Jammu & Kashmir High Court - Srinagar Bench

M/S D Meadows Ladakh vs Mohammad Ali on 22 November, 2021

                                       5




    IN HIGH COURT OF JAMMU & KASHMIR AND LADAKH
                     AT SRINAGAR


                                                   CRM(M) 278/2021
                                                   Crl (M) 1008/2021


                                                   Reserved on : 15.11.2021
                                                   Pronounced on: 22.11.2021

M/S D Meadows Ladakh
                                                             .....petitioner(s)

                           Through :- Mr.S.A.Makroo Sr. Advocate with
                                      Mr. R.A.Bhat Advocate.


                 V/s

Mohammad Ali                                              .....Respondent(s)
                           Through :- Mr. M.A.Qayoom Advocate with
                                      Mr. M. Tufail Advocate

Coram: HON'BLE MR. JUSTICE SANJEEV KUMAR, JUDGE

                            JUDGMENT

1 The petitioner, an accused in the complaint filed under Section 138

of Negotiable Instruments Act, 1981 ['N.I. Act'] by the respondent, is

before this Court seeking exercise of inherent power vested in this Court by

Section 482 Cr.P.C to quash the complaint and the consequent proceedings

in case titled "Mohammad Ali vs. M/S D Meadows, Ladakh pending trial

before the Court of learned Chief Judicial Magistrate, Kargil, Ladakh

(for short 'the trial Court').

2 The aforesaid complaint as well as the proceedings taken therein are

challenged primarily on the ground that the cheque, alleged to have been

dishonored, was not issued by the petitioner in favour of the respondent for

any legally enforceable debt and that the complaint has been filed just to

wreck vengeance and cause harassment to the petitioner and his family 2 CRM(M) 278/2021

members. It is averred that the dispute between the petitioner and the

respondent, if any, is purely a dispute of civil nature and, therefore, the

respondent can not be permitted to set the criminal law in motion to settle

the civil dispute by creating fear of prosecution. Reference is also made to

a civil suit for permanent prohibitory injunction filed by the petitioner

against the respondent which is subjudice in the Court of Sub-Judge,

Kargil, Ladakh. It is lastly contended that the complaint filed by the

respondent purportedly under Section 138 read with 142 of N.I. Act is only

a tool of harassment and, therefore, allowing such complaint to proceed

would be gross abuse of process of law.

3 The petition is resisted by the respondent who has entered

appearance and contested the petition through his counsel

Mr. M.A.Qayoom, Advocate. The star point raised by Mr. Qayoom to

resist this petition is that when the cheque issued by the petitioner to the

respondent is not denied, there is presumption under Section 139 of N.I.

Act that the same has been issued for discharging legally enforceable debt.

He submits that the pleas raised by the petitioner in this petition may, at

best, amount to defence of the petitioner, to be led by him during the trial.

He argues that the trial Court, at the time of taking cognizance, was only to

ensure that the ingredients of Section 138 of N.I. Act were pleaded and

demonstrated and once, it was so found, the Magistrate had no option, but

to take the cognizance. He further submits that the petitioner has not come

to this Court with clean hands, in that, the petitioner in his statement

recorded before the trial Court under Section 251 Cr.P.C, has not set up

the defence which he has pleaded in this petition, rather he has completely

denied the contents of the complaint being false and misleading allegations.

3 CRM(M) 278/2021

On these short submissions, learned counsel for the respondent seeks

dismissal of this petition.

4 Having heard learned counsel for the parties and perused the record,

it is necessary to set out, though briefly, the relevant facts as may be

necessary for disposal of this petition.

