Andhra HC (Pre-Telangana)
S.V. Rao vs Credential Finance Ltd. And Ors. on 17 February, 2006
Equivalent citations: 2006(1)ALD(CRI)665, 2006CRILJ1999
JUDGMENT M.E.N. Patrudu, J.
1. The appellant is the com- plainant in C.C. No. 919 of 1997 on the file of the IV Metropolitan Magistrate, City Criminal Courts, Hyderabad.
2. Respondents are the accused in the above case.
3. A-1 is the firm A-2 to A-7 are its Directors.
4. The parties are arrayed as they are narrated in the Court below.
5. The complainant filed the criminal case against the accused for an offence under Section 138 of Negotiable Instruments Act (hereinafter referred to as 'the Act').
The learned Magistrate acquitted the accused by the impugned judgment dated 7-3-2000.
6. Aggrieved by the same the present appeal is preferred.
7. Briefly the facts are :
The complainant has provided finance to the accused to the tune of Rs. 15 lakhs under bill counting system and promissory note was executed in his favour on 12-2-1996. Since the accused did not pay the amount, cheque No. 626629, dated 5-8-1977 for Rs. 15 lakhs was issued and as there is default in payment the complainant presented the same to his banker and the cheque was dishonoured with endorsement of insufficient funds. A statutory legal notice was issued and the accused neither replied nor repaid the amount. Hence the complaint.
In the trial, the complainant was examined as P.W. 1 and 7 documents were marked. On behalf of the defence, A-2, A-4, A-6, A-4 and A-7 were examined and 25 documents were also marked.
8. In the trial the learned Magistrate entertained a doubt whether the complainant is having any licence to do the financial business and without any such licence when he is lending the amount whether it is legally enforceable debt and answered the question in favour of the accused and acquitted them. The trial Court also observed that the cheque for Rs. 15 lakhs and the covering letter are issued by the accused under bill discounting system for the bill drawn by the Western India Industries Limited and if the said Industries Limited pay the amount to the accused then only the accused are liable to pay the amount as promissory note or cheque are issued as security.
9. Heard arguments on both sides.
10. Points for my determination are :
1. Whether there is a legally enforceable debt between the parties?
2. Whether the complainant is entitled to claim the amount under the bill rediscounting system?
3. Whether the accused are liable for punishment?
11. Points :
The learned Counsel for the 4th accused contended that the A-4 has relied from the A-1 company prior to the present loan transaction and therefore he is not liable to pay any amount. A-4 was examined as D.W.2. Through him Ex.D-17 is marked. He deposed that on 17-11-1996 he resigned from the A-1 company and on 27-3-1997 A-1 filed his resignation before the Registrar of Companies and Form-32 issued by the Registrar of Companies is Ex.D-17 and as per the same he would not continue as Director of A-1 company by the date of transaction. Perused Ex.D-17.
12. It is a certified copy issued by Additional Registrar of Companies. Perusal of Ex.D-17 discloses that the resignation of A-4 as Director of A-1 Company is accepted on 29-3-1997. The loan amount was given on 12-2-1996, whereas Ex.P-1 cheque was issued on 18-8-1997. Therefore by the date of issuance of the cheque, A-4 was not on the Board of Directors of the Company.
Hence A-4 is entitled for clean acquittal.
13. Similarly, A-6 who was examined as D.W.3 also resigned from the company of A-1 by his letter dated 5-5-1997. His contention is that A-1 company did not send his resignation to the Registrar of Companies immediately and for that they are forced to pay the late payment charges. Perused Exs. D-18, 19 and 20 and they are disclosing that A-6 has also resigned from A-1 company. Therefore he is also entitled for benefit of doubt. Hence the acquittal in his favour is also confirmed.
14. D.W.5 is A-7 and her evidence is that she has resigned as Director in June, 1997 and she relied on Ex.D-25. But the contents of the said letter are not disclosing that she had resigned from the company. Hence she is not entitled for acquittal at this stage.
15. POINT No. 1 :
Now it is to be seen whether the debt is legally enforceable.
Explanation to Section 138 of the Act which reads as follows :
Explanation,- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability
(i) The essential ingredients under Section 138 of the Act are there must be a debt or other liability legally enforceable
(a) that cheque must be given by the debtor in favour of the creditor in discharge of the said debt or liability, in whole or in part,
(b) that the cheque should be returned by the bank for insufficient of funds to the credit of the debtor to honour the cheque.
