Telangana High Court

M/S. Arihant Distributors vs The State Of Telangana on 27 December, 2022

Bench: G.Radha Rani

                                       1
                                                                         Dr.GRR, J
                                                                   CRLRC_482_2019

          THE HONOURABLE DR.JUSTICE G. RADHA RANI

              CRIMINAL REVISION CASE No.482 OF 2019

ORDER:

This Criminal Revision Case is filed by the petitioner-accused aggrieved

by the judgment dated 22.03.2019 passed in Criminal Appeal No.552 of 2017

on the file of the III Additional Metropolitan Sessions Judge, Hyderabad

confirming the judgment of conviction and sentence passed by the II Special

Magistrate, Hyderabad in C.C.No.56 of 2016 dated 05.05.2017 for the offence

under Section 138 of the Negotiable Instruments Act (for short "NI" Act).

2. The case of the respondent No.2-complainant was that the complainant

was a distributor for air coolers manufactured by Usha International Limited for

the entire State of Telangana. The revision petitioner-accused placed separate

orders for supply of air coolers towards his requirement and was due and

payable an amount of Rs.9,95,464/- to the complainant and towards discharge

of the said liability, issued two cheques bearing No.801924, dated 06.08.2016

for Rs.4,00,000/- and cheque bearing No.801925, dated 08.08.2016 for

Rs.4,61,664/- drawn on Mahesh Bank, Himayathnagar, Hyderabad. When the

said cheques were presented, they were returned dishonoured due to

insufficiency of funds vide cheque return memos of the bank. The complainant

got issued legal notice dated 22.08.2016, calling upon the accused to pay the

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amount of the cheques within 15 days from the date of receipt of the legal

notice. The accused received the legal notice sent through Registered Post

Acknowledgment Due on 27.08.2016. Inspite of receipt of the legal notice, the

accused failed to pay the amount demanded in the notice nor issued any reply

notice, as such the complainant filed the complaint.

3. The case was tried by the II Special Magistrate, Hyderabad. The

complainant examined himself as PW.1 and Exs.P1 to P29 were marked on his

behalf. The accused failed to adduce any oral or documentary evidence on his

behalf.

4. The learned II Special Magistrate, on considering the oral and

documentary evidence on record, found the accused guilty for the offence under

Section 138 of the NI Act and sentenced him to undergo rigorous imprisonment

for a period of six (06) months and to pay compensation of Rs.9,00,000/- to the

complainant within three months from the date of the order on 05.05.2017.

5. Aggrieved by the said conviction and sentence recorded by the II Special

Magistrate, the accused preferred an appeal. The appeal was heard by the III

Additional Metropolitan Sessions Judge, Hyderabad vide Criminal Appeal

No.552 of 2017 and vide judgment dated 22.03.2019, dismissed the appeal

confirming the order passed by the II Special Magistrate, Hyderabad dated

05.05.2017 in C.C.No.56 of 2016.

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6. Aggrieved further, the accused preferred this revision contending that the

lower appellate court dismissed the appeal without considering the facts of the

case. The lower appellate court failed to appreciate that the mandatory notice

under Section 138(b) of the NI Act was not issued as per the procedure laid

down under law. The complainant issued the notice, demanding the interest.

The defence set up by the complainant was civil in nature. The complainant

demanded more than the cheque amount and future interest @ 24% per annum

till the date of payment, which was against the law. The complainant had not

placed any records like stock registers and supply registers available in his

office before the trial court to substantiate his contention of supply of air coolers

to the appellant on various dates under different invoices. The lower appellate

court reproduced the orders of the trial court without appreciating the law and

facts and prayed to set aside the judgment dated 22.03.2019 in Criminal Appeal

No.552 of 2017 on the file of the III Additional Metropolitan Sessions Judge,

Hyderabad.

7. Heard the learned counsel for the revision petitioner and the learned

counsel for the respondent-complainant.

8. The learned counsel for the revision petitioner contended that a single

case was filed for both the cheques. The cheques issued by the revision

petitioner-accused as a security were misused by the complainant. The

complainant was in the habit of taking cheques as a security. As per Section 79

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of the NI Act, interest was claimable on bills of exchange or promissory note.