The case projected by the respondent in the complaint filed by him before the trial Court is that he agreed to sell a piece of land measuring 80 ft. x 200 ft. to the petitioner for consideration of Rs.40.00 lakhs and an agreement to sell dated 17.01.2018 was executed at Kargil, Ladakh. It is pleaded that an amount of Rs.20.00 lakhs was paid by the respondent and in lieu thereof, the possession of the land aforesaid was handed over to him. It was also agreed between the parties that a proper sale deed shall be executed and duly registered before the Sub-Registrar, Kargil in due course of time and the remaining consideration amount would be paid by the petitioner after registration of the sale deed. On 18.12.2018, the respondent executed a proper sale deed with respect to the land aforementioned in favour of daughter of the petitioner, namely Kouser Zabeen and got it duly registered before the Sub-Registrar, Kargil, Ladakh. The petitioner issued a post dated cheque for an amount of Rs.14,50,000/- payable on 28.12.2018. The cheque was presented by the respondent for encashment to his banker i.e, J&K Bank, Branch Baroo, Kargil on 31.01.2019, but the same was returned unpaid by the Bank with a memo dated 31.01.2019 with the remarks "Funds Not Sufficient". The respondent through his counsel served a demand notice dated 05.02.2019 to the petitioner calling upon him to pay the aforesaid amount. The petitioner received the notice and sent his reply through his counsel on 19.02.2019, but did not make the payment, though he admitted the issuance of post dated cheque in question.

5 In the aforesaid backdrop, the respondent filed a complaint before

the trial Court. The trial Court took cognizance of the complaint, put the

petitioner on notice and on his appearance, recorded his statement on

23.08.2021 in which the petitioner denied all the allegations and claimed to

be tried.

4 CRM(M) 278/2021

6. When the rival contentions of learned counsel appearing for the

parties are analyzed in the context of above factual matrix, following

questions crop up for determination in this case:

(i) Whether the dispute between the parties with regard to payment of bounced cheque is a pure and simple civil dispute and, therefore, the proceedings under Section 138 of N.I. Act are not maintainable ? ;

(ii) Whether the plea of the accused in the complaint under Section 138 N.I. Act that he made the cheque in favour of the complainant without there being any legally enforceable debt or other liability, could be examined by the trial Court at the threshold or it would only constitute defence of the accused, to be led and proved during the course of trial ?.

7 Having given anxious consideration to the arguments of learned

counsel for the parties and the law cited at Bar, I am of the considered view

that it is not a case of converting the civil dispute into a criminal case to

harass the petitioner as alleged.

8 It is true that if the dispute has the contours of dispute of civil nature

and does not constitute a criminal offence, this Court may be justified to

quash the complaint or the criminal proceedings as the case may be, in the

exercise of inherent power under Section 482 Cr.P.C. The criminal

proceedings ought not to be permitted to degenerate into weapon of

harassment. This issue was considered by this Court in the case of Zulfikar

Hussain Dar vs Aijaz Ahmad Dr (CRM(M) No. 146/2021, decided on

17.05.2021). In paragraph (26) of the judgment, this Court concluded thus:

"26. There is no denying the proposition that in a case involving the dispute purely of a civil nature, the criminal law cannot be set in motion but, it is equally well settled that certain offences like the offences of cheating, criminal breach of trust, criminal misappropriation and offence under section 138 of the NI Act do arise out of the civil transactions and if the ingredients of offence/offences are made out, criminal law too can be set in motion alongside the civil remedy for resolution of the dispute. It is in this context the Hon'ble 5 CRM(M) 278/2021

Supreme Court in the case of Satish chandra (Supra) has cautioned against the criminalising civil disputes such as breach of civil obligation except when such breach is accompanied by fraudulent, dishonest or deceptive inducements. There is subtle distinction between mere breach of contract and cheating. The cheating would involve fraudulent inducement and mens rea. In so far as Section 138 NI Act is concerned, the same was introduced in the Negotiable Instruments Act, 1881 with a view to promoting the efficiency of bank operations and to ensure the credibility in transacting business through cheques. Undoubtedly, the law related to NI Act is the law of commercial nature legislated to simplify the acts in transaction and loan making provision of giving sanctity to the instruments of credits which could be deemed to be creditable in money and easily passable from one person to another. Section 138 creates a statutory offence in the matter of dishonour of cheques on the grounds of insufficiency of funds in the account maintained by a person with the banker and that it exceeds the amount arranged to be paid. Generally, in the criminal law, mens rea is an essential component of crime but dishonour of cheque is a criminal offence where there is no need to prove a mens rea. The offence under Section 138 would be made out only if the dishonored cheque is drawn by the drawer in favour of the drawee for discharge of legally enforceable debt or liability. Essentially, there is element of civil liability between the drawer and drawee of the cheque but if the ingredients of Section 138 are made out, it is a criminal offence to be tried in the manner provided under Section 142 of the NI Act".

