Sri Ankit Sarwa

THE COURT OF THE XII METROPOLITAN MAGISTRATE,

MANORANJAN COMPLEX, EXHIBITION GROUND,

NAMPALLY, HYDERABAD

PRESENT: S RI . A NKIT S ARWA,

XII Metropolitan Magistrate

Monday, 30 th Day of January, 2023

C.C.NI. No. 3778 /2022

Between:

K. Revathi Anand,

W/o K. Anand Kumar, Aged 38 Years,

Occ: Business, R/o H.No. 8-3-169/251 & 251a

H.H. Nagar, Borabanda, Hyderabad

Telangana. ….Complainant

AND

Mr. D Janardhan,

S/o D. Ramulu, Aged 38 Years

Occ: Sand Business, R/o Chamadala Village,

Near Ramalayam Temple, Jaladanki Mandal,

Nellore District, A.P. ….Accused

Offence Under Section 138 of Negotiable Instrument Act

This case is coming up before me for a final hearing in the presence of

Sri. Sunil Pimple, Counsel for the Complainant and Sri. G. Ranga Rao

Counsel for the Accused and having heard and having stood over for consideration, this Court delivered the following:

JUDGMENT

Page 1 of 27

I. FACTS ........................................................................................................................................................ 2

II. PRE TRIAL PROCEEDINGS ................................................................................................................ 3

III. TRIAL PROCEEDINGS ....................................................................................................................... 4

IV. CITATIONS RELIED ON BY THE COMPLAINANT & ACCUSED .............................................. 4

V. INGREDIENTS OF OFFENCE .............................................................................................................. 6

VI. APPRECIATION OF EVIDENCE & FINDINGS: .......................................................................... 10 WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF A LEGALLY

ENFORCEABLE DEBT OR LIABILITY? ............................................................................................................... 11 WHETHER PW1 HAD THE FINANCIAL CAPACITY TO LEND THE ACCUSED RS.30,00,000? ....... 22

VII. CONCLUSION ................................................................................................................................... 23

I. F ACTS

1.The present complaint is filed by the Complainant, G. Revathi Anand, under Section 138 of the Negotiable Instruments Act 1881 (hereinafter referred to as “NI Act”) against the Accused Mr. D. Janardhan and Mrs.

D. Rajani who are husband and wife. The complainant and the Accused are relatives.

2.In gist, it is alleged in the complaint that Accused 1 and 2 are her distant relatives, and because of the relationship, Accused 1 and 2 approached the Complainant for a hand loan of Rs. 30,00,000 for investment and business requirements. The Complainant claims to have acceded to the said request and gave Rs. 30,00,000/- to the

Accused on 04-05-2016 and in return Accused 1 and 2 executed a promissory note promising to pay the amount within 2 years. They also entered into an agreement and Accused No. 1 issued 2 post-dated

Cheques bearing No. 000037 and 000038, both dated 04-05-2018 for

Rs. 15,00,000 (Fifteen Lakhs) each, drawn on Andhra bank at

Manikonda Village, Hyderabad in favor of the Complainant which on presentation was returned unpaid by the banker of the Complainant vide returning memo dated 14.05.2018, with the remarks ‘’Account

Closed’. The said return memo was received by the Complainant and

Page 2 of 27 she got issued a legal demand Notice dated 30.05.2018 within the statutory period of time, through his counsel calling upon Accused 1 and 2 to repay the cheque amount within 15 days. The notice was served upon the Accused and they issued a reply notice dated 27-06- 2016. Aggrieved by the non-receipt of payment, the Complainant was constrained to file the present complaint.

II. P RE T RIAL P ROCEEDINGS

3.Upon consideration of the complaint and sworn affidavit, the cognizance as per Section 190(1)(a) of the Code of Criminal Procedure (hereinafter referred to as CrPC) for the offence punishable under

Section 138 of NI Act was taken against Accused 1 only. It is pertinent to mention that as per the record, Accused 2 did not issue the cheque, nor any liability was found against her, the Court did not take cognizance against Accused 2. As per Section 138 of NI Act, the person who is holding the account and whose cheque was dishonored alone can be made liable for the offence. As Accused 1 issued the disputed cheques and no liability was found against Accused 2, the cognizance was taken against Accused 1, D. Janardhan only, and summon was issued to Accused 1 (hereinafter referred to as “Accused”) as per Sec.

204 of CrPC.

4.Upon the receipt of the summons, the Accused appeared before the

Court and a copy of the complaint was furnished to him. Thereafter, the Accused was examined under Section 251 CrPC by notifying the substance of the accusation for the offence punishable under Section 138 of N.I Act. After notifying the substance of the accusation and on the question of the plea of guilt he pleaded not guilty and claimed to be tried. Hence, the trial.

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III. T RIAL P ROCEEDINGS

5.On the commencement of trial, the Complainant examined herself as

PW1 and Mr. Pattabi Ramaiah as PW2. The Complainant filed her examination-in-chief affidavit on 07-03-2019 and reiterated the contents as mentioned in the complaint; Consequently, repeating those facts wouldn’t serve any useful purpose. PW1 got Ex.ed Ex. P1 to Ex.

P14 as documentary evidence.

6.On 02-07-2019, PW1 was cross-examined by the learned counsel of the

Accused. On 15-07-2019 PW2 filed his chief affidavit and he was cross- examined by the learned counsel of the Accused on 09-10-2019, For brevity and to avoid repetition, the relevant aspects of the cross- examination are discussed while appreciating the evidence. After the closure of the Complainant’s evidence, the Accused was examined

Under Section 313 CrPC on 15-11-2019 enabling him to explain personally the incriminating circumstances that appeared against him in the evidence of the Complainant, for which, the Accused denied the truthfulness of the evidence of the Complainant. The Accused reported that he has defense evidence. On 20-01-2020 the chief evidence of the

Accused as DW1 was recorded and DW1 was cross-examined on 10-02- 2020 and 26-05-2022 and Ex. P14 was marked. On 04-01-2023 the arguments from both sides were concluded and the matter was posted for Judgment on 30-01-2023.

IV. C ITATIONS RELIED ON BY THE C OMPLAINANT & A CCUSED

7.Citations relied on by the Complainant :

a)P Rasiya v. Abdul Nazer (2022) SCC Online SC 1131 wherein the

Hon’ble Supreme Court held that as per Section 139 N.I. Act, it shall

be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for discharge of whole or in part of any

Page 4 of 27 liability. Therefore, once the initial burden is discharged by the

Complainant that the cheque was issued by the Accused and the signature and the issuance of the cheque is not disputed by the

Accused, in that case, the onus will shift upon the Accused to prove that the cheque was not for any debt or other liability. The presumption under section 139 is a statutory presumption and thereafter once it is presumed that the cheque is issued in whole or in part of any debt or other liability, which is in favour of the

Complainant; in that case, it is for the Accused to prove the contrary.

b)Kishan Rao v. Shankargouda (2018) 8 SCC 165 wherein the

Hon’ble Supreme Court reiterated that the Accused may adduce

evidence to rebut the presumption under Section 139, but mere denial regarding the existence of debt shall not serve any purpose.

In the event the Accused raises a probable defense, which creates doubt with regard to the existence of debt or liability, the presumption may fail.

c)Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 wherein the

Hon’ble Supreme Court held that the the presumption that cheque

is duly signed and voluntarily made over to the payee arises irrespective of whether the cheque was a post-dated or blank cheque for filling by the payer or any other person, in absence of evidence of undue influence or coercion.

8.The Accused has the relied on the following citations:

a)Basalingappa v. Mudibasappa (2019) 5 SCC 418 wherein the

Hon’ble Supreme Court held that to rebut the presumption, the

Accused can also rely on the materials submitted by the

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Complainant to raise a probable defence. The Accused by cross- examining the Complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the circumstances.

b)Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel 2022 SCC Online SC 1376 wherein the Hon’ble Supreme Court has held that when a part payment of the debt is made after the cheque was drawn but before the cheque is encashed, such payment must be endorsed on the cheque under Section 56 of the Act. The cheque cannot be presented for encashment without recording the part payment. If the unendorsed cheque is dishonoured on presentation, the offence under Section 138 would not be attracted since the cheque does not represent a legally enforceable debt at the time of encashment.

9.I have read the citations and the facts & evidences are appreciated in light of the relevant ratio.

V. I NGREDIENTS OF O FFENCE

10.Before proceeding to the merits of the case, it is important to lay down the basic requirements of Section 138 of the NI Act,1881. In Kusum

Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. , (2000) 2

SCC 745, the Hon’ble Supreme Court has held that to establish the offence under Section 138 of N.I Act, the Complainant must fulfill all the essential ingredients of the offence, as highlighted below:

First Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is

Page 6 of 27 presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;

Second Ingredient: The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability;

Third Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;

Fourth Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in writing given to the drawer within thirty days of the receipt of information of the dishonour of cheque from the bank;

Fifth Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of the notice.

11.In addition to the above, the conditions stipulated under Section 142

N.I Act have to be fulfilled. It becomes imperative to mention that

Section 139 of the N.I Act provides a statutory presumption in favour of the Drawee that the Cheque was issued to him in discharge of a debt or other liability of a legally enforceable nature. Also, the said provision must be read along with Section 118 of N.I Act which states that every negotiable instrument is presumed to have been drawn and accepted for consideration. That said, what follows is that trial under section 138

N.I Act is structured on the premise of the reverse onus of proof theory since the offence is a document-based technical one. The journey of evidence begins not from the home of the Complainant story but from the point of the Accused. The presumptions carved out in favour of the

Complainant are those of law and not those of facts.

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12.Further, it is a settled position that when an Accused has to rebut the presumption under Section 139 N.I Act, the standard of proof for doing so is that of "preponderance of probabilities". It has been held by the

Hon'ble Supreme Court in Rangappa v. Sri. Mohan, (2010) 11 SCC

441 that the presumption contemplated under Section 139 of the N.I

Act includes the presumption of the existence of a legally enforceable debt. To rebut the statutory presumption under Section 139 N.I Act, the standard of proof is that of the preponderance of probabilities, by which the Accused is required to raise a probable defence. To rebut the presumption, it is open to the Accused to rely on evidence led by him/her, or the Accused can also rely on the materials submitted by the Complainant or the circumstances upon which the parties rely to raise a probable defence. It has been held by the Hon’ble Supreme

Court in Basalingappa v. Mudibasappa (2019) 5 SCC 418 that to rebut the presumption, the Accused can also rely on the materials submitted by the Complainant to raise a probable defence. The Accused by cross-examining the Complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the circumstances. The Accused by cross-examining the Complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The Accused can prove the non-existence of a consideration by raising a probable defense and if the Accused is proven to have discharged the onus of proof showing that the existence of consideration was doubtful or improbable, the onus would shift on the Complainant who will be obligated to prove it as a matter of fact and upon his failure to prove would disentitle him for the grant of relief under Section 138 of the N.I Act.

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13.The Hon’ble Supreme Court in Kumar Exports Private Limited v.

Sharma Carpets (2009) 2 SCC 513, held that to disprove the presumption under Section 139 of the Act, the Accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist.

14.Thus, as laid down in the catena of decisions it is an established law that the onus lies upon the Accused to rebut the presumption and to establish that cheque in question was not given in respect of any debt or liability, with the standard of proof being the preponderance of probability. Therefore, it becomes critical to examine whether the explanation of the Accused coupled with the evidence on record is sufficient to dislodge the presumption envisaged by Sections 118 & 139 of N.I Act.

15.Being cumulative, it goes without saying that it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence u/s 138 NI Act. This criminal liability can be attached by proving each of the elements of the section under which the liability is sought to be enforced. I shall now go on to appreciate the evidence, documentary or oral, in the light of how compellingly it satisfies each of such ingredients if at all.

VI. A PPRECIATION OF E VIDENCE & F INDINGS :

16.The presentation of the Cheques in question for encashment and dishonor of the cheques for the reason funds “Account closed” is not in dispute, as it is a matter of record proved by Ex. P1 and Ex. P2

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Cheques and the return memos dated 14-05-2018 marked as Ex. P3 and Ex. P4. Ex. P1 and Ex. P2 Cheques are dated 04-05-2018 and they are dishonoured on 14-05-2018, which shows that Ex. P1 and P2

Cheques were presented within their validity period and were returned unpaid by reason of ‘Account Closed’. Closing of Account after issuance of a cheque amount to the returning the cheques as unpaid because the money standing to the credit of that account is nil. Therefore, closure of the account would be eventuality after the entire amount therein is withdrawn. Thus, if a person chooses to close his or her account in the bank after the issuance of cheque, it amounts to an offence as there is insufficient funds. It is also not in dispute that Ex.

P1 and Ex. P2 Cheques were drawn by the Accused on the bank account maintained by him as he has not denied his signature on Ex.

P1 Cheque.

17.Further, Ex. P5 Legal notice was issued within the statutory period to the Accused in this case, calling upon it to pay the cheque amount. The

Accused in reply to Ex. P5 issued a reply notice, Ex. P10 dated 27-06- 2018. It is clear from the collective appreciation of Ex. P5 legal notice,

Ex. P6 and P7 postal receipts that the legal notice was sent to the

Accused. Ex. P8 and Ex. P9 postal acknowledgment cards show the

Accused received the legal notice and that it was issued to the correct address of the Accused which was duly received by the Accused and that the Accused has failed to repay the amount within 15 days from the receipt of Ex. P3. Therefore, the statutory requirement of Section 138 (a) (b) and (c) are duly proved.

WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF

A LEGALLY ENFORCEABLE DEBT OR LIABILITY?

Page 10 of 27

18.The pertinent question which requires determination is whether Ex. P1

Cheque was issued by the Accused in the discharge of a legally enforceable debt or liability. It is a matter of record that the Accused has not denied his signature on Ex. P1 Cheque. The Hon’ble Supreme

Court in Kalamani Tex & Anr. v. P. Balasubramanian (2021) 5

SCC 283, held that the NI Act mandates that once the signatures of an

Accused on the cheque/Negotiable instrument are established then these “reverse onus” clauses become operative. In such a situation the obligation shifts upon the Accused to discharge the presumption imposed on him. Due to such admission, the presumption under section 139 of the N.I Act that there exists a legally enforceable debt or other liability arise in the favor of the Complainant. It is the contention of the Complainant that the Accused had issued 2 post-dated Cheques bearing No. 000037 and 000038, both dated 04-05-2018 for Rs.

15,00,000 (Fifteen Lakhs) each towards the payment of the hand loan taken by him. The Accused has denied owing 30,00,000 (Thirty lakhs) to the Complainant.

19.The defense of the Accused is revealed from Ex. P10 reply notice. Upon perusal of Ex. P10, it is found that the Accused has admitted to having a business of sand and that there is a relationship between him and

PW1. He also admits it during his cross-examination as DW1. It is noteworthy that in Para (a) of Ex. P10 the Accused has admitted to the existence of a debt or liability towards PW1. It is his case that he incurred some debts to PW1 for his sand business and he paid interest regularly. Meanwhile, PW1, the husband of PW1, and others cheated him and as a result, his sand business incurred heavy losses. It is in such circumstances, PW1 along with others took blank signed cheques, empty signed promissory notes, and blank signed stamp papers from him as security in the year 2016. Subsequently, the Accused filed an

Page 11 of 27 insolvency petition before the Hon’ble Senior Civil Judge Court, Kavali as he was unable to discharge the debts, and as a counterblast to the insolvency petition, PW1 has filed this present case against him. He has also contended that as per his insolvency petition only Rs. 1,00,000 is due to PW1. Apart from the said amount, there was no debt existing against him.

20.To substantiate his contention the Accused has cross-examined PW1 and PW2. It is the case of the Complainant that she had advanced and invested Rs.30,00,000/- (Thirty lakhs) in the sand business of the

Accused. The said loan is admitted by the Accused but he has denied the quantum of the loan. As per the chief examination of the Accused,

PW1 has lent Rs.3,00,000 (Three lakhs) and not Rs. 30,00,000 (Thirty

Lakhs). PW1 was cross-examined and during her cross-examination suggestion was put to her stating that she had not lent Rs.30,00,000 (Thirty Lakhs) to the Accused and the same was denied by her. PW1 has filed Ex. P11 promissory note and Ex. P12 agreement to support her claim.

21.A perusal of Ex. P11 promissory note evinces that it is executed in favour of PW1. It bears the signature of the Accused and the Accused has admitted his signature on the Ex. P11 promissory note. The amount mentioned therein is Rs.30,00,000 (Thirty lakhs) with an interest of 3%. It is also attested by two witnesses. During the cross- examination, PW1 deposed that the attesting witnesses are her neighbors, and Ex.P11 is scribed by one Mr. N. Pattabi Ramaiah. Mr. N.

Pattabi Ramaiah is examined as PW2. PW2 in his chief affidavit has stated that he along with two witnesses was present at the time when

PW1 had lent Rs.30,00,000 (Thirty lakhs) to the Accused and his wife and that he’s scribed Ex. P11 and Ex. P12 upon the instruction of the

Page 12 of 27

Accused. During the cross-examination of PW2, he deposed that he scribed the cheques Ex. P1 & P2, the promissory note Ex. P11 and the agreement Ex. P12. He scribed the documents in the Telugu language.