But the said amount was not permissible to be claimed as legally enforceable

debt under a cheque. To claim interest, the respondent-complainant must be

doing money lending business, but the complainant was not possessing any

money lending license. The presumption under Section 139 of the NI Act was

successfully rebutted. The notice issued by the respondent-complainant was

defective as it clubbed both civil and criminal liabilities. Two different notices

have to be issued and relied upon the judgment of the Hon'ble Apex Court in

K.R.Indira v. Dr. G.Adinarayana in Criminal Appeal No.1136 of 2003, dated

09.10.2003. He relied upon the judgment of the Hon'ble Apex Court in

M.S.Narayana Menon @ Mani v. State of Kerala & Another in Criminal

Appeal No.1012 of 1999, dated 04.07.2006 on the aspect that the cheque issued

as a security would not come within the purview of Section 138 of the NI Act.

He contended that no Income Tax Returns were filed by the complainant though

stated that the said transactions were shown in Income Tax Returns and relied

upon the judgment of the combined High Court of Telangana and Andhra

Pradesh in R.Chennakesava Rao v. P.Laxmi Narasaiah and another1,

wherein it was held that the complainant, if did not disclose the amount in his

Income Tax Returns, such admission itself would suffice to conclude that the

2017 (2) ALT (Crl.) 279 (A.P.)

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amount lent, if any was unaccounted money and the complaint under Section

138 of the NI Act was not maintainable for unaccounted money.

9. The learned counsel for the respondent-complainant on the other hand

contended that the complainant had produced invoice copies in proof of supply

of goods and filed delivery challans which had the signature of the accused.

The accounts were confirmed by the accused with his seal and signatures. The

accused admitted his liability vide letter marked under Ex.P24. All the said

documents were not disputed by the accused. The goods returned were also

given credit. The ledger account extract maintained by the accused and signed

by him was marked as Ex.P20. A civil suit was also filed and the suit was

decreed in favour of the complainant. The said judgment became final. The

decree in civil suit was binding on the criminal court which would prove the

legally enforceable debt or liability. The plea of the accused was that he had

given blank cheques without any liability but the documents filed by the

complainant would prove the legally enforceable debt or liability as confirmed

by the accused himself. The accused had not entered the witness box to lead

any evidence. He failed to give any reply to the notice. The accused closed his

business. His whereabouts were not known and relied upon several judgments

of the Hon'ble Apex Court in Krishna Janardhan Bhat v. Dattatraya G.

Hegde2, Rangappa v. Sri Mohan3, Kumar Exports v. Sharma Carpets4,

(2008) 4 SCC 54

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Rohitbhai Jivanlal Patel v. State of Gujarat and Another5 on the aspect that

existence of legally recoverable debt was not a matter of presumption under

Section 139 of the NI Act. He relied upon the judgments of the Hon'ble Apex

Court in Sanjaysinh Ramrao Chavan v. Dattatray Gulabrao Phalke and

Others6, State of Kerala v. Puttumana Illath Jathavedan Namboodiri7 on

the scope of revision. He relied upon the judgment of High Court of Andhra

Pradesh in Vasundhara Projects Private Limited, Hyderabad and others v.

State of Andhra Pradesh and another8 on the aspect that the contention of the

accused that the complainant company lent loan without having license to do

business, as such, not enforceable under law and the complaint under Section

138 of the NI Act was not maintainable, was not acceptable. He also relied

upon the judgment of the Hon'ble Apex Court in Suman Sethi v. Ajay

K.Churiwal and Another9 on the aspect that:

"besides stating the cheque amount, other claims such as interest, damages and other charges also mentioned separately in the notice, cannot be treated as bad."

10. As observed by the Hon'ble Apex Court in State of Kerala v.

Puttumana Illath Jathavedan Namboodiri (7 supra):

(2010) 11 SCC 441

(2009) 2 SCC 513

(2019) 18 SCC 106

(2015) 3 SCC 123

(1999) 2 SCC 452

2014 (2) ALD (Crl.) 883

(2000) 2 SCC 380

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"In its revisional jurisdiction, the High Court can call for and examine the record of any proceedings for the purpose of satisfying itself as to the correctness, legality or propriety of any finding, sentence or order. In other words, the jurisdiction is one of supervisory jurisdiction exercised by the High Court for correcting miscarriage of jusitce. But the said revisional power cannot be equated with the power of an appellate court nor can it be treated even as a second appellate jurisdiction. Ordinarily, therefore, it would not be appropriate for the High Court to reappreciate the evidence and come to its own conclusion on the same when the evidence as already been appreciated by the Magistrate as well as the Sessions Judge in appeal, unless any glaring feature is brought to the notice of the High Court which would otherwise tantamount to gross miscarriage of justice."

