Recently, the Supreme Court delivered a landmark judgment in a case concerning dishonour of cheques under Section 138 of the Negotiable Instruments Act (NI Act). The Court allowed the appeal and restored the concurrent findings of the Trial Court and Sessions Court, emphasising the reliability of cheques in commercial transactions and reinforcing the legal framework for expeditious resolution of cheque bouncing cases. The Court further observed that non-compliance with statutory notices and unsubstantiated defences cannot defeat the presumption under Sections 118 and 139 of the NI Act, highlighting the importance of prompt and effective enforcement to maintain trust in financial transactions.
Brief Facts:
The case arose when the Appellant-complainant, a friend of the Respondent No.1-Accused, advanced a loan to the accused, which was evidenced through a cheque. The cheque was dishonoured upon presentation. The accused contended that the cheque was blank and had been issued only to enable the complainant to obtain a bank loan. No evidence was presented by the accused to show financial incapacity of the complainant or any illegality in the loan transaction. Both the Trial Court and the Sessions Court had found in favour of the complainant, holding that the accused had failed to rebut the statutory presumption under Sections 118 and 139 of the NI Act.
Contentions of the Appellant:
The counsel for the Appellant, submitted that the High Court wrongly overturned the conviction of the Respondent under Section 138 of the NI Act, which was based on clear findings that the dishonoured cheque was for a legally enforceable debt. He argued there was no evidence showing the Appellant lacked financial capacity, noting he arranged the loan from his father and partly used his own borrowed funds. Counsel also highlighted that the Respondent had offered to pay the cheque amount before the Trial Court and that the High Court wrongly dismissed the Appellant’s application to recall the impugned judgment.
Finally, he submitted that if the Apex Court restored the lower courts’ judgments, the Appellant would accept payment of the outstanding amount in instalments.
Contentions of the Respondent:
Whereas, the counsel for the Respondent, submitted that the Appellant-Complainant had a very low salary and was heavily indebted, making it impossible for him to advance a large loan of Rs.6,00,000. He argued that the Respondent could rely on the complainant’s own financial status and documents to raise a probable defence, creating doubt about the existence of a legally enforceable debt.
He further contended that when the accused questions the complainant’s financial capacity, the burden shifts to the complainant to prove it, especially in cases where the loan was given in cash followed by a cheque. Lastly, he emphasized that issuing a blank cheque to enable the complainant to obtain a bank loan was a valid defence to rebut the statutory presumption under the NI Act, given the parties’ prior relationship.
Observations of the Court:
The Supreme Court rejected these contentions, observing that the presumption under Section 139 is rebuttable but the initial onus lies on the accused to disprove a legally enforceable debt. The Court noted, “It is funny to say that for obtaining loan from the bank, one can show a cheque which is issued on an account in which there are not sufficient funds. The case of the accused is unbelievable.”
The Court also emphasised that violation of Section 269SS of the IT Act attracts only a penalty under Section 271D and does not render the transaction unenforceable under the NI Act. The Supreme Court further highlighted the failure of the accused to reply to the statutory notice as a factor supporting the complainant’s claim, citing that “when a statutory notice is not replied, it has to be presumed that the cheque was issued towards the discharge of liability.”
Addressing the massive backlog of Section 138 cases, the Court issued detailed guidelines for expeditious disposal, including service of summons through dasti and electronic means, creation of online payment facilities, recording of initial questions at post-cognizance stage, and promoting early settlement through compounding or voluntary payments. The Court also revised the guidelines for compounding offences under the NI Act, allowing reductions in penalties based on the stage at which the accused makes payment.
The decision of the Court:
The Supreme Court allowed the appeal, set aside the High Court order, and restored the findings of the Trial Court and Sessions Court. The Respondent No.1-Accused was directed to pay the cheque amount in equated monthly instalments. The Court also directed High Courts and District Courts to implement the newly formulated guidelines to ensure speedy and effective disposal of Section 138 NI Act cases.
Case Title: Sanjabij Tari vs. Kishore S. Borcar & Anr.
Case No.: Criminal Appeal No. 1755 of 2010
Coram: Justice Manmohan, Justice N.V. Anjaria
Advocate for Petitioner: Adv. Amarjit Singh Bedi, Surekha Raman, Shreyash Kumar, Harshit Singh, Sidharth Nair, M/S. K J John And Co (AOR)
Advocate for Respondent: Adv. Ankit Yadav, T. Mahipal (AOR), Gunjan Rathore, Shivangi Gulati, Chaitanya Sonkeria, Aastha Harshwal, Merusagar Samantaray (AOR)
Read Judgment @LatestLaws.com
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