(ii) In this case, the evidence of P.W.1 clearly established that A-2 gave a cheque on behalf of A-1 company for Rs. 15 lakhs drawn on the Federal Bank Limited, Fort, Mumbai, dated 5-8-1997. The cheque is marked as Ex.P-1, A-2 gave Ex.P.-1 along with covering letter Ex.P-2.
P.W.1 was subject to cross-examination in detail. There was a suggestion that Ex.P-1 was given for security only in the event the drawee pays the amount to the accused. Therefore the accused have admitted about the issuance of cheque. The contention of the accused is that it is issued by way of security,
(iii) A-2 was examined as D.W. 1. His evidence is totally silent with regard to the non-issuance of Ex.P-1, On other his evidence is establishing that the cheque in dispute was issued as a security as of convenience in the business.
(iv) Thus the evidence of P.W. 1 and D.W. 1 is establishing that the cheque in dispute is issued on behalf of A-1 company by A-2. Therefore, it is proved beyond doubt that the cheque was issued by the accused. The trial Court also observed that the cheque was issued by A-2.
LICENCE TO FINANCE :
(v) In this case the contention of the complainant is that out of acquaintance he has provided finance to the accused firm. In the re-examination P.W. 1 stated that he is doing financial business in the name of Nishant Finance Private Limited and he is having licence to that effect. He has also stated that he had financed the amount in this case to A-1 company as a special case and it means in his personal capacity and it is only single occasion he has lent the amount to A-1 company.
(vi) The trial Court came to the conclusion that as the complainant is financing to many people he requires a money lending licence or permit and he is a habitual financier doing the same without any licence and hence the disputed debt is not legally enforceable debt.
(vii) P.W.1 in his evidence clearly stated that out of acquaintance between himself and the accused company he financed the amount and he had paid the amount by way of demand draft and a demand promissory note was executed by the accused company. The payment of money and the execution of promissory note is not in dispute.
(viii) In the cross-examination it was elicited from P.W. 1 that they are also doing finance business and they have financed to other customers also and the same is clarified through re-examination that their finance business is in the name of Nishant Finance Private Limited. In re-examination P.W.1 also stated that he financed to A-1 company from his savings as a special case. This part of the evidence of P.W. 1 is omitted by the trial Court and acquitted the accused. Admittedly, P.W. 1 is having finance business in the name of Nishant Finance Private Limited and giving loans to other customers also. But P.W.1 has clearly testified that in this case he is giving the amount to A-1 from his savings. The same should be considered by the Court. It was not elicited from P.W. 1 that he is financing to many others including the accused in his individual capacity. In the absence of any such suggestion or such evidence, it is improper to hold that P.W. 1 is giving loans to many others apart from the accused in his individual capacity. Without verifying this fact from A-1, it is not correct to hold that P.W. 1 is financing to many others.
(ix) The trial Court has committed grave error in holding that P.W. 1 is a habitual financier in his individual capacity. There is no evidence to come to this conclusion. On the other P.W. 1 is having a financial private limited with a licence. The trial Court having observed in para 10 that if a person lends amounts to another person on one occasion then the said person do not require any money lending licence. But if the person lend the amount to different persons, then he should possess money lending licence. In this case there is no evidence on record that P.W. 1 is lending money to many others in his individual capacity.
MONEY LENDERS ACT:
(x) In the instant case the provisions of A.P. (Telangana Area) Money Lenders Act will have to be considered because the transaction is in Telengana Area.
Section 9(1) of A.P. {Telangana Area) Money Lenders Act defines that if the money lender does not possess licence in question the said debt is not legally enforceable debt.
The learned Counsel for the appellant cited the following decisions :
Veralaxmi v. Syed Kasim Hussain 1962 (2) Andh WR 137 The scope of money-lenders under the Hyderabad Money-Lenders Act is discussed in this case. The Division Bench of this Court observed that in order to fall within the definition of money-lender it would not merely to show that the man had on several occasions lent money at remunerative rates of interest. There must be certain degree of system and continuity about the transactions. It is further held that the definition of money-lender envisaged only those classes of persons whose regular business is to advance moneys and not to those who advance moneys casually.
In the above case the plaintiff had advanced debt on four different occasion and it is at the instance of her husband, who is known to the defendant. It is further observed that from the above it is clear that both parties being good friends used to have transactions with each other. In the above circumstances the Money Lenders Act do not apply to the case.