9 In the recent judgment, the Hon'ble Supreme Court in the case of

Ripudaman Singh vs Balkrishna, (2019) 4 SCC 767 in paragraph (9)

which is relevant in the context of controversy raised in this petition, held

thus:

"We find ourselves unable to accept the finding of the learned Single Judge of the High Court that the cheques were not issued for creating any liability or debt, but 'only' for the payment of balance consideration and that in consequence, there was no legally enforceable debt or other liability. Admittedly, the cheques were issued under and in pursuance of the agreement to sell. Though it is well settled that an agreement to sell does not create any interest in immoveable property, it nonetheless constitutes a legally enforceable contract between the parties to it. A payment which is made 6 CRM(M) 278/2021

in pursuance of such an agreement is hence a payment made in pursuance of a duly enforceable debt or liability for the purposes of Section 138".

10 It is, thus, trite law that that the offence under Section 138 of N.I.

Act is always committed in the course of civil transactions and if a cheque

is given by the accused to the complainant in the discharge of his civil

liability, which, of course, must be the legally enforceable debt or liability

and same, if presented before the Bank, is returned unpaid by the Bank for

insufficiency of funds or that it exceeds the amount arranged to be paid, the

complainant may serve a notice upon the accused to make the payment

within thirty days from the receipt of the said notice. It is only after the

accused fails to make the payment represented by the dishonoured cheque

within the stipulated period, he becomes liable to be proceeded under

Section 138 of N.I. Act. The complainant, in such eventuality, is not

debarred for filing a civil suit for recovery of the amount of cheque. It is,

however, seen that in the matters of dishonor of cheques, the aggrieved

party normally relies upon the proceedings under Section of N.I. Act and

this is so, because the remedy under Section 138 of N.I. Act has twin

aspects i.e the criminal aspect as well as the compensatory aspect. The

aggrieved party, if succeeds in these proceedings, can be compensated by

imposing fine on the defaulting party which may extend to twice the value

of the cheque. That being the clear mandate of law, it is not available to the

petitioner to contend that dishonor of cheque issued by him only gives rise

to a civil liability and that the criminal complaint filed by the respondent is

only to degenerate the litigation into a tool of harassment. The complaint

filed by the respondent, if viewed in this context, does not lack the

ingredients of the offence under Section 138 N.I. Act.

                                     7                 CRM(M) 278/2021


11     Though, Section 138 of N.I. Act is aimed at penalizing the dishonor

of cheque along with making adequate compensation to the aggrieved

person, yet, mere dishonor of cheque by itself is not an offence under the

said Section and to become an offence, following ingredients are required

to be fulfilled:

(i) A person must have drawn a cheque for payment of money to a person for any legally enforceable debt or other liability;

(ii) The cheque has been presented to the Bank within a period of six months or within period of its validity, whichever is earlier;

(iii) The cheque is returned by the Bank unpaid either because of insufficient funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the Bank;

(iv) The payee makes a demand for the payment of money by giving a notice in writing to the drawer within thirty days of the receipt of information from the Bank regarding return of the cheque as unpaid; and,

(v) The drawer fails to make payment to the payee within fifteen days of the receipt of the notice.

12 As noted above, the complaint of the respondent, if read in its

entirety, does not leave any manner of doubt that it fulfils all the

requirements of Section 138 of N.I. Act. There is a transaction with regard

to the land between the petitioner and the respondent. An Agreement to sell

in this regard is also executed between the parties. The cheque paid by the

petitioner to the respondent towards consideration of the land is also not in

dispute. It is also not in dispute that the respondent has executed a formal

sale deed in favour of daughter of the petitioner. The cheque when

presented by the respondent for encashment to his banker, has been

returned unpaid due to insufficiency of funds in the account maintained by

the petitioner. The petitioner by way of notice was called upon to pay the 8 CRM(M) 278/2021

amount of cheque and on his failure to make the payment within the

stipulated period, the complaint was filed within the period of limitation.

That being so, it is difficult for this Court to accept the contention of the

petitioner that, though, he delivered the dishonored cheque to the

respondent as part of sale consideration, yet, the actual sale deed was not

executed by the respondent in his favour, and that the sale deed executed

by him in favour of his daughter is a transaction altogether different. This,

if true, may constitute a valid defence which the petitioner is entitled to

take during the course of trial.