Ex. P11 and P12 are written in Telugu and Ex. P1 & P2 cheques are written in English. He denied the suggestion that the transaction did not take place in his presence. He deposed that the two checks were handed over in his presence. In the chief affidavit, PW2 has deposed that he scribed Ex. P1 and P2 cheques, Ex. P11 promissory note and

Ex. P12 agreement upon the instruction of the Accused. Further, he deposed in his cross-examination that he scribed the documents since

PW1 and her husband stated to him that the Accused and PW1 are related to each other and therefore he should scribe them. As per the

Accused PW2 was not present at the time of the transaction and his testimony cannot be relied upon as he is giving contradictory statements. That is, on one hand, PW2 is stating that he was instructed by the Accused to scribe the documents and on the other hand he states that the Complainant asked him to do so. Upon perusal of the two statements on the record, it is found that PW2 in his chief affidavit states that he was instructed by the Accused to scribe the documents and in his cross-examination, he gives the reason for doing so, that is because PW1 had stated to him that both the Accused and PW1 are related to each other and therefore PW2 can scribe them. It is apparent that there is no contradiction between the two, rather they are mutually complementing each other. It is only when PW1 told PW2 that the

Accused is related to him, he agreed to scribe the documents and he scribed the documents upon the instruction of the Accused. Therefore, it cannot be said that PW2 is taking contradictory stands.

22.Further, PW2 deposed in his cross-examination that he had no prior acquaintance with the Accused and he came to know of the Accused on

Page 13 of 27 the date of the transaction. It is noteworthy that the Accused in his chief examination as DW1 deposed that he cannot read and write

Telugu. During his cross-examination as DW1 he deposed that whenever it is necessary for him to write, he would take the help of others. This would mean that the Accused could not have written Ex.

P1, P2, P11, and Ex. P12. In a situation where the documents are being executed and a party to a document cannot read and write then the writing on behalf of such a party can be either done by the other party to the transaction or by a third party. Any prudent person would believe either of the above two scenarios to be existing. In this case, the

Accused cannot write or read Telugu or English. Therefore, it would invariably create a scope for a third party to be present to write the documents on behalf of the Accused. This makes the presence of PW2 even more probable at the time of the transaction. PW2 has also signed

Ex. P11 promissory note. The contention of the Accused is that the signature of PW2 on the promissory note is outside the printed border and therefore the same cannot be considered. Upon perusal of Ex. P11 it is found that the signature of PW2 is outside the printed border of the promissory note. As per Section 4 of N.I Act, a promissory note is an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to order of, a certain person, or to the bearer of the instrument. The law apart from the above requirement does not require any specific format on how a promissory note should be and where the signatures are to be affixed.

In the present case, the promissory note Ex. P11 is in writing, there is an unconditional undertaking to pay Rs.30,00,000 (Thirty lakhs) to the

PW1 by the Accused. It is signed by the Accused and the Accused has admitted to his signature on Ex. P11 promissory note. The requirements as enumerated in Section 4 of N.I Act are all complied with by Ex. P11 promissory note. The law does not even require any

Page 14 of 27 attesting witness to the promissory note, nor does it require any specific format as to how the promissory should be drafted. If the requirements of Section 4 of N.I Act are satisfied, it becomes a valid instrument. Therefore, the signature of PW2 outside the boundary of the printed format of the promissory note does not discard the whole testimony of PW2 nor does it make Ex. P11 promissory note non- effective.

23.Furthermore, apart from Ex. P11 promissory note, PW2 has also scribed Ex. P12. Ex. P12 is the agreement entered by the Accused and

PW1. A suggestion was put to PW2 about the difference in handwriting in Ex. P1, P2, P11, and Ex. P12 which was denied by PW2. It is a matter of record that the Accused has not filed any petition to get the handwriting analysed by the expert or Court. A perusal of Ex. P12 evinces that the Accused and his wife have acknowledged the loan of

Rs.30,00,000/- (Thirty lakhs) from PW1 at the interest of 3%. It shows that they have undertaken to pay the same within two years. It also specifies that the cheque numbers of Ex. P1 and P2 by stating that the said cheques are given as a guarantee towards the said date. The contention of the Accused is that the word used in Ex.12 is “Hamiga” (హహహహ/hami) which means security or surety in Telugu. He contends that as per Ex. P12 the cheques are given as surety or security and subsequently, there have been payments made towards the said debt by the Accused to PW1. A complete and collective reading of Ex. P12 shows that it is issued by the Accused as a guarantee towards the hand loan taken by him and the same is evident from the last lines of Ex.

P12 wherein it is stated that the Complainant/PW1 can take any legal action against the Accused in case of failure on part of the Accused to repay the loan amount. The signatures on Ex. P12 is not denied by the

Accused. Ex. P12 is scribed by PW2 and it bears his signature. It also

Page 15 of 27 bears the signature of two witnesses. Ex. P12 does not bear any date of its execution. As per the complaint the documents, Ex. P1, P2, P11, and P12 were executed and issued on the same day when the loan was advanced to the Accused, that is, on 04-05–2016. Ex. P12 also evinces that a Non-Judicial Stamp paper of Rs. 100 was sold to the Accused on 04-05-2016. The said documents support the claim of the Complainant and corroborate the oral evidence of PW1 and PW2. The testimony of

PW1 is corroborated by the oral evidence of PW2 and the documentary evidence, Ex. P11 and P12. The testimony of PW2 is also found coherent and his presence at the time of the transaction is also highly probable, especially when the Accused cannot read and write Telugu or

English. Therefore, the Court is inclined to believe the contention of

PW1.

24.It is noteworthy that on one hand, the Accused is disputing the very execution of the document Ex. P12 and on the other hand, he is claiming that the word “Hamiga’ (హహహహ/hami) used in Ex. P12 means surety or security and the cheques were issued as security for the debt and the Accused has made few payments towards the debt which does not make him liable to pay 30,00,000/- lakhs as claimed by PW1. In his written arguments, for the first time, the Accused has taken the defense that the amount is not payable by him as there is no endorsement on Ex. P1 & P2 Cheques for part of the sum paid by the

Accused. There is no such defense raised by him in his reply notice or during cross-examination. He relied on the judgment of the Hon’ble

Supreme Court in Dashrathbhai Trikambhai Patel v.Hitesh

Mahendrabhai Patel2022 SCC Online SC 1376 wherein the Hon’ble

Supreme Court held that when a part payment of the debt is made after the cheque was drawn but before the cheque is encashed, such payment must be endorsed on the cheque under Section 56 of the Act.

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The cheque cannot be presented for encashment without recording the part payment. If the unendorsed cheque is dishonoured on presentation, the offence under Section 138 would not be attracted since the cheque does not represent a legally enforceable debt at the time of encashment. The contention of the Accused is that he has made part payment of the loan amount of Rs. 3,00,000/- (Three Lakhs) and on the other hand, it is the contention of the Complainant that the

Accused has paid the interest on the loan amount of Rs. 30,00,000/- (Thirty Lakhs).

25.The core contention of the Accused is that he borrowed Rs.3,00,000 (Three lakhs) from PW1 and towards the settlement of the final amount

PW1 had agreed upon the payment of Rs.3,60,000. As per him, towards the said payment he has paid Rs. 2,60,000/- in various installments via bank transactions, and the same is seen in Ex. P13, the passbook of PW1. In his chief examination, he has deposed that on the following dates he paid the amount as under towards the part payment of his debt:

DATE AMOUNT

29-12-2016 Rs. 64,000/- 06-01-2017 Rs. 32,000/- 20-01-2017 Rs. 32,000/- 01-02-2017 Rs. 32,000/- 20-02-2017 Rs. 1,00,000/-

Total 2,92,000/-

Meanwhile, he has filed Ex. D1 insolvency petition before the Hon’ble

Senior Civil Judge at Kavali wherein in the schedule of the creditors, he

has shown Rs. 1,00,000/- due to PW1.

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26.During the cross-examination of the Accused as DW1, it was elicited from him that he has not mentioned in Ex. P10 reply notice or in Ex.

D1 insolvency petition that he had taken only Rs. 3,00,000/- from

PW1. Upon perusal of both Ex. P10 and Ex. D1, it is found that there is no mention of the said amount of Rs. 3,00,000/-. The Accused/ DW1 in both the exhibits has stated that “..our client contacted debts from your client and others and used to pay interest regularly” and “..we contacted debts from the respondents and others and used to pay interest regularly..”. The quantum of debt is not mentioned in the said exhibits. During the cross-examination, it was elicited from DW1 that he had falsely deposed in his chief affidavit that the total of Rs.

2,60,000/- was repaid to the Accused whereas upon adding up the amount as deposed in the chief examination the total is coming to Rs.

2,92,000/-. It is noteworthy that the Accused has not mentioned in his reply notice nor in Ex. D1 that the amount transferred was towards the repayment of the dues. He has categorically admitted in both exhibits that the amount paid by him is towards the interest. Even the portion of the affidavit to insolvency petition marked as Ex. P14, states the same. This shows, that the Accused has only paid the interest to PW1.

If we consider the version of the Accused that Rs. 2,92,000/- was paid by him towards the payment of the agreed amount of Rs. 3,60,000, then the remaining amount which the Accused is liable to pay to PW1 would be Rs. 68,000/-. But upon perusal of Ex. D1 filed by the

Accused himself, the schedule of creditors reflects the amount of Rs.

1,00,000/- due to the Complainant/PW1. There is an additional amount of Rs. 32,000/- which the Accused is showing as due on his part to PW1. There is no explanation given by DW1/Accused in this regard. No prudent person would pay an extra amount towards the discharge of his liability in a situation where the amount is due. The calculations are not adding up to the amount as is being claimed by the

Page 18 of 27

DW1/Accused. This creates a cloud over the contention of the

Accused/DW1, especially when the quantum of liability is in question and an inclination in favor of the contention of PW1. Further, it was also elicited during the cross-examination from DW1/Accused that he has not filed any proof to show that the amount of Rs. 3,60,000/- was agreed by PW1 to be the final settlement amount. He denied paying Rs.

1,00,000/- on 22-06-2017 and Rs.14,000/- on 20-06-2017 to PW1 through a cash deposit from Karakmbadi, Tirupathi. But he admitted that he worked and resided at Tirupathi for some time. The said transactions are also seen in Ex. P13 Passbook of PW1. The Accused has further denied various deposits shown as “BNADP” (Bank Notes

Accepting Deposits) in Ex. P13 Passbook during his cross–examination as payment of interest. Apart from Ex. D1 insolvency petition, the

Accused has not brought any evidence on the record to substantiate his claims. Ex. D1 is an insolvency petition filed by him and his wife.

Subsequently, his wife was deleted as a petitioner. A perusal of Ex. D1 shows that he has made his brother as Respondent No. 9 and a few other people who are from his native. PW1 contends that she has not received any summons from the Court. During the cross-examination,

DW1 deposed that he had issued summon to the address of PW1 which is rented out by her. The address mentioned in Ex. D1 is different from the address of PW1 in the present case. It is also noteworthy that the address mentioned in the petition is subsequently written handwritten.

Ex. D1 petition is filed by the Accused himself and it still awaits adjudication. The petition is silent upon the quantum of the loan advanced by PW1. Therefore, not much evidentiary value can be given to Ex. D1 and it is not sufficient to rebut the presumption raised against him, especially when it is silent on the crucial aspects which the Accused is claiming to exist. The Accused has not established that the loan amount due was Rs. 3,00,000/- (Three Lakhs) and not Rs.

Page 19 of 27 30,00,000/- (Thirty Lakhs) which is shown in Ex. P1 and P2 cheques,

Ex. P11 Promissory note and Ex. P12 Agreement. The Accused has not filed any evidence before this court nor has he elicited any fact from

PW1 to show that PW1 had agreed to the settlement amount of Rs.

3,60,000/-. Not even a suggestion was put to PW1 during her cross- examination. Consequently, he has also failed to demonstrate that the payments made by him to PW1 were towards the part payment of the amount due to him. He has categorically admitted in his evidence, Ex.

P10 reply notice and Ex. D1 insolvency petition that he paid interest to

PW1. In light of the above contradictions and incoherence in the testimony of the Accused, it cannot be said that the Accused has made partial payments to PW1 towards the loan amount of 30,00,000/- (Thirty Lakhs) and the preponderance does not lean in his favor. The

Accused ought to have rebutted the contention of Complainant/PW1 by producing cogent evidence about the transaction in question to substantiate his claim. Therefore, in absence of the same, it is abundantly clear that the Accused could not successfully disprove or rebut the presumption in favor of the Complainant/PW1.

27.It is significant to note that the contention of the Accused is that the blank signed cheques, Ex. P1 and P2, blank signed promissory note,

Ex. P11 and blank signed bond paper Ex. P12 were taken by PW1 and others from the Accused. However, on the last page of Ex. P10 Reply notice, he states that the subject cheques were handed over to PW1 more than 2 years ago as a security for the business and the said cheques are time-barred. The Accused is taking two stands. On the one hand, he is deposing that One Mr. Bapi Raju and One Mr. Srinivas came to him in the month of October 2016 and obtained cheques from him and he has evidence to show the same and on the other hand, in

Ex. P10 reply notice, he is claiming that he voluntarily issued the

Page 20 of 27 cheques to PW1 as security. The Accused has not filed any evidence to show that the cheques and other documents were taken from him as he claims to have evidence of. Furthermore, on page 2 of Ex. P10 reply notice and on Para 3 of Ex. D1, the Accused is contending that he had sustained losses in his business due to the cheating and deceit practised by PW1 and others and on the other hand in his chief examination he deposed on oath that he incurred heavy losses in his business due to the fluctuation of prices of sand. The abovementioned contradictory and incoherent stands taken by the Accused do not inspire confidence in this Court and the Court is inclined to believe the contention of PW1. The accused has failed to establish any such facts.

Therefore, the accused could not prove the fact of documents being taken away from him or that he faced losses due to cheating and deceit practiced by the Complainant/PW1.

WHETHER PW1 HAD THE FINANCIAL CAPACITY TO LEND THE ACCUSED RS.

30,00,000?

28.The Accused has also questioned the financial capacity of PW1 during the cross–examination. PW1 upon being questioned on her financial capacity to lend such a huge amount deposed that she had given the amount to the Accused from her family savings and the amount given to her by her in-laws. PW1 also deposed in her evidence that she gets

Rs. 50,000/- per month as rental income. She admitted that she has not filed any document to show her rental income and that she did not state about her savings in her complaint and chief examination. Upon perusal of the complaint and chief affidavit, it is found that PW1 has pleaded in her complaint and deposed in her chief affidavit that “she arranged and paid a sum of Rs. 30,00,000…”. The particulars regarding the same are deposed by PW1 in her cross-examination. Therefore, it cannot be said that PW1 has not pleaded the abovestated fact in her complaint. It is noteworthy that during the cross-examination of the

Page 21 of 27

Accused as DW1, he voluntarily deposed that PW1 has given her house on rent and is residing in another apartment. The said admission by the Accused supports the contention of PW1 having a source for rental income. The Accused has given a detailed reply to the statutory notice and no case regarding the financial capacity of PW1 is set up in the reply notice. PW1 cannot be expected to initially lead evidence to show that she had the financial capacity. It is also not beyond the right of the

Accused to demonstrate that PW1 did not have the financial capacity.

For doing the same the Accused can produce independent material, can examine his witness, and produce documents. The Accused can also do so by relying on the evidence filed by PW1 herself or through cross- examination. It is a matter of record that no independent material or witness is produced by the Accused. In the cross-examination apart from the source of income of PW1, no other fact is elicited from her.

PW1 has deposed that she has family savings and rent as a source of income. The latter part is admitted by the Accused in his cross- examination. A suggestion was put to PW1 about her financial capacity and the same is denied by her. The testimony of PW1 about the existence of a rental property is corroborated by the admission of the

Accused himself. Further, the oral evidence of PW2 also corroborates the testimony of PW1 that the amount of Rs. 30,00,000/- (Thirty

Lakhs) was lent by her to the Accused in his presence. The oral evidence of PW1 withstood the cross-examination and remains unshaken, satisfactory and therefore, the Court is inclined to believe the contention of PW1.

VII. C ONCLUSION

29.In the backdrop of the discussion above, this Court is of the considered view that the Accused, in relation to the second ingredient, that the cheque was drawn by the drawer for discharge of any legally

Page 22 of 27 enforceable debt or other liability has failed to rebut the presumption under Section 139 of NI Act.

30.On the other hand, the Complainant could establish his case by proving the issuance of cheques Ex. P1 and P2 in discharge of a legally enforceable debt by the Accused, which is supported by Ex. P11 promissory note, Ex. P12 agreement and the oral testimony of PW2.

31.In the result, the Accused is found guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and consequently he is convicted under Section 255(2) Cr.P.C.

XII Metropolitan Magistrate Hyderabad

32.On hearing the accused on the quantum of sentence, accused submits that he is having health problems and kids. He submits that he had incurred losses in his business and therefore the cheques were issued.

Therefore, he prays the court to take lenient view while imposing the sentence.

33.The offence under section 138 of the NI Act is punishable with imprisonment for a term, which may be extended to two years, or with a fine, which may extend to twice the amount of the cheque, or with both.

34.The Hon’ble Supreme Court in Somnath Sarkar v. Utpal Basu

Mallick and Anr. (2013) 16 SCC 465 held that a criminal court is competent under Section 138 of the NI Act to a levy fine up to twice the

Page 23 of 27 cheque amount and direct payment of such amount as compensation by way of restitution in regard to the loss on account of dishonor of cheque under Section 375 CrPC. The power to award compensation is not available under Section 138 of the NI Act. It is only when the court has determined the amount of the fine that the question of paying the compensation out of the same would arise. This implies that the process comprises two stages. Firstly, when the court determines the amount of fine and levies the same subject to the outer limit if any.

Secondly, it comprises invocation of the power to award compensation out of the amount so levied.

