused is convicted and sentenced to pay a fine of Rs.15,00,000/- or undergo six months imprisonment in default.

Judgement Key Points

Key Points: - The cheques issued as security are held to be covered under Section 138 NI Act and can be presented for realization when debt exists (!) (!) . - The presumption under Section 139 NI Act operates in favor of the complainant and shifts to the accused to rebut it; burden then shifts to the complainant if rebuttal occurs (!) [p_21.1] (!) . - The judgment sets aside acquittal, convicts under Section 138 NI Act, and imposes a fine of Rs.15,00,000 with default imprisonment of six months; directs entire fine to be paid as compensation to the complainant (!) (!) .

What is the enforceability of cheques issued as security under Section 138 NI Act?

What are the circumstances under which the presumption under Section 139 NI Act operates and how must the accused rebut it?

What is the appropriate quantum of punishment and compensation when a conviction under Section 138 NI Act is recorded?

JUDGEMENT

This is complainant’s appeal filed under Section 378 (4) of Cr.P.C , challenging the impugned judgment and order passed by the trial Court, dismissing the complaint filed by the complainant and thereby acquitting the accused for the offence punishable under Section 138 of N.I. Act.

2. For the sake of convenience, parties are referred to by their rank before the trial Court.

3. It is the case of complainant that it is a commercial establishment i.e., a partnership Firm engaged in manufacture of Moksha Agarbatti. Accused is the Proprietor and authorised signatory, carrying on business in the name and style of M/s Shri Basaveshwara Traders.

Accused has purchased Agarbattis from the complainant from 21.06.2002 to 21.01.2010 under numerous delivery notes-cum-commercial credit tax invoices with the terms and conditions, on credit basis. In pursuance to the orders placed by the accused, the payments were supposed to be made within the stipulated period, as per the terms and conditions. The details of purchase made by the accused are depicted in the Table-I and II.

4. In pursuance to the transactions, accused provided 4 cheques as a security with a condition that the complainant can encash these cheques on the failure of accused to make payments against the Invoices.

Complainant did not have the necessity to present these cheques till 2009 as the payments were made promptly.

However, in the year 2009, for the reasons best known to the accused, he stopped making payments and at one point of time the dues were Rs.12,59,522/-.

4.1 Inspite of repeated request and demand when accused did not make payment and in addition started stocking the product of the rival companies, in order to collect the dues, complainant presented 4 cheques for Rs.3 lakhs each on 19.01.2010 as detailed in Table-III. But to the utter shock and surprise of the complainant, the cheques were returned dishonoured with endorsement "Funds insufficient". Complainant got issued legal notice to the accused. Despite due service of notice, the accused has failed to pay the amount due. On the other hand, he has sent an evasive reply. Added to it, the accused has filed a complaint with the police with a malafide intention and hence the complaint.

5. After due service of summons, the accused appeared through the counsel and contested the case by pleading not guilty.

6. In order to prove the allegations against accused, on behalf of complainant, its Power of Attorney is examined as PW-1 and Ex.P1 to 18 are marked.

7. During the course of his statement under Section 313 Cr.P.C , accused has denied the incriminating evidence led by the complainant.

8. In fact, the accused has examined himself as DW-1 and relied upon Ex.D1 to 17.

9. Vide the impugned judgment and order, the trial Court acquitted the accused.

10. Being aggrieved by the same, the complainant has filed this appeal contenting that the impugned judgment and order of the trial Court are against law, facts and probabilities of the case. They are also perverse. It has not even stated the facts correctly as pleaded in the complaint and created its own facts not borne out from the material, to arrive at a conclusion to acquit the accused.

The trial Court has not considered the facts and law applicable thereto in its legal perspective by applying its judicial mind. This approach has vitiated the entire judgment and the consequential order of acquittal.

10.1 The trial Court has erred in concluding that PW-1 had no personal knowledge of the transaction prior to 2006 to hold against the complainant. The trial Court ought to have seen that the accused became due and liable over a sum of Rs.12 lakhs by virtue of a running account and not in respect of one single transaction under one Invoice. It ought to have decided the case by taking the entire facts of the case in proper perspective. The trial Court has also erred in holding that O.S.No.11/2013 is filed for recovery of Rs.2,53,073/- in respect of Invoice No.965 dated 05.11.2009. It

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