13 The contention of the petitioner that the defence put forth by him is a

probable defence apparent from the complaint and the documents appended

thereto is substantially diluted by the statement of the petitioner recorded

under Section 251 Cr.P.C wherein the petitioner has denied all the

allegations leveled in the complaint including issuance of a cheque. He has

not said anything about his probable defence which he has sought to project

before this Court in this petition.

14 On facts, I do not find it a case where the Court could have taken the

probable defence of the petitioner into consideration at the threshold and

dismissed the complaint on the ground that dishonored cheque was not

issued by the petitioner in the discharge of any legally enforceable debt or

other liability.

15 Most of the judgments relied upon by the learned counsel for the

petitioner deal with the defence as projected by the petitioner in this

petition, taken during the course of trial. The Courts have accepted the

defence and returned a finding that the dishonored cheque was not for a

legally enforceable debt or liability. The findings in those cases have been 9 CRM(M) 278/2021

returned after the trial and in the context of proved facts. I do not, therefore,

think it necessary to burden this judgment with all such citations.

15 In the matter of Laxmi Dyechem vs State of Gujarat and ors,

(2012) 13 SCC 375, a Division Bench of Hon'ble Supreme Court

consisting of Justice T.S.Thakur and Justice Gyan Sudha Misra, the then

Judges of the Hon'ble Supreme Court, while dealing a case under Section

138 of N.I. Act, also touched upon question No.(ii) that is raised in this

petition. In the lead judgment written by Justice Thakur, there is no specific

reference to this issue, but in the supplementary judgment written by

Justice Gyan Sudha Misra, in paragraphs (22) & (25), Her Lordship has

made very interesting and thought provoking observations. I reproduce

paragraphs (22) & (25) hereunder:

"22. We have to bear in mind that the Legislature while incorporating the provisions of Chapter XVII, Sections 138 to 142 inserted in the NI Act (Amendment Act 1988) intends to punish only those who know fully well that they have no amount in the bank and yet issue a cheque in discharge of debt or liability already borrowed/incurred -which amounts to cheating, and not to punish those who refused to discharge the debt for bona fide and sustainable reason. It is in this context that this Hon'ble Court in the matter of M.M.T.C. Ltd. And Anr vs. Medchl Chemical and Pharma (P) Ltd. And Anr.[1] was pleased to hold that cheque dishonour on account of drawer's stop payment instruction constitutes an offence under Section 138 of the NI Act but it is subject to the rebuttable presumption under Section 139 of the NI Act as the same can be rebutted by the drawer even at the first instance. It was held therein that in order to escape liability under Section 139, the accused has to show that dishonour was not due to insufficiency of funds but there was valid cause, including absence of any debt or liability for the stop payment instruction to the bank. The specific observations of the Court in this regard may be quoted for ready reference which are as follows:

"The authority shows that even when the cheque is dishonoured by reason of stop-payment instructions by virtue of Section 139 the court has to presume that the 10 CRM(M) 278/2021

cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the "stop-payment" instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there were sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop-payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. Thus a court cannot quash a complaint on this ground." Therefore, complaint filed in such a case although might not be quashed at the threshold before trial, heavy onus lies on the court issuing summons in such cases as the trial is summary in nature".

25. Therefore, if the accused is able to establish a probable defence which creates doubt about the existence of a legally enforceable debt or liability, the prosecution can fail. The accused can rely on the materials submitted by the complainant in order to raise such a defence and it is inconceivable that in some cases the accused may not need to adduce the evidence of his/her own. If however, the accused/drawer of a cheque in question neither raises a probable defence nor able to contest existence of a legally enforceable debt or liability, obviously statutory presumption under Section 139 of the NI Act regarding commission of the offence comes into play if the same is not rebutted with regard to the materials submitted by the complainant".

However, in the later part of the said judgment i.e paragraph (29),

the learned Judge made the following observations:

"29. Thus, although a petition under Section 482 of the Cr.P.C. may not be entertained by the High Court for quashing such proceedings, yet the judicious use of discretion by the trial judge whether to proceed in the matter or not would be enormous in view of Section 139 of the NI Act and if the drawer of the cheque discharges the burden even at the stage of enquiry that he had bona fide reasons to stop the payment and not make the said payment even within the statutory time of 15 days provided under the NI Act, the trial court might be justified in refusing to issue summons to the drawer of the cheque by holding that ingredients to constitute offence under 11 CRM(M) 278/2021

Section 138 of the NI Act is missing where the account holder has sufficient funds to discharge the debt. Thus the category of 'stop payment cheques' would be a category which is subject to rebuttal and hence would be an offence only if the drawer of the cheque fails to discharge the burden of rebuttal".