35.The Hon’ble High Court of Telangana following the dictum of the abovementioned case awarded compensation out of the fine amount imposed in Om Prakash Khaja Krishna Prasad and Another (2014) 3 CCC (SN) 625; 2014 SCC Online Hyd 515; M/s Appolo Tyres

Limited v. H.H. Tyres and Another 2014 SCC Online Hyd 1182; and

B. Raghunandan Reddy v. Rajshekar Reddy and Anr. (2015) 1 ALT (Cri) 150. In all the said cases the Hon’ble Court observed that the NI

Act does not contemplate the grant of compensation but it envisages imposition of a fine not exceeding twice the amount of the dishonored cheque. Out of the said fine amount, the complainant can be compensated under Section 357 CrPC. It was observed that unlike other forms of crime, the punishment under NI Act is not retribution oriented, but is a means to ensure payment of money. The complainant’s interest lies primarily in recovering the money rather than seeing the accused in Jail. The threat of jail is only a mode to ensure recovery.

36.Further, the Hon’ble High Court of Chhattisgarh in Meel Bai v.

Rameshvar Prasad Chaugan 2015 SCC Online CHH 1622 after

Page 24 of 27 considering the ratio held by the Hon’ble Supreme Court in Somnath

Sarkar Caseheld that the criminal court under section 138 NI Act is competent to direct the payment of the fine amount as compensation by way restitution under Section 357(1)(b) of CrPC and as such, the power under Section 357(3) CrPC cannot be exercised by the Criminal

Court in cheque dishonor cases.

37.The Cheque amount for the two cheques in this case, is Rs.

15,00,000/- each, totaling to Rs. 30,00,000/-. The Court can impose fine on the Accused up to 60,00,000/-.

38.Considering the facts and circumstances and also the judicial precedents the accused is sentenced to pay a fine of Rs. 40,00,000/- (Forty Lakhs) and in default to undergo simple imprisonment for a period of (3) months as per Section 65 to 68 read with Section 53 sixthly of the Indian Penal Code. Out of the fine amount of Rs.

40,00,000, Rs. 10,000 shall go to the state and the remaining fine amount of Rs. 39,90,000/- shall go to the Complainant as compensation under Section 357(1)(b) read with Sections 431 and 421

Cr.P.C.

39.A free copy of the judgment shall be given to the accused as per Section 363 Cr.P.C read with Rule 72 of Criminal Rules of Practice and Circular

Orders, 1990. As the accused was not remanded to judicial custody even for a single day before the trial or at the time of the trial, Section 428 is not invoked

Written, transcribed and pronounced by me in open court, on this 30th Day of

January 2023.

Page 25 of 27

XII Metropolitan Magistrate Hyderabad

A PPENDIX O F E VIDENCE

WITNESSES EXAMINED

FOR COMPLAINANT

PW1 : Revathi Anand

PW2 : Pattabhi Ramaiah

FOR DEFENSE

DW1 : D Janardhan

EXHIBITS MARKED

FOR COMPLAINANT:

Ex. P1- is the Original Cheque No. 000037 for Rs. 15,00,000/- dated 04-05-2018.

Ex. P2 – is the Original Cheque No. 000037 for Rs. 15,00,000/- dated 04-05-2018.

Ex. P3 – is the Cheque Return Memo dated 14-05-2018

Ex. P4 – is the Cheque Return Memo dated 14-05-2018.

Ex. P5 – is the Office Copy of Legal Notice dated 30-05-2018.

Ex. P6 – is the RPAD Postal Receipt dated 30-05-2018

Ex. P7 - is the RPAD Postal Receipt dated 30-05-2018

Ex. P8 – is the postal acknowledgment cared dated 12-06-2018.

Ex. P9 – is the postal acknowledgment cared dated 12-06-2018.

Ex. P10 – is the reply legal notice dated 27-06-2018

Ex. P11- is the promissory note, dated 04-05-2018

Ex. P12 – is the original agreement dated 04-05-2018

Ex. P13 – is the bank passbook of the Complainant

Ex. P14 – is the marked portion in Ex. D1 Affidavit.

FOR ACCUSED:

Ex. D1 – Certified copy of IP Petition No. 3 of 2017

Page 26 of 27

XII Metropolitan Magistrate Hyderabad

Page 27 of 27

STC NI No. 330 of 2021

THE COURT OF THE XII METROPOLITAN MAGISTRATE,

MANORANJAN COMPLEX, EXHIBITION GROUND,

NAMPALLY, HYDERABAD

PRESENT: S RI . A NKIT S ARWA,

XII Metropolitan Magistrate

Monday, 27 th Day of February, 2023

S.T.C.No. 330 of 2021

Between:

Mr. Thakur Jai Prakash Singh

S/o Late Thakur Ganesh Singh,

Age: 58; Occ: Business,

R/o H.No. 13-3-435, Jali Hanuman,

Dhoolpet, Hyderabad, T.S ….Complainant

AND

Mr. Makani Raghupathi,

S/o Makani Narsimha, Age: 54 Years,

Occ: Business, R/o H.No. 2-2-1076/5/1

Tilaknagar, Opp, Sri Vidya School,

Batkammakunta, Hyderabad

Telangana- 500013 ….Accused

Offence Under Section 138 of Negotiable Instrument Act

This case is coming up before me for a final hearing in the presence of

Sri. K. Anoop Kumar, Counsel for the Complainant and Sri. Chandra

Mohan, Counsel for the Accused and having heard and having stood over for consideration, this Court delivered the following:

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STC NI No. 330 of 2021

JUDGMENT

I. FACTS ................................................................................................................................................................. 2

II. PRE TRIAL PROCEEDINGS .......................................................................................................................... 3

III. TRIAL PROCEEDINGS .................................................................................................................................. 3

IV. CITATIONS RELIED ON BY THE COMPLAINANT & ACCUSED ........................................................... 4

V. INGREDIENTS OF OFFENCE......................................................................................................................... 7

VI. APPRECIATION OF EVIDENCE & FINDINGS:........................................................................................ 10 WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF A LEGALLY ENFORCEABLE DEBT OR LIABILITY? ................................................................................................................................................................ 11

VII. CONCLUSION .............................................................................................................................................. 17

I. F ACTS

1.The present complaint is filed by the Complainant, Mr. Thakur Jai

Prakash Singh, under Section 138 of the Negotiable Instruments Act 1881 (hereinafter referred to as “NI Act”) against the Accused Mr.

Makani Raghupathi.

2.In gist, it is alleged in the complaint that the Complainant and the

Accused are well known to each other and out of such an acquaintance the Accused approached the Complainant and requested a hand loan of

Rs. 5,00,000/- for his urgent necessity. The Complainant claims to have acceded to the said request and gave Rs. 5,00,000/- to the

Accused on 20-02-2020. As per the Complainant, the Accused promised to repay the hand loan within 1 Year, but he failed to do the same. Subsequently, upon the persistent requests made by the

Complainant, the Accused issued a cheque bearing No. 399442 dated 01-03-2021 for Rs. 5,00,000/- (Five Lakh), drawn on State Bank of

India, Vidyanagar Branch, Hyderabad in favor of the Complainant which on presentation was returned unpaid by the banker of the

Complainant vide returning memo dated 20-05-2021, with the remarks ‘Payment stopped by Drawer’. The said return memo was received by the Complainant and he got issued a legal demand Notice dated 2 of 19

STC NI No. 330 of 2021 31.05.2021 within the statutory period of time, through his counsel calling upon the Accused to repay the cheque amount within 15 days.

The notice was served on the Accused and he issued a reply notice on 08-06-2021. As per the Complainant, the said reply notice was false and frivolous and the Accused failed to pay the cheque amount.

Aggrieved by the non-receipt of payment, the Complainant was constrained to file the present complaint.

II. P RE T RIAL P ROCEEDINGS

3.Upon consideration of the complaint and sworn affidavit, the cognizance as per Section 190(1)(a) of the Code of Criminal Procedure (hereinafter referred to as CrPC) for the offence punishable under

Section 138 of NI Act was taken and Summons was issued to the

Accused as per Sec. 204 of CrPC and upon the receipt of the summons, the Accused appeared before the Court and a copy of the complaint was furnished to him. Thereafter, the Accused was examined under Section 251 CrPC by notifying the substance of the accusation for the offence punishable under Section 138 of N.I Act. After notifying the substance of the accusation and on the question of the plea of guilt Accused pleaded not guilty and claimed to be tried. Hence, the trial.

III. T RIAL P ROCEEDINGS

4.On the commencement of trial, the Complainant examined himself as

PW1 and he filed his examination-in-chief affidavit on 21-06-2022. In his affidavit, PW1 reiterated the contents as mentioned in the complaint; Consequently, repeating those facts wouldn’t serve any useful purpose. PW1 got exhibited Ex. P1 to Ex. P5 as documentary evidence.

5.On 27-07-2022, PW1 was cross-examined by the learned counsel of the Accused and Ex. D1 and D2 were marked through him. For brevity 3 of 19

STC NI No. 330 of 2021 and to avoid repetition, the relevant aspects of the cross-examination are discussed while appreciating the evidence. After the closure of the complainant’s evidence, the Accused was examined Under Section 313

CrPC on 30-08-2022 enabling him to explain personally the incriminating circumstances that appeared against him in the evidence of the complainant, for which, the Accused denied the truthfulness of the evidence of the complainant. The Accused reported that he has no defense evidence. On 02-01-2022, the arguments from both sides were concluded and the matter was posted for Judgment on 27-02-2022.

IV. C ITATIONS RELIED ON BY THE C OMPLAINANT & A CCUSED

6.Citations relied on by the Complainant

a)Kishan Rao v. Shankargouda (2010) 11 SCC 441 wherein the

Hon’ble Supreme Court held that the Accused may adduce evidence

to rebut the presumption, but mere denial regarding existence of debt shall not serve any purpose. To disprove the presumptions, the

Accused should bring on record such facts and circumstances upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under circumstances of the case, act upon the plea that they did not exist.

b)T.P Murgan (Dead) through L.Rs. v. Bojan (2018) 8 SCC 469 wherein the Hon’ble Supreme Court held that once a cheque has been signed and issued in favor of the holder, there is statutory presumption that it is issued in discharge of a legally enforceable liability. This presumption is a rebuttable one, of the issuer of the cheque is able to discharge the burden that it was issued for some other purpose like security for a loan.

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STC NI No. 330 of 2021

c)K.N. Beena v. Muniyappan & Ors. AIR 2001 SC 2895 wherein the

Hon’ble Supreme Court held that the burden of proving that the

cheque had not been issued for any debt or liability is on the

Accused. Denial or averments in reply by the Accused are not sufficient to shift burden of proof onto the Complainant. Accused has to prove in trial by leading cogent evidence that there was no debt or liability.

d)Sripati Singh (since deceased) v. State of Jharkhand 2022(1)

ALD (Crl.) 371 (SC) wherein the Hon’ble Supreme Court held that the cheques issued for security shall attract the offence under

Section 138 NI Act. The party cannot be non-suited for proceedings with complaint filed under Section 138 on ground of, when the debt has become recoverable and the cheque issued as security has matured to be presented for recovery of amount.

e)SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Company Pvt. Ltd.

(2011) 11 SCC 66 wherein the Hon’ble Supreme Court has held that the terms of unregistered lease deed for a term more than one year cannot be relied upon to claim or enforce any right under or in respect of such lease. It can be relied upon for limited propose as to whether possession of lessee is lawful.

f)K.B Saha & Sons v. Development Consultant Ltd. 2008 (6) ald 92 (SC) where the Hon’ble Supreme Court held that an unregistered document is not admissible into evidence, except as collateral purpose as provided in proviso to Section 49. A collateral transaction must be independent of, or divisible from, transaction that requires registration and must not itself be registerable. A document, if inadmissible for the want of evidence, use of such 5 of 19

STC NI No. 330 of 2021 document for proving an important clause would not be suing it as a collateral purpose.

g)Bipin Shantilal Panchal v. State of Gujrat AIR 2001 SC 1158 wherein the Hon’ble Supreme Court has held that the practice to first decide, any objection raised to admissibility of evidence and then proceed further with trial impedes steady and swift progress of trial. Court should make not of the objection, mark objected document tentatively as exhibit and decide objection at final stage.

h)Omprakash v. Laxminarayan Ors. 2014 (1) ALD 83 (SC)wherein the Hon’ble Supreme Court held that the Agreement to sell with possession is “conveyance” within the meaning of Section 2(10) and it requires payment of stamp duty applicable to a deed of conveyance.

i)Ram Rattan v. Parmanand 1945 CJ PC 66 Lahore, wherein the

Privy Council had held that Section 49 of the Indian Registration Act provides that no document required to be registered under Section 17 shall affect any immovable property comprised therein or be received as evidence of any transaction affecting such property. It is unnecessary to consider the effect of this section because the documents in question not being stamped, the wider prohibition contained in the Stamp Act applies.

j)Smt. Savithramma R.C v. M/s Vijaya Bank & Anr, AIR 2015

Kar. 175 wherein the Hon’ble High Court of Karnataka held that when upon examination, is a document is found to be inadequately or not stamped. It is the obligation on Court to impound the same, irrespective of the fact whether objection to its marking in evidence is raised or not.

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STC NI No. 330 of 2021

7.The Accused has not filed any memo with citations. I have read the citations and the facts & evidences are appreciated in light of the relevant ratio.

V. I NGREDIENTS OF O FFENCE

8.Before proceeding to the merits of the case, it is important to lay down the basic requirements of Section 138 of the NI Act,1881. In Kusum

Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. , (2000) 2

SCC 745, the Hon’ble Supreme Court has held that to establish the offence under Section 138 of N.I Act, the Complainant must fulfill all the essential ingredients of the offence, as highlighted below:

First Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;

Second Ingredient: The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability;

Third Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;

Fourth Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in writing given to the drawer within thirty days of the receipt of information of the dishonour of cheque from the bank;

Fifth Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of the notice.

9.In addition to the above, the conditions stipulated under Section 142

N.I Act have to be fulfilled. It becomes imperative to mention that

Section 139 of the N.I Act provides a statutory presumption in favour of 7 of 19

STC NI No. 330 of 2021 the Drawee that the Cheque was issued to him in discharge of a debt or other liability of a legally enforceable nature. Also, the said provision must be read along with Section 118 of N.I Act which states that every negotiable instrument is presumed to have been drawn and accepted for consideration. That said, what follows is that trial under section 138

N.I Act is structured on the premise of the reverse onus of proof theory since the offence is a document-based technical one. The journey of evidence begins not from the home of the Complainant story but from the point of the Accused. The presumptions carved out in favour of the complainant are those of law and not those of facts.

10.Further, it is a settled position that when an Accused has to rebut the presumption under Section 139 N.I Act, the standard of proof for doing so is that of "preponderance of probabilities". It has been held by the

Hon'ble Supreme Court in Rangappa v. Sri. Mohan, (2010) 11 SCC

441 that the presumption contemplated under Section 139 of the N.I

Act includes the presumption of the existence of a legally enforceable debt. To rebut the statutory presumption under Section 139 N.I Act, the standard of proof is that of the preponderance of probabilities, by which the Accused is required to raise a probable defence. To rebut the presumption, it is open to the Accused to rely on evidence led by him/her, or the Accused can also rely on the materials submitted by the complainant or the circumstances upon which the parties rely to raise a probable defence. It has been held by the Hon’ble Supreme

Court in Basalingappa v. Mudibasappa (2019) 5 SCC 418 that to rebut the presumption, the Accused can also rely on the materials submitted by the complainant to raise a probable defence. The Accused by cross-examining the complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the 8 of 19

STC NI No. 330 of 2021 circumstances. The Accused by cross-examining the complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The Accused can prove the non-existence of a consideration by raising a probable defense and if the Accused is proven to have discharged the onus of proof showing that the existence of consideration was doubtful or improbable, the onus would shift on the complainant who will be obligated to prove it as a matter of fact and upon his failure to prove would disentitle him for the grant of relief under Section 138 of the N.I Act.

11.The Hon’ble Supreme Court in Kumar Exports Private Limited v.

Sharma Carpets (2009) 2 SCC 513, held that to disprove the presumption under Section 139 of the Act, the Accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist.

12.Thus, as laid down in the catena of decisions it is an established law that the onus lies upon the Accused to rebut the presumption and to establish that cheque in question was not given in respect of any debt or liability, with the standard of proof being the preponderance of probability. Therefore, it becomes critical to examine whether the explanation of the Accused coupled with the evidence on record is sufficient to dislodge the presumption envisaged by Sections 118 & 139 of N.I Act.

13.Being cumulative, it goes without saying that it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence u/s 138 NI Act. This criminal liability can be attached by proving each of 9 of 19

STC NI No. 330 of 2021 the elements of the section under which the liability is sought to be enforced. I shall now go on to appreciate the evidence, documentary or oral, in the light of how compellingly it satisfies each of such ingredients if at all.

VI. A PPRECIATION OF E VIDENCE & F INDINGS :

14.The presentation of the Cheque in question for encashment and dishonor of the cheque for the reason Payment stopped by Drawer is not in dispute, as it is a matter of record proved by Ex. P1 Cheque and the return memo dated 20-05-2021 marked as Ex. P2. Ex. P1 Cheque is dated 01-03-2021 and it is dishonored on 20-05-2021, which shows that Ex. P1 Cheque was presented within its validity period and was dishonored by reason of insufficient funds. Further, It is also not in dispute that Ex. P1 Cheque was drawn by the Accused on the bank account maintained by him as he has not denied his signature on Ex.

P1 Cheque.