11. The Hon'ble Apex Court in Sanjaysinh Ramrao Chavan v. Dattatray

Gulabrao Phalke and Others (6 supra) also held that:

"Unless the order passed by the Magistrate is perverse or the view taken by the court is wholly unreasonable or there is non- consideration of any relevant material or there is palpable misreading of records, the revisional court is not justified in setting aside the order, merely because another view is possible. The revisional court is not meant to act as an appellate court. The whole purpose of the revisional jurisdiction is to preserve the power in the court to do justice in accordance with the principles of criminal jurisprudence. Revisional power of the court under Sections 397 to 401 of Cr.P.C. is not to be equated with that of an appeal. Unless the finding of the court, whose decision is sought to be revised, is shown to be perverse or untenable in law or is grossly erroneous or glaringly unreasonable or where the decision is based on no material or where the material facts are wholly ignored or where the judicial discretion is exercised arbitrarily or capriciously, the courts may not interfere with decision in exercise of their revisional jurisdiction."

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12. Thus, the scope of revision is very limited and unless the revision

petitioner-appellant can show that the judgments of the courts below were

perverse or grossly erroneous, this Court would not ordinarily interfere with

their decisions.

13. The contentions raised by the learned counsel for the revision petitioner

was that, the cheque was issued as a security, the interest amount was also

included in the cheque, hence, the same was not maintainable under Section 138

of the NI Act. The notice issued was defective. The complainant had not filed

Income Tax Returns in proof of his capacity to lend the amount nor filed any

money lending license to show that he was entitled to claim interest.

14. The Hon'ble Apex Court in Krishna Janardhan Bhat v. Dattatraya

G.Hedge (2 supra) while relying upon the decision of the Karnataka High Court

in Devi Tyres v. Nawab Jan10, held that:

"5. ..... There is a presumption that when a cheque is issued, that the amount is payable and no criminal court is required to embark upon any enquiry that goes behind the act of issuance of the cheque. If the drawer contends that there were certain special reasons whereby a cheque was issued and that the cheque was not intended to be encashed or honoured, the onus of establishing this shifts squarely to the accused."

AIR 2001 Kant HCR 2154

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It also held that:

"Indisputably, a mandatory presumption is required to be raised in terms of Section 118(b) and Section 139 of the Act."

"Existence of legally recoverable debt is not a matter of presumption under Section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability."

15. In Kumar Exports v Sharma Carpets (4 supra), the Hon'ble Apex

Court held that:

"In a suit to enforce a simple contract, the plaintiff has to aver in his pleadings that it was made for good consideration and must substantiate, it by evidence. But to this rule, the negotiable instruments are an exception. In a significant departure from the general rule applicable to contracts, Section 118 of the Act provides certain presumptions to be raised. This Section also lays down some special rules of evidence relating to presumptions. The reason for these presumptions, is that, negotiable instrument passes from hand to hand on endorsement and it would make trading very difficult and negotiability of the instrument impossible, unless certain presumptions are made. The presumption, therefore, is a matter of principle to facilitate negotiability as well as trade."

It further held that:

"The accused in a trial under Section 138 of the Act has two options. He can either show that consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed. To rebut the statutory presumptions an accused is not

Dr.GRR, J CRLRC_482_2019

expected to prove his defence beyond reasonable doubt as is expected of the complainant in a criminal trial. The accused may adduce direct evidence to prove that the note in question was not supported by consideration and that there was no debt or liability to be discharged by him. However, the court need not insist in every case that the accused should disprove the non- existence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated. At the same time, it is clear that bare denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the accused. Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant. 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 the circumstances of the case, act upon the plea that they did not exist. Apart from adducing direct evidence to prove that the note in question was not supported by consideration or that he had not incurred any debt or liability, the accused may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant. The accused may also rely upon presumptions of fact, for instance, those mentioned in Section 114 of the Evidence Act to rebut the presumptions arising under Sections 118 and 139 of the Act."

16. In Rangappa v. Sri Mohan (3 supra), the Hon'ble Apex Court held that:

"Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honouring their commitments by way of payment through cheques. The court should lean in favour of an interpretation which serves the object

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of the statute. A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The purpose of a post-dated cheque is to provide some accommodation to the drawer of the cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of a post- dated cheque."