(underlining mine)

16 From a reading of the supplementary judgment written by Justice

Gyan Sudha Misra in its entirety and particularly the paragraphs

reproduced hereinabove, it transpires that the learned Judge has suggested

that in appropriate cases, where the probable defence of the accused that

the cheque was not for discharge of any legally enforceable debt or

liability, can be gauged from the contents of the complaint and the

appended documents, the trial Magistrate may be justified in refusing to

entertain the complaint, but the said observations of learned Judge in its

supplementary judgment have not found favour by the Hon'ble Supreme

Court in its later judgment rendered in the case of Shiv Kumar vs.

Ramavtar Agarwal, (2020) 12 SCC 500 wherein a Division Bench of

Hon'ble Supreme Court while upholding the observations made in

paragraphs (23) and (32) of the impugned judgment of High Court

concluded that rebuttal can be made with reference to the evidence of the

prosecution as well as the defence. What was upheld and endorsed by the

Supreme Court can be seen from paragraph (4) of the judgment, which

reads thus:

"4. Mr. Mahesh Jethmalani, learned senior counsel appearing for the appellant contends that Judicial Magistrate First Class could have examined the materials filed along with the complaint and from the materials which were brought on the record it was clear that there was no legally enforceable debt hence there was no case for taking cognizance of the offence and registering the criminal complaint. He referred to the agreement dated 21.10.2014 Annexure P-2 between the parties. Learned counsel for the appellant has also referred to 12 CRM(M) 278/2021

the judgment of the High Court and specifically paragraphs 23 and 32. The High Court in paragraphs 23 and 32, which has been relied and referred by counsel for the appellant, observed:

"23. The presumption available under Section 139 of NI Act has to be rebutted and that rebuttal can only be done after adducing evidence. This, by itself clearly reflects that the rebuttal presumption cannot be looked into at the stage of the Court taking cognizance of the offence and registering the case all that Court would have to see is whether there is a prima facie case made out meeting the conditions precedent as envisaged under Section 138 of NI Act, which in the instant case, in the opinion of this Court, the Respondent has in fact been able to establish and fulfil all such ingredients.

32. As has been stated in the preceding paragraphs since there is a presumption to be drawn of there being a debt or liability in part or in whole of the drawer to the holder of the instrument, the Court below cannot be said to have faulted upon in taking cognizance and in registering the offence. Since it is a rebuttal presumption and all the contentions and averments made by the counsel for the Petitioner being his defence, it would be open for him to raise all these grounds at the stage of leading evidence including the defence of existence of legally enforceable debt or liability. However, there can be no doubt that at the time of filing of complaint there was always initial presumption which would be in favour of the complainant."

We are in full agreement with the opinion of the High Court expressed in the above noted paragraphs which has been referred by learned counsel for the appellant. It is well settled that the rebuttal can be made with reference to the evidence of the prosecution as well as of defence."

(emphasis supplied)

17 In view of the clear provisions of Sections 138 and 139 of N.I. Act

and the legal position on the point explained by the Hon'ble Supreme

Court, there is hardly any reason to doubt the proposition that the probable

defence of the accused in a complaint under Section 138 of N.I. Act, that

the cheque issued by him which was later dishonored was not for any

legally enforceable debt or liability, can be raised by the accused only at 13 CRM(M) 278/2021

the stage of leading evidence and cannot be considered by the Magistrate

at the threshold at the time of taking cognizance. It, however, remains to

be seen that in a case where, from a plain reading of the complaint and the

documents appended thereto, it clearly comes out that the cheque issued by

the accused, as per own showings of the complainant, was not for discharge

of any legally enforceable debt or other liability. Here, I am of the view

that in such a rare situation, where there is no dispute on facts and it is

clearly made out from the complaint and the appended documents that the

dishonored cheque issued by the accused is admittedly for a consideration

which is not a legally enforceable debt or liability, the Magistrate would be

justified even at the threshold not to take cognizance. However, the facts of

the instant case do not reflect such admitted position.