15.Further, Ex. P3 Legal notice was issued within the statutory period to the Accused, calling upon him to pay the cheque amount. The Accused in reply to Ex. P3 issued a reply notice, Ex. P5 dated 08-06-2021. It is found from the collective appreciation of Ex. P3 legal notice, Ex. P4

Postal acknowledgment Card and Ex. P5 the Reply notice that the legal notice was issued to the Accused and that it was issued to the correct address of the Accused which was duly received by him and replied to by him. Further, the Accused has failed to repay the amount within 15 days from the receipt of Ex. P3. Therefore, the statutory requirement of

Section 138 (a) (b) and (c) are duly proved.

WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF

A LEGALLY ENFORCEABLE DEBT OR LIABILITY?

16.The pertinent question which requires determination is whether Ex. P1

Cheque was issued by the Accused in the discharge of a legally 10 of 19

STC NI No. 330 of 2021 enforceable debt or liability. It is a matter of record that the Accused has not denied his signature on Ex. P1 Cheque. The Hon’ble Supreme

Court in Kalamani Tex & Anr. v. P. Balasubramanian (2021) 5

SCC 283, held that the Act mandates that once the signatures of an accused on the cheque/Negotiable instrument are established then these “reverse onus” clauses become operative. In such a situation the obligation shifts upon the accused to discharge the presumption imposed on him. Due to such admission, the presumption under section 139 of the N.I Act that there exists a legally enforceable debt or other liability arise in the favor of the Complainant. It is the contention of the Complainant that the Accused had issued Cheque No.399442 for

Rs. 5,00,000/- (Five Lakh) to repay the hand loan advanced to him.

17.On the other hand, the Accused has categorically denied the issuance of a Cheque towards the discharge of legally enforceable debt. During

Section 251 CrPC and Section 313 CrPC Examination, the Accused stated that the Cheque was issued by him as a mediator in a business transaction. The defense of the Accused is revealed from his reply notice which is marked as Ex. P5. As per the Accused, he did not take any hand loan from the Complainant. Rather, there was a Preliminary

Agreement of Token dated 31-08-2020 for the purchase of an immovable property, where he stood as a mediator in the transaction.

Subsequently, the said Agreement of token was canceled and the said cancellation was recorded vide a Cancellation of Preliminary Agreement of Token dated 24-12-2020. As per the said agreement, the Accused has issued a post-dated cheque, which is being misused by the

Complainant in the present case.

18.To substantiate his contention, the Accused cross-examined PW1. PW1 contends that the Accused is well known to him and out of such an acquaintance the Accused approached him for a hand loan. During the 11 of 19

STC NI No. 330 of 2021 cross-examination, PW1 deposed that the Accused used to come to the office of his cousin (brother) and that he knows the Accused very well.

Subsequently, it was elicited from PW1 that he just has an acquaintance with the Accused through his cousin (brother). PW1 also admitted in his cross-examination that he has mentioned in his complaint that the Accused does business, but he does not know what kind of business the Accused is doing. It was also elicited from PW1 that he does not know the nature of the business that his own cousin (brother) was doing. It can be seen from the above elicitations and admission that PW1 claims to have met the Accused at the office where his cousin carries on business, but he does not know what his cousin (brother) does for a living nor does he know what the Accused does for a living. It is his admission that he just has an acquaintance with the

Accused through his cousin (brother), which is not as he contends in his complaint. It is also noteworthy that PW1 has admitted during his cross-examination that he had not informed his cousin (brother) about the lending of Rs. 5,00,000/- to the Accused. On one hand, PW1 contends that he is well known to the Accused and on the other hand he distances himself from the Accused by calling him just an acquaintance whom he met at the office of his brother. Further, PW1 deposed that he had lent the money to the Accused from his savings which he had saved for the wedding of his daughters. But he deposed that he has not disclosed his lending to his own brother, whom he claims to be the point of contact between him and the Accused. This creates a reasonable cloud on the contention of PW1 that the Accused is well known to him and that he advanced the loan of Rs. 5,00,000/- to the Accused.

19.Further, it was elicited from PW1 that he knows One Mr. Babu. During the cross-examination, PW1 was confronted with the Original

Preliminary Agreement of Token dated 31st August 2020 and asked if 12 of 19

STC NI No. 330 of 2021 he and his wife paid Rs. 5,00,000/- to One. Mr. Babu to which the witness admitted and deposed that he had paid 5,00,000/- to Mr.

Babu. He also admitted that the Accused was a witness to the said agreement. The said agreement was marked as Ex. D1. It is also noteworthy that PW1 was confronted with a photocopy copy of the

Cancellation of Preliminary Agreement of Token dated 24th December 2020 and asked if the signature, which is made on the photocopy is his, to which the witness answered Yes. The photocopy of the cancellation of the Preliminary Agreement of Token was marked as Ex.

D2.

20.It is noteworthy that at the time of confrontation, no objection was made to the marking of Ex. D1 and D2. However, at the stage of arguments, the counsel for PW1 has contended that the said documents could not be looked into evidence as they are not duly stamped nor registered. At this juncture, it is pertinent to look at the objection raised by the Complainant to proceed further. Upon perusal of Ex. D1, it is found that it is an original agreement titled Preliminary

Agreement of Token between one Mr. T. Babu Rao and the PW1 along with his wife, Smt. Kiran Thakur. Upon reading the recitals of Ex. D1 it is found that one Mr. Babu claims to be the owner of a duplex house and he has agreed and offered to sell the said duplex to PW1 and his wife. It also recites that the property is seized by the bank and there is ongoing litigation on the said property before Hon’ble Senior Additional

Judge Cyberabad. In the said dispute the order of eviction is passed by

the Court, but the case is still pending. Further, Mr. Babu has agreed in Ex. D1 that the pending case will be closed and the property seized by the bank would open before 20th September 2020. As PW1 and his wife have not seen the property, it will be shown to them. Ex. D1 also recites that the earnest amount of Rs. 5,00,000/- is given by the PW1 to Mr. Babu and upon failure on part of Mr. Babu to show the property 13 of 19

STC NI No. 330 of 2021

before the date agreed, the entire token amount would be returned to

the Complainant and his wife. Upon perusal of the recitals, it is found that PW1 & his wife have paid Mr. Babu a small portion of the transaction value, as a token amount to show their intentions in proceeding with the further formalities. The token amount is paid to the

Seller when the buyer and seller reach a verbal agreement to conclude the deal. At this stage, the formal paperwork is yet to start. Ex. D1 is not creating, declaring, assigning, limiting, or extinguishing any right, title, or interest in the property, and therefore it does not fall in the nature of a document that requires compulsory registration. Further, even if the agreement is considered as a receipt in writing whereby money is acknowledged to have been received, even then it is found to be executed on a non-judicial stamp paper of Rs. 100, which is sufficient. It is noteworthy that in the Reply notice Ex. P5, the Accused has categorically raised in his defense that the said agreement Ex. D1 was executed. Furthermore, Ex. D2 is the photocopy of the Cancellation of Ex. D1. The photocopy has the sign of PW1 which is admitted by him during his cross-examination. The signature of PW1 is not the photocopy, rather PW1 has signed up on the copy of the cancellation agreement. Ex. D2 shows that it is a copy of the original agreement which is executed on the non-judicial stamp paper of Rs. 100. The said copy shows that it was purchased by PW1 himself. PW1 has not denied the execution of such a document. Rather, during his cross- examination admitted that the said document recites about Cheque No.

399442, which is the subject cheque marked as Ex. P1 in this case.

PW1 has also stated that One Mr. Babu was represented by the

Accused as Mediator as per Ex. D2. It is also noteworthy that both Ex.

D1 and D2 are not the documents executed between PW1 and the

Accused. Ex. D1 is the document that was executed between Mr. Babu and PW1 where the Accused stood as a witness and Ex. D2 is the document wherein the Accused stood as a representative and mediator 14 of 19

STC NI No. 330 of 2021 between Mr. Babu and PW1. This shows that the Accused is not directly a party to the documents and there is no interest or right either party is claiming from the documents. Further, it is important to note that in a criminal trial, if the document is such in respect of which proper fee has not been paid or is not registered, the document can be adduced as evidence, especially when it is necessary for complete adjudication of the case. In the present case, Ex. D1 and D2 are necessary to be looked into and appreciated to prevent the failure of justice and to do substantial justice. Therefore, in light of the admissions of PW1 and the above observations, the said Ex. D1 and Ex.

D2 cannot be discarded and can be taken as evidence, especially when the Accused in his reply notice Ex. P5 had specifically raised in his defense about the existence of Ex. D1 and D2.

21.The core contention of PW1 is that he had advanced a loan of Rs.

5,00,000/- to the Accused and the Accused had issued Ex. P1 cheque towards the repayment of the said loan. Apart from the said cheque Ex.

P1, PW1 has not adduced any documentary or oral evidence to show that the Accused had requested PW1 for a hand loan, consequently,

PW1 had advanced the hand loan of Rs. 5,00,000/- to the Accused.

The chief examination affidavit of PW1 is also silent on the said aspect.

22.On the other hand, the defense of the Accused is that the cheques were issued by him as security in a business transaction where he was acting as a mediator. It is noteworthy that the Accused in his reply notice Ex. P6 had contended the same. Ex. P6 reply notice is dated 08- 06-2021 and the complaint was filed on 29-06-2021. The reply notice

Ex. P6 is adduced as evidence by the PW1 himself, but still, apart from a mere denial of the averments of said notice, no fact is pleaded by him in his complaint and chief affidavit showing that the transaction which the Accused is raising in his defense, even before the institution of the 15 of 19

STC NI No. 330 of 2021 trial is different from the hand loan transaction. Furthermore, upon perusal of Ex. D1, it is found that PW1 had entered into an agreement with One. Mr. Babu and paid 5,00,000/- as advance money. He has also admitted that the Accused was a witness to the above agreement

Ex. D1. Upon perusal of Ex. D2, it is found that it is executed by the

Accused as a mediator for Mr. Babu with PW1. The recital of Ex. D2 shows that at the instance of PW1, D1 agreement was canceled. It is also mentioned in Ex. D2 that the representative of Mr. Babu, who is the Accused herein had issued a post-dated cheque No. 399442 dated 01-03-2021 in the name of PW1 drawn on SBI, Vidyanagar Branch. The particulars of Ex. P1 are found to be the same as are mentioned in Ex.

D2. This creates reasonable doubt in the contention of PW1. It is not the case of PW1 that the Accused had issued the cheque towards the repayment of the earnest/token amount. Rather, it is his case that the cheque was issued towards the repayment of the hand loan. But, upon collective perusal and appreciation of Ex. P1, Ex. P6, Ex. D1 and Ex.

D2 a reasonable doubt is created in favor of the Accused which goes to the root of PW1’s case. The Accused was able to bring on record such facts and circumstances upon consideration of which, the court is inclined to believe that the debt did not exist. Under these circumstances, the Accused has succeeded in rebutting the presumption under Section 139 by raising a probable defense in his favor.

23.Further, PW1 contended that he had advanced the loan of Rs.

5,00,000/- to PW1. When the Accused is able to rebut the presumption, the burden now shifts upon the Complainant to prove his case beyond a reasonable doubt. There is no documentary evidence or other oral evidence filed by the complainant to support its contention.

The statutory presumption in favor of PW1 is not by itself the evidence but only makes out the prima facie case in favor of PW1. On the other 16 of 19

STC NI No. 330 of 2021 hand, the Accused was able to show that the subject cheque Ex. P1 was issued as a security towards a business transaction and not towards the repayment of a personal hand loan. There is no convincing evidence from the side of PW1 as to the existence of existing debt or liability to be discharged by the Accused. It is also important to note that the burden on PW1 is to prove his contention beyond reasonable doubt and lacunas in the defense of the Accused cannot discharge him of his burden. Therefore, in the present case, the accused has succeeded in discharging the initial onus of proof by showing that the existence of liability is doubtful and the complainant has failed to prove its case beyond a reasonable doubt. Under such circumstances penalizing the accused is not warranted as the complainant has failed to prove its case beyond a reasonable doubt.

VII. C ONCLUSION

24.In the backdrop of the discussion above, this Court is of the considered view that the Complainant has failed to prove that the cheque was issued towards the repayment of personal hand loan of Rs. 5,00,000/- beyond reasonable doubt and the Accused was successful in rebutting the presumption in favor of the complainant under Section 139 of the

N.I Act by raising a probable defence in his favor.

25.In the result, the Accused is found not guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and consequently is acquitted under Section 255(1) CrPC. The surety bond of the Accused shall stand canceled after the expiry of the appeal period.

Written, transcribed and pronounced by me in open court, on this 27th Day of

February 2023 17 of 19

STC NI No. 330 of 2021

XII Metropolitan Magistrate Hyderabad 18 of 19

STC NI No. 330 of 2021

A PPENDIX O F E VIDENCE

WITNESSES EXAMINED

FOR COMPLAINANT

PW1 : Thakur Jai Prakash Singh

FOR DEFENSE

None

EXHIBITS MARKED

FOR COMPLAINANT:

1. Ex.P.1 is the Original cheque no. 399442 for Rs.5,00,000/-, dt.01-03-2021.

2. Ex.P.2 is the Cheque return memo, dt.20-05-2021.

3. Ex.P.3 is the Office copy of legal notice, dt.31-05-2021.

4. Ex.P.4 is the Postal acknowledgment.

5. Ex.P.5 is the Reply notice, dt.08-06-2021.

FOR ACCUSED:

1. Ex D1 is Original Preliminary Agreement of Token dated 31st August 2020.

2. Ex D2 is Xerox of Cancellation of Preliminary Agreement of Token dated 24th December 2020.

XII Metropolitan Magistrate Hyderabad 19 of 19

IN THE COURT OF THE XII METROPOLITAN MAGISTRATE,

MANORANJAN COMPLEX, EXHIBITION GROUNND,

NAMPALLY, HYDERABAD

PRESENT: Sri. Ankit Sarwa,

XII Metropolitan Magistrate

Wednesday, 29 th Day of June, 2022

C.C.No. 3810/2022

Old C.C. No. 133/2017

Between:

1. Smt. Sapna Jain, W/o Nilesh Kumar Jain,

Aged about: 44 Years, Occ: Housewife,

R/o H.No. 7-1-71/F, Raja Dharam Karan Road,

Ameerpet, Hyderabad – 560016

2. Smt. Suvarna Jain W/o Mukesh Kumar Jain,

Aged about: 43 Years, Occ: Housewife

R/o H.No. 7-1-71/F, Raja Dharam Karan Road,

Ameerpet, Hyderabad – 560016 …. Complainants

AND

1. G. Shiva Purnima W/o. Mr. G. Sreekanth,

Aged about: 36 Years, R/o H.No. 9-1-87/5,

Flat No. 19, Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25

2. Sai Visnumolakala Educational Society,

Rep. by its Chairman Mr. G Srikanth,

S/o. G Srinivas Murthy, Aged about 36 Years,

Having its Regd. Office at 9-1-87/5,

Flat No. 19, Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25

3. Mr. G Srikanth, S/o. G Srinivas Murthy,

Aged about 36 Years, Occ: Business,

R/o Flat No. 9-1-87/5, Flat No. 19,

Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25 1

4. Gitam Educational (P) Ltd., Rep. by

Mr. G Srikanth, S/o. G Srinivas Murthy,

Aged about 36 Years, Occ: Business,

R/o Flat No. 9-1-87/5, Flat No. 19,

Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25 …. Accused

Offence Under Section 138 of Negotiable Instrument Act

This case is coming up before me for a final hearing on 27th June 2022 in the presence of Sri. Sharad Sanghi & Associates, Counsel for the complainants and of Sri. A. Pradeep, Counsel for the accused 3 & 4 and having heard and having stood over for consideration, this court delivered the following:

JUDGMENT

A. FACTUAL MATRIX ........................................................................................................... 2

B. PRE TRIAL PROCEEDINGS ............................................................................................. 3 C: TRIAL PROCEEDINGS...................................................................................................... 4

D: CITATIONS RELIED ON BY THE COMPLAINANTS & ACCUSED 3 & 4 .................. 5

E: INGREDIENTS OF OFFENCE & DISCUSSIONS ............................................................ 5 CONTENTIONS QUA MAINTAINABILITY ..................................................................................................... 6 SECOND INGREDIENT:CONTENTIONS QUA LEGALLY ENFORCEABLE DEBT. ...................................... 9 FOURTH INGREDIENT:CONTENTIONS QUA LEGAL NOTICE ................................................................ 11

F. CONCLUSION ................................................................................................................... 12

A. F ACTUAL M ATRIX

1.The present complaint is filed by the complainants, Smt. Sapna Jain and

Smt. Suvarna Jain against the accused persons, G. Purnima (Accused 1),

Sai Visnumolkala Education Society (Accused 2), G. Sreekanth (Accused 3), and Gitam Educational (P) Ltd. (Accused 4) under Section 138 of the

Negotiable Instruments Act 1881 (hereinafter referred to as “NI Act”).

2.In gist, it is alleged in the complaint that the complainants are the owners of the property bearing No. 7-1-71/E situated at Dharam Karan

Road, Ameerpet, Hyderabad. The said property was given on lease to the accused person under registered lease deeds bearing Doc. No. 664/2015

dated 23.03.2015, Doc. No. 2014/2015 dated 21-09-2015 and Doc. No.

2015/2015 dated 21-09-2015 for a monthly rent of Rs. 1,25,000 and Rs.

62,5000. As per the complainants, Accused 1 & 2 were liable to pay Rs.