In view of Section 139, it has to be presumed that a cheque is issued in discharge of any debt or other liability. The presumption can be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. This presumption coupled with the object of Chapter XVII of the Act leads to the conclusion that by countermanding payment of a post-dated cheque, a party should not be allowed to get away from the penal provision of Section 138. A contrary view would render Section 138 a dead letter and will provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts which in other words can be said to be taking advantage of one's own wrong."

It further held that:

21. Specifically in relation to the nature of the presumption contemplated by Section 139 of the Act, it was observed;

"45. We are not oblivious of the fact that the said provision has been inserted to regulate the growing business, trade, commerce and industrial activities of the country and the strict liability to promote greater vigilance in financial matters and to safeguard the faith of the creditor in the drawer of the cheque which is essential to the economic life of a developing country like India. This however, shall not mean that the courts shall put a blind eye to the

Dr.GRR, J CRLRC_482_2019

ground realities. Statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have been rebutted.

Other important principles of legal jurisprudence, namely, presumption of innocence as a human right and the doctrine of reverse burden introduced by Section 139 should be delicately balanced. Such balancing acts, indisputably would largely depend upon the factual matrix of each case, the materials brought on record and having regard to legal principles governing the same."

"27. Section 138 of the Act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of improving the credibility of negotiable instruments. While Section 138 of the Act specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under Section 139 is a device to prevent undue delay in the course of litigation. However, it must be remembered that the offence made punishable by Section 138 can be better described as a regulatory offence since the bouncing of a cheque is largely in the nature of a civil wrong whose impact is usually confined to the private parties involved in commercial transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the accused/defendant cannot be expected to discharge an unduly high standard or proof."

17. In Rohitbhai Jivanlal Patel v. State of Gujarat and Another (5 supra),

it was held that:

"15. So far the question of existence of basic ingredients for drawing of presumption under Sections 118 and 139 of the NI Act is concerned,

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apparent it is that the accused-appellant could not deny his signature on the cheques in question that had been drawn in favour of the complainant on a bank account maintained by the accused for a sum of Rs.3 lakhs each. The said cheques were presented to the Bank concerned within the period of their validity and were returned unpaid for the reason of either the balance being insufficient or the account being closed. All the basic ingredients of Section 138 as also of Sections 118 and 139 are apparent on the face of the record. The Trial Court had also consciously taken note of these facts and had drawn the requisite presumption.

Therefore, 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 onus, therefore, shifts on the accused-appellant to establish a probable defence so as to rebut such a presumption."

"17. 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. This Court has, time and again, emphasized that though there may not be sufficient negative evidence which could be brought on record by the accused to discharge his burden, yet mere denial would not fulfill the requirements of rebuttal as envisaged under Section 118 and 139 of the NI Act".

"18. In the case at hand, even after purportedly drawing the presumption under Section 139 of the NI Act, the Trial Court proceeded to question the want of evidence on the part of the complainant as regards the source of funds for advancing loan to the accused and want of examination of relevant witnesses who allegedly extended him money for advancing it to the accused. This approach of the Trial Court had been at variance with the principles of

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presumption in law. After such presumption, the onus shifted to the accused and unless the accused had discharged the onus by bringing on record such facts and circumstances as to show the preponderance of probabilities tilting in his favour, any doubt on the complainant's case could not have been raised for want of evidence regarding the source of funds for advancing loan to the accused-appellant. The aspect relevant for consideration had been as to whether the accused-appellant has brought on record such facts/material/circumstances which could be of a reasonably probable defence.

18. Thus, the contention of the learned counsel for the revision petitioner,

about the complainant failing to file Income Tax Returns or questioning the

source of funds of the complainant for advancing loan to the accused are not

permissible. In view of the presumption under Section 139 of the NI Act, the

burden lies upon the accused to rebut the same. But the accused failed to

examine himself or raise any probable defence regarding the source of funds for

advancing loan to the appellant-accused.