2 6,48,750/-, Rs. 3,24,375 & Rs. 3,24,375 as rent for the property. It is their case that the Accused 3 & 4, to discharge the liability of Accused 1 & 2 as guarantors issued two cheques bearing No. 000393 and

No.000394 dated 27-08-2016 and 27-09-2016 for Rs. 5 lakhs each, drawn on Karur Vysya Bank, S.R. Nagar Branch, Hyderabad in favor of

Union Bank of India Account No.508306580001305 which on presentation were returned unpaid by the banker of the complainants vide returning memo dated 28-09-2016, with the remarks ‘funds insufficient’. The said return memo was received by the complainants and they got issued a legal demand Notice dated 10-10-2016 within the statutory period, through their counsel calling upon the Accused 1 to 4 to repay the cheque amount within 15 days. As per the complainants, the notices were acknowledged by Accused 1,3 & 4, but the notice sent to

Accused 2 was returned on 14-10-2016. Despite service of the said legal notice, Accused 1 to 4 failed to pay the cheque amount and aggrieved by the non-receipt of payment, the complainants were constrained to file the present complaint.

B. P RE T RIAL P ROCEEDINGS

3.Upon consideration of the complaint and sworn affidavit, the cognizance as per Section 190(1)(a) of the Code of Criminal Procedure (hereinafter referred to as CrPC) for the offence punishable under Section 138 of NI

Act was taken against the Accused 3 & 4 only. It is pertinent to mention that as per the complaint, Accused 1 and Accused 2 did not issue the cheque and therefore the Court did not take cognizance against them. As per Section 138 of NI Act, the person who is holding the account and whose cheque was dishonored alone can be made liable for the offence.

Section 128 of the Indian Contract Act provides that the liability of the guarantor is co-extensive along with the liability of the principal.

However, the said rule cannot be applied in criminal prosecutions. Since 3

Accused 3 gave the cheque on behalf of Accused 4, cognizance was taken against Accused 3 and 4 only.

4.On the appearance of the Accused 3 & 4 copies of the documents were furnished and they were examined under Section 251 CrPC. After notifying the substance of the accusation and on the question of the plea of guilt the Accused 3 & 4 pleaded not guilty and claimed to be tried. Hence, the trial.

C: T RIAL P ROCEEDINGS

5.On the commencement of trial, for the complainants, special power of attorney holder, Nilesh Jain was examined as PW1 and he filed his chief affidavit on 06-03-2019. PW1 in his affidavit had reiterated the contents as mentioned in the complaint without any changes; therefore, the narration of those facts again would not serve any useful purpose. PW1 got exhibited Ex. P1 to Ex. P9 as documentary evidence. On 20-03-2019

additional chief affidavit was filed by PW1 and he got exhibited Ex. P10 &

Ex. P11.

6.On 24-07-2019, PW1 was cross-examined by the learned counsel of the

Accused 3 & 4. For brevity and to avoid repetition, the relevant aspects of the cross-examination are discussed while appreciating the evidence.

After the closure of the complainant’s evidence, accused 3 & 4 were examined Under Section 313 CrPC enabling them to explain personally the incriminating circumstances that appeared against them in the evidence of the complainants, for which, accused 3 & 4 denied the truthfulness of the evidence of the complainants. The accused 3 & 4 reported that they have defense evidence. On 17-01-2020, G Srikanth, who is accused 3, was examined in chief as DW1 and he marked Ex. D1 to D5. On 31-01-2020 DW1 was cross-examined by the learned counsel

for the complainants. Thereafter, the case was adjourned for arguments

on 16-03-2020. On 24-01-2022 by the Orders of Hon’ble Metropolitan

Sessions Judge vide Dis. No. 4177/2021, dated 14-12-2021, the case

4 was transferred to this Court. On 20-06-2022, the arguments from both sides were concluded and the matter was posted for Judgment on 23-06- 2022.

D: C ITATIONS RELIED ON BY THE COMPLAINANTS & A CCUSED 3 & 4

7.The complainants have relied on the following judgments:

a)A.C. Narayanan v. State of Maharashtra(2014) 11 SCC 790 wherein it was held that a power of attorney holder can depose and verify on oath before the court in order to prove the contents of the complaint only if such power of attorney has witnessed the transaction as an agent of payee/holder in due course or possesses due knowledge regarding the said transaction.

b)Kalamani Tex v. P. Balasubramaniyan(2021) 5 SCC 283 wherein it was stated that the presumption as to legally enforceable debt exists against the accused even in cases where the accused has voluntarily signed and handed over a blank cheque leaf towards some payment.

Further, it was held that there is a need for a consistent approach towards awarding compensation and unless there exist special circumstances, the courts should uniformly levy a fine up to twice the cheque amount along with simple interest @ 9% per annum.

c)Uttam Ram v. Devinder Singh Hudan & Anr (2019) 10 SCC 287 it was stated that presumption under Section 139 does indeed include the existence of a legally enforceable debt or liability. A bare denial of the passing of the consideration and existence of the debt is not enough to rebut the presumption. To rebut the statutory presumption an accused is not expected to prove his defense beyond reasonable doubt as is expected of the complainant in a criminal trial.

d)Rangappa v. Sri Mohan (2010) 11 SCC 441 wherein it was stated that the presumption referred to in Section 139 of N.I. Act is a mandatory presumption and not a general presumption, but the accused is entitled to rebut the said presumption. If the complaint 5 discloses prima facie existence of a signature on the cheque of the accused, the statutory presumption under Section 139 comes into play.

e)Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 wherein it was held that penal provision of Section 138 of NI Act is intended to be a deterrent to callous issuance of negotiable instruments such as

Cheques without serious intention to honor promise implicit in the issuance of same. Further, it was held that even if a blank cheque leaf, voluntarily signed and handed over by the accused towards some payment, would attract presumption under Section 139, in absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.

8.The accused relied on the following citations

a)M. Ethirajulu v. Rangam Adinaryana 2005(2) ALT (Cri) 151 AP it was held that only the payee or the holder in due course can be the complainant when the cheque is dishonoured. When the complainant is not a holder in due course he cannot maintain the complaint.

b)Punjab National Bank v. Himgiri Traders & Anr. II (2004) BC 12 it was stated that unless and until, the notice is served either by the payee or by the holder in due course of the Cheques in question, the provisions of Section 138 of the Act would not apply.

c)Sangothu Narasimha Chary v. V. Raghunath & Anr. 2005 (1) ALD

Cri 205 it was held concerning to the facts of the case that since Penal

Statute has to be strictly construed, and since 1st respondent, as per the allegations in the complaint, is not and cannot be said to be the payee or holder in due course of the dishonored cheque, complaint filed by 1st respondent is liable to be and hence is quashed.

E: I NGREDIENTS O F O FFENCE & D ISCUSSIONS

9.Before appreciating the facts of the present case, it would be pertinent to discuss the legal standards required to be met by both sides in the light 6 of Honb’le Apex Court decision in Kusum Ingots & Alloys

Ltd. v. Pennar Peterson Securities Ltd. , (2000) 2 SCC 745. In order to establish the offence under Section 138 of NI Act, the complainant must fulfil all the essential ingredients of the offence, as highlighted below:

First Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;

Second Ingredient: The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability;

Third Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;

Fourth Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in writing given to the drawer within thirty days of the receipt of information of the dishonour of cheque from the bank;

Fifth Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of notice.

10.In addition to the above, the conditions stipulated under Section 142 NI

Act have to be fulfilled.

11.Notably, the First, third & fifth ingredients have been duly proved without there being any controversy regarding the same:

(a) The complaint has proved the original cheque Ex. P1. The accused has admitted that he has issued the cheque from his account and has not expressly denied his signature either. Rather, it is his case that he has issued the cheque at the request of the complainant. Hence the first ingredient has been duly proved.

7

(b) The Cheques in question were returned unpaid vide cheque return memo Ex. P2 due to the reason, “Funds Insufficient”.

(c) The fact that the payment in relation to the Cheques in question was not made within 15 days of the receipt of the legal notice is not disputed.

As such, based on the above, the first, third, and fifth ingredient of the offence under Section 138 NI Act stand proved against accused 3 & 4.

12.The controversy in the present complaint case pertains to the

Maintainability, Second, and fourth ingredient.

CONTENTIONS QUA MAINTAINABILITY

13.Section 142 of the NI Act provides that a complaint under section 138 of the NI Act can be made by the payee or the holder in due course of the said cheque. The Hon’ble Supreme Court as far back as in the case of

Vishwa Mitter v. O.P. Poddar (1983) 4 SCC 701, held that it is clear that anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance. It has been held that no court can decline to take cognizance on the sole ground that the complainant was not competent to file the complaint. It has been held that if any special statute prescribes offences and makes any special provision for taking cognizance of such offences under the statute, then the complainant requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by the Statute. In the present case, the only eligibility criteria prescribed by

Section 142 is that the complaint must be by the payee or the holder in due course.

14.The Payee of the cheques, Ex. P1 and Ex. P3, in the present case is “Union Bank of India AC No. 508306580001305”. The complaint is filed by Mrs. Sapna Jain and Mrs. Suvarna Jain, represented by their Special

Power of Attorney holder Nilesh Jain. The power of attorney holder is the husband of Ms. Sapna Jain. Evidently, the name of Payee on Ex. P1 and

Ex. P3 and the names of the complainants do not match. The cheque is 8 drawn in favor of Union Bank of India and it is followed by an Account

Number. The cheque is drawn in favor of a Bank, therefore the bank should be the complainant. The bank should have established that the account number belonged to them. That is not the case of here. If we construe the payee to be the bank account holder of the bank so mentioned on Ex. P1 and P2, even then the complainants have to establish their locus. A bank account number is a unique set of digits that are assigned to the account holder when an account is opened. As per the record, the complainants had taken a loan from the bank by mortgaging the property. It is their case that the accused was requested to issue cheques in favor of the loan account of the complainants in the

Union Bank of India. Therefore, for the complainants to be regarded as payees, the bank account mentioned on Ex. P1 and P3 should belong to the account held by Smt. Sapna Jain and Smt. Suvarna Jain. There is no passbook, account statement or any documentary evidence filed to show that the account belonged to the two complainants. Rather, during the cross-examination, PW1 admitted that the loan was sanctioned by the bank in the name of his wife, Ms. Sapna Jain, who is the first complainant, and himself. If that is the case then the loan account is held by Ms. Sapna Jain and Mr. Nilesh Jain, and not by Ms. Sapna Jain and Ms. Suvarna Jain. The complainants have not filed any proof to show that they are the payee even after being aware of the fact that Ex.

P1 and P3 bears the name “Union Bank of India AC No.

508306580001305”. Therefore, the complainants have failed to establish beyond a reasonable doubt, any locus as a payee to file the present complaint.

15.The complainants raised the contention that they were the holder in due course for the first time during the course of final arguments. As per the complainants, Ex. P1 and P3 cheques were issued by accused 3 and 4 in favor of the Union Bank of India. When the said cheques were dishonoured, the complainants became the holder in due course. As per 9

Section 9 of the NI Act, “Holder in due course” means “any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.” In the instant case, as per the complainants Ex. P1 and Ex. P3 cheques were given to them after they had been dishonoured. After the dishonour of the cheque, at first instance, it loses its negotiability and therefore any endorsement made thereafter on such instrument would not make the endorsee a “holder a due course”. The return of the cheque by the Union Bank of

India after it was dishonoured would not give a legal right to the complainants to assume the role of a payee or a Holder in due course.

Further, the complaint, legal notice, chief affidavit and written arguments are all silent upon them being the Holder in due course.

Further, there is nothing placed on the record to substantiate the averments made by the complainants. Therefore, the complainants have failed to establish any locus as a Holder in due course to file the present complaint.

SECOND INGREDIENT:CONTENTIONS QUA LEGALLY ENFORCEABLE DEBT.

16.As far as the proof of the second ingredient is concerned, it is pertinent to mention that accused 3 & 4 have admitted to the issuance of Ex. P1 and Ex. P3 during the cross-examination of accused 3 as DW1 on 31-01- 2020. The accused 3 has not disputed his signature either on Ex. P1 and

Ex. P3. The Hon’ble Supreme Court in Kalamani Tex & Anr. v. P.

Balasubramanian (2021) 5 SCC 283, held that the NI Act mandates that once the signatures of an accused on the cheque/Negotiable instrument are established then these “reverse onus” clauses become operative. In such a situation the obligation shifts upon the accused to discharge the presumption imposed on him. Due to such admission, the 10 presumption under section 139 of the NI Act that there exists a legally enforceable debt or other liabilty arose in the favor of the complainants.

As per the complainants, accused No. 1 and 2 are liable to pay the rent of Rs. 6,46,750/-, Rs. 3,24,375/- and Rs. 3,24,375/-.

17.Section 139 does not contemplate that there is an existence of a legally recoverable debt, but, it only raises a presumption in favor of the holder of the cheque that the cheque was issued to discharge any debt or liability. It has been held by the Hon'ble Supreme Court in Rangappa v.

Sri. Mohan, (2010) 11 SCC 441 that the presumption contemplated under Section 139 of NI Act includes the presumption of the existence of a legally enforceable debt. To rebut the statutory presumption under

Section 139 NI Act, the standard of proof is that of the preponderance of probabilities, by which the accused is required to raise a probable defence. To rebut the presumption, it is open to the accused to rely on evidence led by him/her or the accused can also rely on the materials submitted by the complainant or the circumstances upon which the parties rely in order to raise a probable defence (Basalingappa v.

Mudibasappa, (2019) 5 SCC 418). The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the circumstances. The accused by virtue of cross-examining the complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The accused can prove the non- existence of a consideration by raising a probable defense and if the accused is proved to have discharged the onus of proof showing that the existence of consideration was doubtful or improbable, the onus would shift on the complainant who will be obligated to prove it as a matter of fact and upon his failure to prove would disentitle him for the grant of relief under Section 138 of the NI Act.

18.In the present case, to rebut the presumption accused 3 & 4 have raised a two-fold defense: (a) that there is no legally enforceable debt and (b) the circumstances in which Ex. P1 and P3 were issued. For the first 11 contention Accused 3 & 4 have drawn the attention of this Court to Ex. 7 and Ex. 10 that is the lease deeds dated 23-03-2015 and 21-09-2015. A perusal of the said exhibits evinces that the lease deeds were executed between the complainants and Accused 1 & 2. The lease deeds do not cast any obligation on accused no. 3 and 4 to pay any rents to the complainants. In absence of any privity to contract between the complainants and accused No. 3 & 4, there is no plausible explanation warranting the contention of the complainants that there was a legally enforceable debt. Further, in the cross-examination of PW1 dated 24-07- 2019, PW1 has himself admitted that there is no privity to contract between the bank and accused 3 & 4. To establish a nexus between the complainants and accused 1 to 4, the complainants have stated in paragraph 7 of their Chief affidavit that an undertaking dated 12-12- 2016 was executed between the complainants and all the accused whereby the accused 1 to 4 have undertaken to clear their arrears in rent. The said undertaking dated 12-12-2016 has not been placed on record by the complainant.

19.To establish a legally enforceable debt, the complainants have relied on

Ex. P12, a letter addressed to the Chief Manager, Union Bank of India, wherein accused 3 has undertaken to pay the rent. During cross- examination of DW1 dated 17-01-2020, he admitted to the issuance of

Ex. P12 and Ex. P1. However, he has stated that Ex. P1 was not issued for the payment of rent in terms of Ex. P12. No plausible explanation is provided by accused 3 to validate the issuance of Ex. P12. From the said document it is clear that accused has undertaken to pay the rent to the bank. The peculiarity of circumstances in the present case demand that this Court assess the circumstances in which Ex. P1 and P3 was issued.

To discharge the burden cast upon accused 3 & 4, they have contended that the said Ex. P1 and Ex. P3 were issued upon the request of the complainants when the bank had initiated the attachment proceedings with respect to the property where the accused runs his educational 12 business. To avoid any adverse consequences, the complainants had requested accused 3 to issue the said Ex. P1 and Ex. P3 Cheques on behalf of the complainants who were obligated to make the payment to the bank. The abovementioned fact is admitted by PW1 during his cross- examination dated 24-07-2019. Admittedly, there is no obligation on accused 3 & 4 towards the bank. Under these circumstances accused 3 & 4 have succeeded in rebutting the presumption under Section 139 by raising a probable defense in their favor.

FOURTH INGREDIENT:CONTENTIONS QUA LEGAL NOTICE

20.Accused 3 & 4 have denied the receit of legal notice dated 10-10-2016.

However, the complainants have proved on record Ex. P6, postal receipts.

It is notewrothy that the address mentioned on the legal notice is the same as the address furnished in the bail bonds by the Accused 3.

Further, perusal of Ex. P8, Postal Track report reveals that the legal notice was duly served on Accused 3 and 4. Therefore the complainants have sufficently proved the service of legal notice dt.10-10-2016. Further,

It has been settled by the Hon'ble Apex Court in the judgment reported as, C.C. Alavi Haji v. Palapetty Muhammed , (2007) 6 SCC 555 that an accused who claims that he did not receive the legal notice, can, within 15 days of receipt of summons from the court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the

Evidence Act. However, in the light of the findings on the question of maintainbility, the judgment of Hon’ble Punjab & Haryana High Court finds relevance. The Hon’ble High Court in Punjab National Bank v.

Himgiri Traders & Anr. II (2004) BC 12 held that unless and until, the notice is served either by the payee or by the holder in due course of the 13

Cheques in questions, the provisions of Section 138 of the Act would not apply.

F. C ONCLUSION

21.In the backdrop of the above discussion, this Court is of the considered view that the complainants have failed to establish that they were the “payee” or the “Holder in Due Course” and hence the present complaint is not maintainable. Further, the Accused 3 & 4, in relation to the second ingredient, were successful in rebutting the presumption available to the complainants under Section 139 of NI Act by raising a probable defence in their favour.

22.In the result of analysis of the present case, the accused 3 & 4 are not guilty for the offence punishable under Section 138 of Negotiable

Instruments Act and consequently they are acquitted under Section 255(1) CrPC. The surety bond of the accused shall stand cancelled after expiry of appeal period.

Typed on my personal laptop, corrected and pronounced by me in the open court, on this the 29 th day of June, 2022.

XII METROPOLITAN MAGISTRATE

HYDERABAD

14

APPENDIX OF EVIDENCE

WITNESSES EXAMINED

(On behalf of Complainants)

PW.1 Nilesh Jain Special Power of Attorney (On behalf of accused no.3 & 4)

DW.1 G. Srikanth (A3)

EXHIBITS MARKED:- (On behalf of Prosecution)

Ex.P.1 Cheque bearing no.000393, dt.27-08-2016 for Rs.5,00,000/- drawn on Karur Vysya Bank, S.R. Nagar, Hyderabad.

Ex.P.2 Cheque return memo, dt.28-09-2016.

Ex.P.3 Cheque bearing no.000394, dt.27-09-2016 for Rs.5,00,000/- drawn on Karur Vysya Bank, S.R. Nagar, Hyderabad.

Ex.P.4 Cheque return memo, dt.28-09-2016.

Ex.P.5 Office copy of legal notice, dt.10-10-2016 (2 Nos.).

Ex.P.6 RPAD receipts (10 Nos.), dt.13-10-2016.

Ex.P.7 Lease deed, dt.23-03-2015.

Ex.P.8 Postal track reports (7 Nos.).

Ex.P.9 Special Power of Attorney.

Ex.P.10 Original lease deed, dt.21-09-2015 (A647608).

Ex.P.11 Another Original lease deed, dt.21-09-2015 (A647609).

(On behalf of Defence):-

Ex.D.1 Copy of Notice issued from the office of Inspector of Police,

SR.Nagar to my wife.

Ex.D.2 Copy of Complaint, dt.24-05-2017.

Ex.D.3 Copy of the FIR in Cr.No.410/2017.

Ex.D.4 Copy of acknowledgment.

Ex.D.5 Copy of the acknowledgment issued by Gopalapuram PS., to my wife.

XII METROPOLITAN MAGISTRATE

HYDERABAD

15

CALENDAR AND JUDGMENT

IN THE COURT OF THE XII METROPOLITAN MAGISTRATE,

HYDERABAD

C.C.No. 3810/2022

Old C.C. No. 133/2017

Date of offence : 28.09.2016

Date of complaint filed : 06.03.2019

Date of Issuance of legal notice : 10.10.2016

Date of commencement of trial : 06.03.2019

Date of closure of trial : 26.02.2020

Date of sentence/Judgment : 29.06.2022

Explanation/remarks/delay if any : --

Complainant : 1. Smt. Sapna Jain, W/o Nilesh Kumar Jain.

2. Smt. Suvarna Jain W/o Mukesh Kumar Jain. Accused:

1. G. Shiva Purnima W/o. Mr. G. Sreekanth.

2. Sai Visnumolakala Educational Society, Rep. by its Chairman Mr. G Srikanth, S/o. G Srinivas Murthy.

3. Mr. G Srikanth, S/o. G Srinivas Murthy. 4.Gitam Educational (P) Ltd., Rep. byMr. G Srikanth, S/o. G Srinivas Murthy.

Offence and Section of Law : 138 of Negotiable Instrument Act. Finding : Not guilty. Sentence : In the result, the accused is acquitted U/Sec. 255(1) Cr.P.C.

XII METROPOLITAN MAGISTRATE,

HYDERABAD.

16

CC NI No. 16758 of 2022

THE COURT OF THE XII METROPOLITAN MAGISTRATE,

MANORANJAN COMPLEX, EXHIBITION GROUND,

NAMPALLY, HYDERABAD

PRESENT: S RI . A NKIT S ARWA,

XII Metropolitan Magistrate

Monday, 13 th Day of February, 2022

C.C.NI. No. 16758/2022

Between:

Mr. L. Shankar, S/o L. Nagaraju,

Aged: 38 Years, Occ: Private Employee,

R/o 7-4/7, G-4/A/1, Road No. 2,

AN Venkatadri Heights, Bachupally,

Medchal – Malkajgiri, District

Telangana - 5000090 ….Complainant

AND

Mr. P. Raghavendra Reddy, S/o. P Janardhan

Reddy, Age: 38 Years, Occ: Private Employee,

R/o: H.No. 1-35, Fathepur Village,

Shankerpally Mandal, Rangareddy District,

Telangana - 501203 ….Accused

Offence Under Section 138 of Negotiable Instrument Act

This case is coming up before me for a final hearing in the presence of

Sri. K. David Paul, Counsel for the Complainant and Sri. Bhim Reddy

Sunil, Counsel for the Accused, and having heard and having stood over for consideration, this Court delivered the following:

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CC NI No. 16758 of 2022

JUDGMENT

I. FACTS ........................................................................................................................................................ 2

II. PRE TRIAL PROCEEDINGS ................................................................................................................ 3

III. TRIAL PROCEEDINGS ....................................................................................................................... 3

IV. CITATIONS RELIED ON BY THE COMPLAINANT & ACCUSED .............................................. 4

V. INGREDIENTS OF OFFENCE .............................................................................................................. 5

VI. APPRECIATION OF EVIDENCE & FINDINGS: ............................................................................. 8 WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF A LEGALLY ENFORCEABLE DEBT OR LIABILITY?........................................................................................................ 10 VII. CONCLUSION ................................................................................................................................... 15

I. F ACTS

1.The present complaint is filed by the Complainant, Mr. L Shankar, under Section 138 of the Negotiable Instruments Act 1881 (hereinafter referred to as “NI Act”) against the Accused Mr P. Raghvendra Reddy.

2.In gist, it is the case of the Complainant that the Accused approached him in the month of December 2018 requesting him to lend a hand loan of Rs. 5,32,000/- (Five Lakh Thirty-Two Thousand) for purchasing immovable property. The Complainant claims to have acceded to the said request and lent him Rs. 5,32,000/- (Five Lakh Thirty-Two

Thousand) on 19-12-2018. After the lapse of 1 year as promised by the

Accused, the complainant requested him to repay the amount, but after subsequent similar attempts, the Accused issued a Cheques bearing

No. 000053 dated 05.08.2021 for Rs. 5,32,000 (Five Lakh Thirty-Two

Thousand), drawn on HDFC Bank in favor of the Complainant which on presentation was returned unpaid by the banker of the Complainant vide returning memo dated 06.08.2021, with the remarks ‘funds insufficient’. The said return memo was received by the Complainant.

He approached the authorities and involved mediators, but eventually, he got issued a legal demand Notice dated 30-08-2021. Aggrieved by

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CC NI No. 16758 of 2022 the non-receipt of payment, the Complainant was constrained to file the present complaint.

II. P RE T RIAL P ROCEEDINGS

3.Upon consideration of the complaint and sworn affidavit, the cognizance as per Section 190(1)(a) of the Code of Criminal Procedure (hereinafter referred to as CrPC) for the offence punishable under

Section 138 of NI Act was taken and Summons was issued to the

Accused as per Sec. 204 of CrPC.

4.Upon the receipt of the summons, the Accused appeared before the

Court and a copy of the complaint was furnished to him. Thereafter, the Accused was examined under Section 251 CrPC by notifying the substance of the accusation for the offence punishable under Section 138 of N. I Act. After notifying the substance of the accusation and on the question of the plea of guilt he pleaded not guilty and claimed to be tried. Hence, the trial.

III. T RIAL P ROCEEDINGS

5.On the commencement of trial, the Complainant examined himself as

PW1. The Complainant filed his examination-in-chief affidavit on 30- 06-2022 and reiterated the contents as mentioned in the complaint;

Consequently, repeating those facts wouldn’t serve any useful purpose.

PW1 got Ex. P1 to Ex. P6 marked as documentary evidence.

6.On 19-07-2022, PW1 was cross-examined by the learned counsel of the

Accused. For brevity and to avoid repetition, the relevant aspects of the cross-examination are discussed while appreciating the evidence. After the closure of the Complainant’s evidence, the Accused was examined

Under Section 313 CrPC on 02-09-2022enabling him to explain

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CC NI No. 16758 of 2022 personally the incriminating circumstances that appeared against him in the evidence of the Complainant, for which, the Accused denied the truthfulness of the evidence of the Complainant. The Accused reported that he has no defense evidence. On 12-01-2023 the arguments from both sides were concluded and the matter was posted for Judgment on 13-02-2023.

IV. C ITATIONS RELIED ON BY THE C OMPLAINANT & A CCUSED

7.Citations relied on by the Complainant :

a)M/s Arihant Distributors v. The State of Telangana Cr. Revision

No. 482 of 2019 wherein the Hon’ble Telangana High Court by citing Rangappa v. Sri Mohan had observed that it is required to be presumed that the cheques in question were drawn for consideration and the holder of the cheques i.e., the complainant received the same in discharge of an existing debt. The Hon’ble

Court also observed that On the aspects relating to preponderance of probabilities, the accused has to bring on record such facts and such circumstances which may lead the Court to conclude either that the consideration did not exist or that its non- existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that the consideration did not exist.

b)Meer Akbar Ali Khan, Hyd. v. Mohd. Fayaz Khan Khalidi Cr.

Revision No. 23 of 2016 wherein the Hon’ble High Court of

Telangana has held in light of the facts of the said case that the statutory legal notice issued by the complainant on 14.10.2008 was received by the accused and he gave reply notice dated 25.10.2008 but failed to make the payments within the stipulated period, as such, all the ingredients of Section 138 of NI Act were proved by the complainant and found the accused guilty for the said offence.

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CC NI No. 16758 of 2022

c)Sukhbir Singh v. Sonia CC.NI. 511986/2016wherein the

Metropolitan Magistrate, Delhi in light of the facts of the said case held that the Accused has not led any cogent evidence to prove her defence and has failed to rebut presumptions under Section 118 and 139 of NI Act.

d)K. Ram Murthy v. Ganga Ram Ramarkhyani Crl. Revision 1276 of 2016 wherein the Hon’ble High Court of Telangana observed that there was no illegality or impropriety or irregularity in the findings of the courts below and relied upon the judgment of Hon’ble Apex

Court in M/s Kalamani Tex v. P. Balasubramanian wherein it was held that there needs to be a consistent approach towards awarding compensation and unless there exists special circumstances, the courts should uniformly levy fine up to twice the cheque amount along with simple interest @9% per annum.

8.The Accused has not filed any citations. I have read the citations and the facts & evidences are appreciated in light of the relevant ratio.

V. I NGREDIENTS OF O FFENCE

9.Before proceeding to the merits of the case, it is important to lay down the basic requirements of Section 138 of the NI Act,1881. In Kusum

Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd. , (2000) 2

SCC 745, the Hon’ble Supreme Court has held that to establish the offence under Section 138 of N.I Act, the Complainant must fulfill all the essential ingredients of the offence, as highlighted below:

First Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;

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CC NI No. 16758 of 2022

Second Ingredient: The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability;

Third Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;

Fourth Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in writing given to the drawer within thirty days of the receipt of information of the dishonour of cheque from the bank;

Fifth Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of the notice.

10.In addition to the above, the conditions stipulated under Section 142

N.I Act have to be fulfilled. It becomes imperative to mention that

Section 139 of the N.I Act provides a statutory presumption in favour of the Drawee that the Cheque was issued to him in discharge of a debt or other liability of a legally enforceable nature. Also, the said provision must be read along with Section 118 of N.I Act which states that every negotiable instrument is presumed to have been drawn and accepted for consideration. That said, what follows is that trial under section 138

N.I Act is structured on the premise of the reverse onus of proof theory since the offence is a document-based technical one. The journey of evidence begins not from the home of the Complainant story but from the point of the Accused. The presumptions carved out in favour of the

Complainant are those of law and not those of facts.

11.Further, it is a settled position that when an Accused has to rebut the presumption under Section 139 N.I Act, the standard of proof for doing so is that of "preponderance of probabilities". It has been held by the

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CC NI No. 16758 of 2022

Hon'ble Supreme Court in Rangappa v. Sri. Mohan, (2010) 11 SCC

441 that the presumption contemplated under Section 139 of the N.I

Act includes the presumption of the existence of a legally enforceable debt. To rebut the statutory presumption under Section 139 N.I Act, the standard of proof is that of the preponderance of probabilities, by which the Accused is required to raise a probable defence. To rebut the presumption, it is open to the Accused to rely on evidence led by him/her, or the Accused can also rely on the materials submitted by the Complainant or the circumstances upon which the parties rely to raise a probable defence. It has been held by the Hon’ble Supreme

Court in Basalingappa v. Mudibasappa (2019) 5 SCC 418 that to rebut the presumption, the Accused can also rely on the materials submitted by the Complainant to raise a probable defence. The Accused by cross-examining the Complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the circumstances. The Accused by cross-examining the Complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The Accused can prove the non-existence of a consideration by raising a probable defense and if the Accused is proven to have discharged the onus of proof showing that the existence of consideration was doubtful or improbable, the onus would shift on the Complainant who will be obligated to prove it as a matter of fact and upon his failure to prove would disentitle him for the grant of relief under Section 138 of the N.I Act.

12.The Hon’ble Supreme Court in Kumar Exports Private Limited v.

Sharma Carpets (2009) 2 SCC 513, held that to disprove the presumption under Section 139 of the Act, the Accused should bring on

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CC NI No. 16758 of 2022 record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist.

13.Thus, as laid down in the catena of decisions it is an established law that the onus lies upon the Accused to rebut the presumption and to establish that cheque in question was not given in respect of any debt or liability, with the standard of proof being the preponderance of probability. Therefore, it becomes critical to examine whether the explanation of the Accused coupled with the evidence on record is sufficient to dislodge the presumption envisaged by Sections 118 & 139 of N.I Act.

14.Being cumulative, it goes without saying that it is only when all the aforementioned ingredients are satisfied that the person who had drawn the cheque can be deemed to have committed an offence u/s 138 NI Act. This criminal liability can be attached by proving each of the elements of the section under which the liability is sought to be enforced. I shall now go on to appreciate the evidence, documentary or oral, in the light of how compellingly it satisfies each of such ingredients if at all.

VI. A PPRECIATION OF E VIDENCE & F INDINGS :

15.The presentation of the Cheque in question for encashment and dishonor of the cheque for the reason funds insufficient is not in dispute, as it is a matter of record proved by Ex. P1 Cheque and the return memo dated 06-08-2021 marked as Ex. P2. Ex. P1 Cheque is

dated 05-08-2021 and it is dishonoured on 06-08-2021, which shows

that Ex. P1 Cheque was presented the very next day after its issuance

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CC NI No. 16758 of 2022 of it and is within its validity period. Ex. P1 dishonoured because of insufficient funds. Further, It is also not in dispute that Ex. P1 Cheque was drawn by the Accused on the bank account maintained by him as he has not denied his signature on Ex. P1 Cheque.

16.Further, Ex. P3 Legal notice dt. 30-08-2021 was issued within the statutory period of 30 days from the date of dishonor to the Accused in this case, as seen from Ex. P4 Postal receipt dt. 03-09-2021, calling upon him to pay the cheque amount. Ex. P5 postal track report showing that Ex. P3 legal notice was served upon the Accused on 06- 09-2021. The Accused in his written statement had contended that he did not receive any legal notice. He contends that the Complainant managed the postal authorities and filed a fabricated postal track report. It is a matter of record that the postal acknowledgment card is not filed. A perusal of Ex. P3 postal receipt shows its tracking number as RN039765614IN. Ex. P4 postal track report showing that Ex. P3 was served on the Accused and also bears the same tracking number. It is not the plea of the Accused that the legal notice was sent to an incorrect address. The Address mentioned on Ex. P3 legal notice is the same as is mentioned in the Bank Account statement filed by the

Accused during his 313 Examination. The contention of the Accused is that the Complainant has managed the postal authorities to show Ex.

P3 legal notice is being served on him. No steps have been taken by him to establish his contention nor any oral or documentary evidence is adduced by him to support his claim. The requirement as per Section 138(1) (b) and (c) of the proviso is that the Complainant/Payee has to make a demand by `giving a notice' in writing and there is a failure on the part of the Accused/drawer to pay the amount within 15 days `of the receipt' of the said notice. It is clear that `giving notice' in the context is not the same as ‘receipt of notice’. The words in clause (b) of

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CC NI No. 16758 of 2022 the proviso to Section 138 of the NI Act show that the

Complainant/Payee has the statutory obligation to `make a demand' by giving notice. The thrust in the clause is on the need to `make a demand'. The legislature has prescribed only the mode of making such demand. A Complainant/Payee can send the notice in doing his/her part for giving the notice. In the present case, the Complainant has despatched the notice by post with the correct address written on it and, the same was served on the Accused. Therefore, it is deemed to have been served on the Accused in light of the presumption under

Section 27 of the General Clauses Act 1897.

17.Therefore, the statutory requirement of Section 138 (a) (b) and (c) are duly proved.

WHETHER EX.P1CHEQUE WAS ISSUED BY THE ACCUSED IN DISCHARGE OF

A LEGALLY ENFORCEABLE DEBT OR LIABILITY?

18.The pertinent question which requires determination is whether Ex. P1

Cheque was issued by the Accused in the discharge of a legally enforceable debt or liability. It is a matter of record that the Accused has not denied his signature on Ex. P1 Cheque. The Hon’ble Supreme

Court in Kalamani Tex & Anr. v. P. Balasubramanian (2021) 5

SCC 283, held that the NI Act mandates that once the signatures of an

Accused on the cheque/Negotiable instrument are established then these “reverse onus” clauses become operative. In such a situation the obligation shifts upon the Accused to discharge the presumption imposed on him. Due to such admission, the presumption under section 139 of the N.I Act that there exists a legally enforceable debt or other liability arising in the favor of the Complainant. It is the contention of the Complainant that the Accused had issued a Cheque bearing No. 000053 dated 05-08-2021 for Rs. 5,32,000 (Five Lakh

Thirty-Two Thousand) towards the payment of the hand loan taken by

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CC NI No. 16758 of 2022 him. The Accused has denied owing Rs. 5,32,000/- (Five Lakh Thirty-

Two Thousand) to the Complaint.