19. The complainant had filed the purchase orders placed by the accused,

marked under Exs.P1, P4 and P7 and the delivery challans, showing delivery of

air coolers to the accused containing the acknowledgment of the accused,

marked as Exs.P2, P5 and P8, the invoices raised by the complainant containing

the acknowledgement of the accused, marked as Exs.P3, P6 and P9 and the

letter of the accused addressed to the complainant enclosing the two (02)

cheques, marked as Ex.P24 and the extract of the ledger accounts in the ledger

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of the accused, marked as Ex.P11 and the extract of the ledger account of the

complainant in the account books of the accused showing the amount of

Rs.9,95,464/- as due to the complainant, marked as Ex.P20 and the extract of

the ledger account of the complainant in the name of the accused showing the

entries regarding the payment of interest amount of Rs.10,000/- and Rs.50,000/-

and also connecting entry regarding value of the returned air coolers and the

VAT etc., and showing the balance amount as Rs.8,94,835.08 payable by the

accused to the complainant, marked under Ex.P21 and the extract of the ledger

account in the name of the accused in the accounts books of the complainant

during the period 01.04.2016 to 19.08.2016 and showing an amount of

Rs.8,95,065/- payable by the accused to the complainant as on 09.08.2016,

marked under Ex.P25 and the confirmation letter of the accused confirming that

the amount of Rs.9,95,464/- was due to the complainant, marked under Ex.P18.

All these documents would show the legally enforceable liability of the accused

to the complainant. No probable defence was taken by the accused to disprove

the said evidence filed by the complainant.

20. This documentary evidence would clearly prove that the cheques were

issued by the accused towards discharge of legally enforceable debt and when

the cheques were presented to the bank, the same were returned vide cheque

return memo, marked under Exs.P14 and P17 for insufficient funds and when

the legal notice was issued to the accused, he received the same vide postal

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acknowledgment as per Ex.P27, but failed to give any reply or failed to pay the

due amount to the complainant. The fact that the accused failed to reply to the

statutory notice under Section 138 of the NI Act would lead to the inference that

there was merit in the complainant's case. Apart from raising any probable

defence, the appellant-accused was not able to contest the existence of a legally

enforceable debt or liability.

21. Though, the accused contended that the legal notice issued was not in

accordance with law and relied upon the judgment of the Apex Court in

K.R.Indira v. Dr.G.Adinarayana, the Hon'ble Apex Court in the above case

held that:

"As was observed by this Court in Central Bank of India and Anr. v. Saxons Farms and Ors., [1999] 8 SCC 221 the object of the notice is to give a chance to the drawer of the cheque to rectify his omission. The demand in the notice has to be in relation to 'said amount of money' as described in provision. The expression 'payment of any amount of money' as appearing in the main portion of Section 138 of the Act goes to show it needs to be established that the cheque was drawn for the purpose of discharging in whole or in part of any debt or any liability, even though the notice as contemplated may involve demands for compensation, costs, interest etc. The drawer of the cheque stands absolved from his liability under Section 138 of the Act if he makes the payment of the amount covered by the cheque of which he was the drawer within 15 days from the date of receipt of notice or before the complaint is filed."

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"In Suman Sethi v. Ajay K. Churiwal and Another, [[2000] 2 SCC 380] it was held that the legislative intent as evident from Section 138 of the Act is that if for the dishonoured cheque demand is not met within 15 days of the receipt of the notice the drawer is liable for conviction. If the cheque amount is paid within the above period or before the complaint is filed the legal liability under Section 138 ceases to be operative and for the recovery of other demands such as compensation, costs, interests etc. separate proceedings would lie. If in a notice any other sum is indicated in addition to the amount covered by the cheque, that does not invalidate the notice."

"In Suman Sethi v. Ajay K. Churiwal and Another, [[2000] 2 SCC 380], on considering the contents of the notice, it was observed that there was specific demand in respect of the amount covered by the cheque and the fact that certain additional demands incidental to it, in the form of expenses incurred for clearance and notice charges were also made did not vitiate the notice. In a given case if the consolidated notice is found to provide sufficient information envisaged by the statutory provision and there was a specific demand for the payment of the sum covered by the cheque dishonoured, mere fact that it was consolidated notice, and/or that further demands in addition to the statutorily envisaged demand was also found to have been made may not invalidate the same."

22. Thus, the said judgment is not helpful to the revision petitioner-accused.

23. Thus, this Court does not find any merit in the contention of the learned

counsel for the revision petitioner-accused for setting aside the judgments of the

courts below.

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24. In the result, the Criminal Revision Case is dismissed confirming the

judgment of the III Additional Metropolitan Sessions Judge, Hyderabad in

Criminal Appeal No.552 of 2017 dated 22.03.2019 confirming the judgment of

conviction and sentence passed by the II Special Magistrate, Hyderabad in

C.C.No.56 of 2016, dated 05.05.2017.

25. However, considering the judgment of the Hon'ble Apex Court in

Kalamani Tex and Another v. P.Balasubramanian11, it is considered fit to