19.The defense of the Accused, as is revealed from his written statement filed at the time of Section 313 Cr.P.C Examination is that he had taken a hand loan of Rs. 4,00,000/- (Four Lakhs) with interest at the rate of 2.5% per month from the Complainant in the month of

December 2018. At that time, the Accused had given 3 blank signed cheques and 3 signed promissory notes as security towards the hand loan. He contends that he paid the interest for two months and subsequently sought time to repay the said amount to which the complainant agreed. However, on 14-03-2020, the Complainant visited the house of the Accused and forced him to repay the hand loan immediately with interest. The father of the Accused and his mother were present at the house and they stood as witness to an undertaking issued by the Accused in writing to the Complainant, which is marked as Ex. P6. As per him, the calculation of interest and penalty summed up to be Rs. 1,32,000/-(One Lakh Thirty-Two Thousand). Thereafter, the Accused made payments to the complainant along with interest on different dates by way of cash, which was withdrawn from the ATM, and arranged money from group loans. He also contends that he made 3 bank transactions with the Complainant. Therefore, the core contention of the Accused is that he is not due the cheque amount of

Rs. 5,32,000/- (Five Lakh Thirty-Two Thousand) as is claimed by the

Complainant in the present case.

20.To substantiate his contention the Accused has cross-examined PW1.

During the cross-examination, PW1 deposed that he and the Accused were roommates and worked together at Dr. Reddy’s labs, but in

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CC NI No. 16758 of 2022 different units. The same is also admitted by the Accused and the acquaintance of both PW1 and the Accused is not in dispute.

21.It is contended in the complaint, chief affidavit, and Ex. P3 legal notice that the loan of Rs. 5,32,000/- (Five Lakh Thirty-Two Thousand) was advanced to the Accused in December 2018. To support his contention,

PW1 has filed Ex. P6. Ex. P6 is a handwritten letter of undertaking issued by the Accused wherein it is stated that the Accused owes Rs.

5,32,000/- (Five Lakh Thirty-Two Thousand) to PW1. A perusal of Ex.

P6 further shows that the witnesses to the said undertaking are the parents of the Accused. However, during the cross-examination, it was elicited from PW1 that he has not filed any document to show that he had lent Rs. 5,32,000/- (Five Lakh Thirty-Two Thousand) to the

Accused in the year 2018. However, it is not the case of the Accused that he did not take any loan. Rather, it is admitted by him in his written statement. The question that needs determination is the existence of liability to the extent of the cheque amount. Further, PW1 admitted that he received some amount in cash between 14-03-2020 and 31-03-2020. He also admitted that the Accused had given 80,000/- (Eighty Thousand) and Rs. 50,000/- (Fifty Thousand). However, he deposed that the said transaction was not towards the debt in the present case, but was towards the repayment of the debt of another friend. PW1 has not examined his friend nor has filed any documentary proof to substantiate the above statement.

22.During the cross-examination, PW1 was confronted with the bank statement of the Accused and was asked if he had received Rs.

50,000/- (Fifty Thousand), 90,000/- (Ninety Thousand) and Rs.

50,000/- (Fifty Thousand) vide bank transactions from the Accused on 03-10-2020, 24-01-2021 and on 21-10-2021 respectively, to which

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CC NI No. 16758 of 2022

PW1 admitted to such receipt of amount. The bank statements were marked as Ex. D1, D2 and D3. However, He deposed that he had given back the sum of Rs. 90,000/- (Ninety Thousand) as shown in the last transaction, to the Accused. Upon perusal of Ex. D1, it is found that it is the bank statement from ICICI Bank and bears the name of the

Accused as the Account holder. It is also found that on 03-10-2020, the

Accused made two money transfers by using Immediate Payment

Service (IMPS) for Rs. 1005.9/- and 49005.9/- to PW1. It is noteworthy that the above transaction was made before the present complaint was filed by PW1. Upon perusal of Ex. D2, it is found that the Accused had transferred Rs. 90005.9 in the same manner as the previous transfer to

PW1 on 24-01-2021. A perusal of Ex. D3 also shows that Rs. 50005.9/- was transferred to PW1 on 21-10-2021. The above-mentioned transactions are admitted by PW1 in his cross-examination. It is evident from the above-mentioned exhibits that PW1 has received a certain amount from the Accused. From the admissions of PW1 himself, it is evident that there have been payments made by the Accused to

PW1. During the cross-examination, a suggestion was put to PW1 that the Accused had paid Rs. 27000/- on 24-03-2020; Rs. 30,000/- on 26- 03-2020; Rs. 30,000/- on 02-06-2020; Rs. 80,000/- on 18-09-2020;

Rs. 35,000/- on 04-12-2020; Rs. 15,500/- on 04-12-2020; Rs.

20,000/- on 23-03-2021; Rs. 50,000/- on 18-06-2021; Rs. 16,000/- on 19-06-2021 and Rs. 50,000/- on 02-08-2021 in cash to PW1, which was denied by PW1. However, it was elicited and also admitted by PW1 during his cross-examination that he has received a certain amount from the Accused by way of cash. To show the above repayment, the

Accused has filed his bank statement at the time of Section 313 Cr.PC

Examination. In the written statement, the Accused has contended that he withdrew the amount from his Bank and paid the amount in cash to

PW1. A perusal of the Bank statement shows that there were cash

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CC NI No. 16758 of 2022 withdrawals made by the Accused on multiple dates for the amount and on the dates as were suggested to PW1 in his cross-examination.

This creates a reasonable tilt in favor of the contention of the Accused.

The contention of the Accused as stated during his Section 313

Examination is substantiated by the admission of PW1 himself and the bank statements.

23.In light of the admission made by PW1 during his cross-examination and under the circumstances of the case, the Accused has succeeded in creating a reasonable doubt in the story of the Complainant and, consequently in rebutting the presumption under Section 139 by raising a probable defense in his favor. Once, a probable defense is raised by the Accused, the burden now shifts upon PW1 to prove that there exists a legally enforceable debt. PW1 deposed in his cross- examination that the payments made by the Accused in cash were towards the debt of another friend. PW1 has not examined his friend either or brought any material on record to show that the payment made by the Accused was towards the discharge of a debt of another person. In the absence of the same, not much weightage can be given to the contention of PW1. It is also deposed by PW1 that the amount transferred by the Accused on 24-01-2021 for Rs. 90000/-. It is a clear admission by PW1 that he has received a certain sum as repayment from the Accused.

24.Further, It is also to be noted that the cheque was issued on 05-08- 2021 and was returned on 06-08-2021. Thereafter, the legal notice was issued on 30-08-2021 and the complaint was filed on 05-10-2021.

During the cross-examination, PW1 admitted that he received 50,000/- on 21-10-2021. The bank statement showing the transaction is marked as Ex. D1. A perusal of Ex. D1 shows that there was a transfer made by

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CC NI No. 16758 of 2022 the Accused for Rs. 50005.9/- in favor of PW1. The said transaction took place after the complaint was filed. The record is silent as to the receipt of the said amount. During the cross-examination, PW1 deposed that the amount in the above-mentioned transaction was returned to the Accused. But PW1 has not filed any documentary or oral evidence to show that the amount was returned nor has he mentioned the mode and manner in which the said amount was given back to the Accused, which would substantiate his contention.

25.Therefore, in light of the above-mentioned discussion, it is found that

PW1 has failed to prove his case beyond a reasonable doubt. PW1 has himself admitted to the partial receipt of the amount from the Accused and has not brought in any evidence or circumstance before this Court to show that the amount claimed under the cheque is in addition to the amount already received by him. Further, he has failed to show that the amount received by him in one of the transactions was again returned to the Accused. On the other hand, the contention of the

Accused is corroborated by the admissions of PW1, and his evidence is found to be coherent and reliable. Hence, it cannot be said that the amount as claimed by PW1 is a legally enforceable debt as PW1 has failed to establish the crystalized liability of Rs. 5,32,000/- (Five Lakh

Thirty-Two Thousand) upon the Accused.

VII. C ONCLUSION

26.In the backdrop of the discussion above, this Court is of the considered view that the Complainant has failed to prove the requirements under

Section 138 (b) and (c) beyond reasonable doubt and The Accused was successful in rebutting the presumption in favor of the complainant under Section 139 of the N.I Act by raising a probable defence in his favor.

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CC NI No. 16758 of 2022

27.In the result, the Accused is found not guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and consequently is acquitted under Section 255(1) CrPC. The surety bond of the Accused shall stand canceled after the expiry of the appeal period.

Written, transcribed and pronounced by me in open court, on this 13th Day of February 2022.

XII Metropolitan Magistrate Hyderabad

A PPENDIX O F E VIDENCE

WITNESSES EXAMINED

FOR COMPLAINANT

PW1 : L. Shankar

FOR DEFENSE

None.

EXHIBITS MARKED

FOR COMPLAINANT:

Ex. P1- is the Original Cheque No. 000053 for Rs. 5,32,000/- dated 05-08-2021.

Ex. P2 – is the Cheque Return Memo dated 06-08-2021

Ex. P3 – is the Xerox Office Copy of Legal Notice dated 06-08-2021.

Ex. P4 – is the RPAD Postal Receipt dated 03-09-2021

Ex. P5 – is the Postal Track Report

Ex. P6 – is the handwritten letter of promise dated 14-03-2020

FOR ACCUSED:

Ex. D1 – ICICI Bank Statement of the Accused from 01-10-2020 to 05- 10-2020

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Ex. D2 - ICICI Bank Statement of the Accused from 24-01-2021 to 27- 01-2021

Ex. D2 - ICICI Bank Statement of the Accused from 21-10-2021 to 21- 10-2021

XII Metropolitan Magistrate Hyderabad

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THE COURT OF THE XII METROPOLITAN MAGISTRATE,

MANORANJAN COMPLEX, EXHIBITION GROUNND,

NAMPALLY, HYDERABAD

PRESENT: Sri. Ankit Sarwa,

XII Metropolitan Magistrate

Wednesday, 29 th Day of June, 2022

C.C.No. 3790/2022

Old C.C. No. 134/2017

Between:

1. Smt. Sapna Jain, W/o Nilesh Kumar Jain,

Aged about: 44 Years, Occ: Housewife,

R/o H.No. 7-1-71/F, Raja Dharam Karan Road,

Ameerpet, Hyderabad – 560016

2. Smt. Suvarna Jain W/o Mukesh Kumar Jain,

Aged about: 43 Years, Occ: Housewife

R/o H.No. 7-1-71/F, Raja Dharam Karan Road,

Ameerpet, Hyderabad – 560016 …. Complainants

AND

1. G. Shiva Purnima W/o. Mr. G. Sreekanth,

Aged about: 36 Years, R/o H.No. 9-1-87/5,

Flat No. 19, Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25

2. Sai Visnumolakala Educational Society,

Rep. by its Chairman Mr. G Srikanth,

S/o. G Srinivas Murthy, Aged about 36 Years,

Having its Regd. Office at 9-1-87/5,

Flat No. 19, Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25

3. Mr. G Srikanth, S/o. G Srinivas Murthy,

Aged about 36 Years, Occ: Business,

R/o Flat No. 9-1-87/5, Flat No. 19,

Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25 1

4. Gitam Educational (P) Ltd., Rep. by

Mr. G Srikanth, S/o. G Srinivas Murthy,

Aged about 36 Years, Occ: Business,

R/o Flat No. 9-1-87/5, Flat No. 19,

Meghana Manohar Apartments,

St. Johns Road, Secundrabad – 25 …. Accused

Offence Under Section 138 of Negotiable Instrument Act

This case is coming up before me for final hearing on 27th June 2022 in the presence of Sri. Sharad Sanghi & Associates, Counsel for the complainant and of Sri. A. Pradeep, Counsel for the accused 3 & 4 and having heard and having stood over for consideration, this court delivered the following:

JUDGMENT

A. FACTUAL MATRIX ........................................................................................................... 2

B. PRE TRIAL PROCEEDINGS ............................................................................................. 3 C: TRIAL PROCEEDINGS...................................................................................................... 4

D: CITATIONS RELIED ON BY THE COMPLAINANTS & ACCUSED 3 & 4 .................. 5

E: INGREDIENTS OF OFFENCE & DISCUSSIONS ............................................................ 5 CONTENTIONS QUA MAINTAINABILITY ..................................................................................................... 6 SECOND INGREDIENT:CONTENTIONS QUA LEGALLY ENFORCEABLE DEBT. ...................................... 9 FOURTH INGREDIENT:CONTENTIONS QUA LEGAL NOTICE ................................................................ 11 F. CONCLUSION ................................................................................................................... 12

A. F ACTUAL M ATRIX

1.The present complaint is filed by the complainants, Smt. Sapna Jain and

Smt. Suvarna Jain against the accused persons, G. Purnima (Accused 1),

Sai Visnumolkala Education Society (Accused 2), G. Sreekanth (Accused 3), and Gitam Educational (P) Ltd. (Accused 4) under Section 138 of the

Negotiable Instruments Act 1881 (hereinafter referred to as “NI Act”).

2.In gist, it is alleged in the complaint that the complainants are the owners of the property bearing No. 7-1-71/E situated at Dharam Karan

Road, Ameerpet, Hyderabad. The said property was given on lease to the accused person under registered lease deeds bearing Doc. No. 664/2015

dated 23.03.2015, Doc. No. 2014/2015 dated 21-09-2015 and Doc. No.

2 2015/2015 dated 21-09-2015 for a monthly rent of Rs. 1,25,000 and Rs.

62,5000. As per the complainants, Accused 1 & 2 were liable to pay Rs.

6,48,750/-, Rs. 3,24,375 & Rs. 3,24,375 as rent for the property. It is their case that the Accused 3 & 4, to discharge the liability of Accused 1 & 2 as guarantors issued a cheque bearing No. 000392 dated 27-07- 2016 for Rs. 5 lakhs, drawn on Karur Vysya Bank, S.R. Nagar Branch,

Hyderabad in favor of Union Bank of India Account

No.508306580001305 which on presentation was returned unpaid by the banker of the complainants vide returning memo dated 25-10-2016, with the remarks ‘funds insufficient’. The said return memo was received by the complainants and they got issued a legal demand Notice dated 15- 11-2016 within the statutory period, through their counsel calling upon the Accused 1 to 4 to repay the cheque amount within 15 days. As per the complainants, the notices were deemed served upon the Accused 1 to 4 because the notices were sent to the correct address of the accused and the postal endorsement as per the postal track report stated “door locked”. Therefore, it is contended that despite being aware of the said legal notice, Accused 1 to 4 failed to pay the cheque amount and aggrieved by the non-receipt of payment, the complainants were constrained to file the present complaint.

B. P RE T RIAL P ROCEEDINGS

3.Upon consideration of the complaint and sworn affidavit, the cognizance as per Section 190(1)(a) of the Code of Criminal Procedure (hereinafter referred to as CrPC) for the offence punishable under Section 138 of NI

Act was taken against the Accused 3 & 4 only. It is pertinent to mention that as per the complaint, Accused 1 and Accused 2 did not issue the cheque and therefore the Court did not take cognizance against them. As per Section 138 of NI Act, the person who is holding the account and whose cheque was dishonored alone can be made liable for the offence.

3

Section 128 of the Indian Contract Act provides that the liability of the guarantor is co-extensive along with the liability of the principal.

However, the said rule cannot be applied in criminal prosecutions. Since

Accused 3 gave the cheque on behalf of Accused 4, cognizance was taken against Accused 3 and 4 only.

4.On the appearance of the Accused 3 & 4 copies of the documents were furnished and they were examined under Section 251 CrPC. After notifying the substance of the accusation and on the question of plea of guilt the Accused 3 & 4 pleaded not guilty and claimed to be tried. Hence, the trial.

C: T RIAL P ROCEEDINGS

5.On the commencement of trial, for the complainants, special power of attorney holder, Nilesh Jain was examined as PW1 and he filed his examination in chief affidavit on 30-04-2019. PW1 in his affidavit had reiterated the contents as mentioned in the complaint without any changes; therefore, the narration of those facts again would not serve any useful purpose. PW1 got exhibited Ex. P1 to Ex. P9 as documentary evidence.

6.On 24-07-2019, PW1 was cross-examined by the learned counsel of the

Accused 3 & 4. For brevity and to avoid repetition, the relevant aspects of the cross-examination are discussed while appreciating the evidence.

After the closure of the complainant’s evidence, accused 3 & 4 were examined Under Section 313 CrPC enabling them to explain personally the incriminating circumstances appeared against them in the evidence of the complainants, for which, accused 3 & 4 denied the truthfulness of the evidence of the complainants. The accused 3 & 4 reported that they have defense evidence. On 31-01-2020, G Srikanth, who is accused 3, 4 was examined in chief as DW1 and he marked Ex. D1 to D5 and on the same day DW1 was cross-examined by the learned counsel for the complainants. Thereafter, the case was adjourned for arguments on 26- 02-2020. Meanwhile, there was a nationwide lockdown. On 24-01-2022 by the Orders of Hon’ble Metropolitan Sessions Judge vide Dis. No.

4177/2021, dated 14-12-2021, the case was transferred to this Court.

On 20-06-2022, the arguments from both sides were concluded and the matter was posted for Judgment on 23-06-2022.

D: C ITATIONS RELIED ON BY THE COMPLAINANTS & A CCUSED 3 & 4

7.The complainants have relied on the following judgments:

a)A.C. Narayanan v. State of Maharashtra(2014) 11 SCC 790 wherein it was held that a power of attorney holder can depose and verify on oath before the court in order to prove the contents of the complaint only if such power of attorney has witnessed the transaction as an agent of payee/holder in due course or possesses due knowledge regarding the said transaction.

b)Kalamani Tex v. P. Balasubramaniyan(2021) 5 SCC 283 wherein it was held that the presumption as to legally enforceable debt exists against the accused even in cases where the accused has voluntarily signed and handed over a blank cheque leaf towards some payment.

Further, it was stated that there is a need for a consistent approach towards awarding compensation and unless there exist special circumstances, the courts should uniformly levy a fine up to twice the cheque amount along with simple interest @ 9% per annum.

c)Uttam Ram v. Devinder Singh Hudan & Anr (2019) 10 SCC 287 it was stated that presumption under Section 139 does indeed include the existence of a legally enforceable debt or liability. A bare denial of the passing of the consideration and existence of the debt is not enough to rebut the presumption. To rebut the statutory presumption 5 an accused is not expected to prove his defense beyond reasonable doubt as is expected of the complainant in a criminal trial.

d)Rangappa v. Sri Mohan (2010) 11 SCC 441 wherein it was held that the presumption referred to in Section 139 of N.I. Act is a mandatory presumption and not a general presumption, but the accused is entitled to rebut the said presumption. If the complaint discloses prima facie existence of a signature on the cheque of the accused, the statutory presumption under Section 139 comes into play.

e)Bir Singh v. Mukesh Kumar (2019) 4 SCC 197 wherein it was held that penal provision of Section 138 of NI Act is intended to be a deterrent to callous issuance of negotiable instruments such as

Cheques without serious intention to honor promise implicit in the issuance of same. Further, it was held that even if a blank cheque leaf, voluntarily signed and handed over by the accused is towards some payment, would attract presumption under Section 139, in absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.

8.The accused relied on the following citations

a)M. Ethirajulu v. Rangam Adinaryana 2005(2) ALT (Cri) 151 AP it was held that only the payee or the holder in due course can be the complainant when the cheque is dishonored. When the complainant is not a holder in due course he cannot maintain the complaint.

b)Punjab National Bank v. Himgiri Traders & Anr. II (2004) BC 12 it was stated that unless and until, the notice is served either by the payee or by the holder in due course of the Cheques in question, the provisions of Section 138 of the Act would not apply.

c)Sangothu Narasimha Chary v. V. Raghunath & Anr. 2005 (1) ALD

Cri 205 it was held concerning to the facts of the case that since Penal

Statute has to be strictly construed, and since 1st respondent, as per the allegations in the complaint, is not and cannot be said to be the 6 payee or holder in due course of the dishonored cheque, complaint filed by 1st respondent is liable to be and hence is quashed.

E: I NGREDIENTS O F O FFENCE & D ISCUSSIONS

9.Before appreciating the facts of the present case, it would be pertinent to discuss the legal standards required to be met by both sides in the light of Honb’le Apex Court decision in Kusum Ingots & Alloys

Ltd. v. Pennar Peterson Securities Ltd. , (2000) 2 SCC 745. In order to establish the offence under Section 138 of NI Act, the complainant must fulfil all the essential ingredients of the offence, as highlighted below:

First Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;

Second Ingredient: The cheque was drawn by the drawer for discharge of any legally enforceable debt or other liability;

Third Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;

Fourth Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in writing given to the drawer within thirty days of the receipt of information of the dishonour of cheque from the bank;

Fifth Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of notice.

10.In addition to the above, the conditions stipulated under Section 142 NI

Act have to be fulfilled.

7

11.Notably, the First, third & fifth ingredients have been duly proved without there being any controversy regarding the same:

(a) The complaint has proved the original cheque Ex. P1. The accused has admitted that he has issued the cheque from his account and has not expressly denied his signature either. Rather, it is his case that he has issued the cheque at the request of the complainant. Hence the first ingredient has been duly proved.

(b) The cheque in question was returned unpaid vide cheque return memo Ex. P2 due to the reason, ‘Funds Insufficient’.

(c) The fact that the payment in relation to the Cheques in question was not made within 15 days of the receipt of the legal notice is not disputed.

As such, on the basis of the above, the first, third, and fifth ingredient of the offence under Section 138 NI Act stands proved against accused 3 & 4.

12.The controversy in the present complaint case pertains to the

Maintainability, Second, and fourth ingredient.

CONTENTIONS QUA MAINTAINABILITY

13.Section 142 of the NI Act provides that a complaint under section 138 of the NI Act can be made by the payee or the holder in due course of the said cheque. The Hon’ble Supreme Court as far back as in the case of

Vishwa Mitter v. O.P. Poddar (1983) 4 SCC 701, held that it is clear that anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance. It has been held that no court can decline to take cognizance on the sole ground that the complainant was not competent to file the complaint. It has been held that if any special statute prescribes offences 8 and makes any special provision for taking cognizance of such offences under the statute, then the complainant requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by the Statute. In the present case, the only eligibility criteria prescribed by

Section 142 is that the complaint must be by the payee or the holder in due course.

14.The Payee of the cheque, Ex. P1, in the present case, is “Union Bank of

India AC No. 508306580001305”. The complaint is filed by Mrs. Sapna

Jain and Mrs. Suvarna Jain, represented by their Special Power of

Attorney holder Nilesh Jain. The power of attorney holder is the husband of Ms. Sapna Jain. Evidently, the name of Payee on Ex. P1 and the names of the complainants do not match. The cheque is drawn in favor of Union Bank of India and it is followed by an Account Number. The cheque is drawn in favor of a Bank, therefore the bank should be the complainant. The bank should have established that the account number belonged to them. If we construe the payee to be the bank account holder of the bank so mentioned on Ex. P1, even then the complainants have to establish their locus. A bank account number is a unique set of digits that are assigned to the account holder when an account is opened. As per the record, the complainants had taken a loan from the bank by mortgaging the property. It is their case that the accused was requested to issue cheques in favor of the loan account of the complainants in the Union Bank of India. Therefore, for the complainants to be regarded as payees, the bank account mentioned on

Ex. P1 should belong to the account held by Smt. Sapna Jain and Smt.

Suvarna Jain. There is no passbook, account statement or any documentary evidence filed to show that the account belonged to the two complainants. Rather, during the cross-examination, PW1 admitted that the loan was sanctioned by the bank in the name of his wife, Ms. Sapna

Jain, who is the first complainant, and himself. If that is the case then 9 the loan account is held by Ms. Sapna Jain and Mr. Nilesh Jain, and not by Ms. Sapna Jain and Ms. Suvarna Jain. The complainants have not filed any proof to show that they are the payee even after being aware of the fact that Ex. P1 bears the name “Union Bank of India AC No.

508306580001305”. Therefore, the complainants have failed to establish beyond a reasonable doubt, any locus as a payee to file the present complaint.

15.The complainants raised the contention that they were the holder in due course for the first time during the course of final arguments. As per the complainants, Ex. P1 was issued by accused 3 and 4 in favor of the

Union Bank of India. When the said cheque was dishonoured, the complainants became the holder in due course. As per Section 9 of the NI

Act, “Holder in due course” means “any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order,

before the amount mentioned in it became payable, and without having

sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.” In the instant case, as per the complainants’ Ex. P1 was given to them after they had been dishonoured. After the dishonour of the cheque, at first instance, it loses its negotiability and therefore any endorsement made thereafter on such instrument would not make the endorsee a “holder a due course”. The return of the cheque by the Union Bank of India after it was dishonoured would not give a legal right to the complainants to assume the role of a payee or a Holder in due course. Further, the complaint, legal notice, chief affidavit and written arguments are all silent upon them being the

Holder in due course. Further, there is nothing placed on the record to substantiate the averments made by the complainants. Therefore, the complainants have failed to establish any locus as a Holder in due course to file the present complaint.

10

SECOND INGREDIENT:CONTENTIONS QUA LEGALLY ENFORCEABLE DEBT.

16.As far as the proof of the second ingredient is concerned, it is pertinent to mention that accused 3 & 4 have admitted to the issuance of Ex. P1 was during the cross-examination of accused 3 as DW1 on 31-01-2020.

The accused 3 has not disputed his signature on Ex. P1. The Hon’ble

Supreme Court in Kalamani Tex & Anr. v. P. Balasubramanian (2021) 5 SCC 283, held that the NI Act mandates that once the signatures of an accused on the cheque/Negotiable instrument are established then these “reverse onus” clauses become operative. In such a situation the obligation shifts upon the accused to discharge the presumption imposed on him. Due to such admission, the presumption under section 139 of the NI Act that there exists a legally enforceable debt or other liabilty arose in the favor of the complainants. As per the complainants, accused No. 1 and 2 are liable to pay the rent of Rs.

6,46,750/-, Rs. 3,24,375/- and Rs. 3,24,375/-.

17.Section 139 does not contemplate that there is an existence of a legally recoverable debt, but, it only raises a presumption in favor of the holder of the cheque that the cheque was issued to discharge any debt or liability. It has been held by the Hon'ble Supreme Court in Rangappa v.

Sri. Mohan, (2010) 11 SCC 441 that the presumption contemplated under Section 139 of NI Act includes the presumption of the existence of a legally enforceable debt. To rebut the statutory presumption under

Section 139 NI Act, the standard of proof is that of the preponderance of probabilities, by which the accused is required to raise a probable defence. To rebut the presumption, it is open to the accused to rely on evidence led by him/her or the accused can also rely on the materials submitted by the complainant or the circumstances upon which the parties rely in order to raise a probable defence (Basalingappa v.

11

Mudibasappa, (2019) 5 SCC 418). The inference of preponderance of probabilities can be drawn not only from the material brought on record but also by reference to the circumstances. The accused by virtue of cross-examining the complainant can rebut the presumption of issuance of cheque in discharging of any debt or other liability. The accused can prove the non- existence of a consideration by raising a probable defense and if the accused is proved to have discharged the onus of proof showing that the existence of consideration was doubtful or improbable, the onus would shift on the complainant who will be obligated to prove it as a matter of fact and upon his failure to prove would disentitle him for the grant of relief under Section 138 of the NI Act.

18.In the present case, to rebut the presumption accused 3 & 4 have raised a two-fold defense: (a) that there is no legally enforceable debt and (b) the circumstances in which Ex. P1 was issued. For the first contention

Accused 3 & 4 have drawn the attention of this Court to Ex. 7 and Ex. 10 that is the lease deeds dated 23-03-2015 and 21-09-2015. A perusal of the said exhibits evinces that the lease deeds were executed between the complainants and Accused 1 & 2. The lease deeds do not cast any obligation on Accused no. 3 and 4 to pay any rents to the complainants.

In absence of any privity to contract between the complainants and accused No. 3 & 4, there is no plausible explanation warranting the contention of the complainants that there was a legally enforceable debt.

Further, in the cross-examination of PW1 dated 24-07-2019, PW1 has himself admitted that there is no privity to contract between the bank and accused 3 & 4. To establish a nexus between the complainants and accused 1 to 4, the complainants have stated in paragraph 7 of their

Chief affidavit that an undertaking dated 12-12-2016 was executed between the complainants and all the accused whereby the accused 1 to 4 have undertaken to clear their arrears in rent. The said undertaking

dated 12-12-2016 has not been placed on record by the complainant.

12

19.To establish a legally enforceable debt, the complainants have relied on

Ex. P12, a letter addressed to the Chief Manager, Union Bank of India, wherein accused 3 has undertaken to pay the rent. During cross- examination of DW1 dated 17-01-2020, he admitted to the issuance of

Ex. P12 and Ex. P1. However, he has stated that Ex. P1 was not issued for the payment of rent in terms of Ex. P12. No plausible explanation is provided by accused 3 to validate the issuance of Ex. P12. From the said document it is clear that accused 3 has undertaken to pay the rent to the bank. The peculiarity of circumstances in the present case demand that this Court assess the circumstances in which Ex. P1 was issued. To discharge the burden cast upon accused 3 & 4, they have contended that the said Ex. P1 was issued upon the request of the complainants when the bank had initiated the attachment proceedings with respect to the property where the accused runs his educational business. To avoid any adverse consequences, the complainants had requested accused 3 to issue the said Ex. P1 Cheque on behalf of the complainants who were obligated to make the payment to the bank. The abovementioned fact is admitted by PW1 during his cross-examination dated 24-07-2019.

Admittedly, there is no obligation on accused 3 & 4 towards the bank.

Under these circumstances accused 3 & 4 have succeeded in rebutting the presumption under Section 139 by raising a probable defense in their favor.

FOURTH INGREDIENT:CONTENTIONS QUA LEGAL NOTICE

20.Accused 3 & 4 have denied the receipt of legal notice dated 10-10-2016.

However, the complainants have proved on record Ex. P4, postal receipts.

It is notewrothy that the address mentioned on the legal notice is the same as the address furnished in the bail bonds by the Accused 3.

Further, perusal of Ex. P8, Postal Track report reveals that the legal 13 notice returned as Door locked on Accused 3 and 4. Hence the fact of service of legal notice upon Accused 3 & 4 is not fully established.

However, It has been settled by the Hon'ble Apex Court in the judgment reported as, C.C. Alavi Haji v. Palapetty Muhammed , (2007) 6 SCC 555 that an accused who claims that he did not receive the legal notice, can, within 15 days of receipt of summons from the court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the Evidence Act. However, in the light of the findings on the question of maintainbility, the judgment of Hon’ble Punjab & Haryana High Court finds relevance. The Hon’ble High Court in Punjab National Bank v.

Himgiri Traders & Anr. II (2004) BC 12 held that unless and until, the notice is served either by the payee or by the holder in due course of the

Cheques in questions, the provisions of Section 138 of the Act would not apply.

F. C ONCLUSION

21.In the backdrop of the above discussion, this Court is of the considered view that the complainants have failed to establish that they were the “payee” or the “Holder in Due Course” and hence the present complaint is not maintainable.

22.Further, the Accused 3 & 4, in relation to the second ingredient, were successful in rebutting the presumption available to the complainants under Section 139 of NI Act by raising a probable defence in their favour.

23.In the result of analysis of the present case, the accused 3 & 4 are not guilty for the offence punishable under Section 138 of Negotiable 14

Instruments Act and consequently they are acquitted under Section 255(1) CrPC. The surety bond of the accused shall stand cancelled after expiry of appeal period.

Typed on my personal laptop, corrected and pronounced by me in the open court, on this the 29 th day of June, 2022.

XII METROPOLITAN MAGISTRATE

HYDERABAD

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APPENDIX OF EVIDENCE

WITNESSES EXAMINED

(On behalf of Complainants)

PW.1 Nilesh Jain Special Power of Attorney (On behalf of accused no.3 & 4)

DW.1 G. Srikanth (A3)

EXHIBITS MARKED:- (On behalf of Prosecution)

Ex.P.1 Cheque bearing no.000392, dt.27-07-2016 for Rs.5,00,000/- drawn on Karur Vysya Bank, SR.Nagar, Hyderabad.

Ex.P.2 Cheque return memo, dt.28-09-2016.

Ex.P.3 Copy of Legal Notice, dt.15-11-2016.

Ex.P.4 RPAD receipts (5 Nos.).

Ex.P.5 Internet track reports (5 Nos.) of Postal Department.

Ex.P.6 Certified copy of lease deed, dt.23-03-2015.

Ex.P.7 Certified copy of Special Power of Attorney, dt.04-01-2019.

Ex.P.8 Certified copy of lease deed, dt.21-09-2015.

Ex.P.9 Certified copy of lease deed, dt.21-09-2015.

(On behalf of Defence):-

Ex.D.1 Copy of Notice issued from the office of Inspector of Police,

SR.Nagar to my wife.

Ex.D.2 Copy of Complaint, dt.24-05-2017.

Ex.D.3 Copy of the FIR in Cr.No.410/2017.

Ex.D.4 Copy of acknowledgment.

Ex.D.5 Copy of the acknowledgment issued by Gopalapuram PS., to my wife.

XII METROPOLITAN MAGISTRATE

HYDERABAD

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CALENDAR AND JUDGMENT

IN THE COURT OF THE XII METROPOLITAN MAGISTRATE,

HYDERABAD

C.C.No. 3790/2022

Old C.C. No. 134/2017

Date of offence : 25.10.2016

Date of complaint filed : 06.03.2019

Date of Issuance of legal notice : 15.11.2016

Date of commencement of trial : 06.03.2019

Date of closure of trial : 26.02.2020

Date of sentence/Judgment : 29.06.2022

Explanation/remarks/delay if any : --

Complainant : 1. Smt. Sapna Jain, W/o Nilesh Kumar Jain.

2. Smt. Suvarna Jain W/o Mukesh Kumar Jain. Accused : 1. G. Shiva Purnima W/o Mr. G. Sreekanth.

2. Sai Visnumolakala Educational Society, Rep. by its Chairman Mr. G. Srikanth, S/o. G Srinivas Murthy.

3. Mr. G Srikanth, S/o. G Srinivas Murthy.

4. Gitam Educational (P) Ltd., Rep. by Mr. G Srikanth, S/o. G Srinivas Murthy.

Offence and Section of Law : 138 of Negotiable Instrument Act. Finding : Not guilty. Sentence : In the result, the accused is acquitted U/Sec. 255(1) Cr.P.C.

XII METROPOLITAN MAGISTRATE,

HYDERABAD.

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