Munagala Yadagiri v. Pittala Veeriah 1958(1) Andh WR 413 In this case it was held by the Division Bench of this Court that if a professional money-lender who has not obtained a licence cannot maintain a suit for recovery of amounts. It is further held that a person who seeks to non-suit the plaintiff should necessarily allege and prove that the plaintiff is a professional money-lender. "Obviously, the plaintiff cannot prove the negative viz., that he is not a professional money-lender, it is for the defendant to allege and prove that the plaintiff is a professional money-lender.
Somanath Baraman v. Jagannatha Rao In this case the Division Bench of this Court observed that when there is only one casual or stray transaction of advance of amount such a stray or casual act could not be done in the ordinary course of business. It is further observed as under :
It is clear that the object of the Act is to serve the public purpose and protect the borrowers from unscrupulous and usurious money lenders by prohibiting them from lending moneys without obtaining licence on pain of imprisonment as well as by empowering Courts to dismiss the suits of such money lenders.
A stray or casual transaction by a person not possessing the licence would not amount to a transaction done in the ordinary course of business.
Hence the provisions of Section 9 are not attracted to the case.
(xi) If the above three decisions of this Court are considered, it is clear that if a person is advancing money casually and not professional money lender, there is no necessity for obtaining any licence and wherever the opposite party is taking the plea that the person who advanced the money is a money-lender and requires licence. The burden lies on that party who makes the said allegation.
(xii) In the instant case, there is no suggestion from the accused to P.W. 1 that he is a professional money lender and without having a licence he is lending money. This question is created by the trial Court in the judgment and answered by the trial Court without any evidence more so when the accused is not taking the said plea either in the cross-examination of P.W.1 or in the chief-examination of D.W.1. The Court has entertained a doubt on its own and answered in favour of the accused.
Therefore, I hold that the findings of the trial Court are uncalled for and I hold that the debt is legally enforceable.
DISCOUNTING SYSTEM :
(xiii) The Court below also came to the conclusion that as the cheque is issued for convenience sake of rediscounting of bills hence the debt is not legally enforceable.
In the instant case, the promissory note was executed by the accused in favour of P.W.1 after receiving the amount of Rs. 15 lakhs. The contents of the promissory note are totally silent with regard to any bill discounting scheme.
Ex. P-3 is the demand promissory note.
Whereas Ex.P-2 is a covering letter and it shows that the postdated cheque for Rs. 15 lakhs was issued towards repayment of bill discounting amount and kindly return the cheque for Rs. 15 lakhs which was issued on 7-5-1997. Therefore the cheque for Rs. 15 lakhs was originaly issued on 7-5-1997 and it was drawn on Federal Bank of India, Bombay and later the cheque in dispute bearing No. 626629, dated 5-8-1997 was issued towards repayment of bill rediscounting fund. Ex.P-6 is the notice of the complaint to A-2 and the contents of the said notice established that the cheque dated 5-8-1997 was presented to the broker and it was returned insufficient funds. Therefore, the complainant intends to proceed under Section 138 of the Act, The accused having received the legal notice has chosen to remain silent without accepting or denying the version of the complainant. Hence, it cannot be said that in the circumstances there is no legally enforceable debt. Thus the judgment of the trial Court is liable to be set aside.
The trial Court observed that P.W. 1 has not filed rediscounting bill A-1. In the evidence of defence witnesses it is elicited that the said document is handed over to the accused. In such case it is improper to demand the complainant to produce such bill. If the accused who are in possession of the said bill do not produce the said bill, an adverse inference is drawn against the accused. But the trial Court commented on the complainant for not filing the said bill. Further it is absurd to contend by the accused that if Western India Industries Ltd., pays the amount, then they will pay the amount to the accused having received the amount are under obligation to honour the transaction.
On a careful scrutiny of the entire evidence on record both oral and documentary, it is quite clear that it is an admitted fact that the accused has issued the cheque in question in favour of the complainant. At this stage it may be noted that having admitted the issuance of the cheque in favour of the complainant the burden is on the accused to prove that the cheque was issued in connection with the same transaction like bill rediscounting system.
Thus on an overall assessment of the evidence adduced by the complainant and the accused both oral and documentary leads to me an irresistible conclusion that the cheque was issued by the accused in favour of the complainant.
Further, in the instant case when the cheque was presented by the complainant for clearance and it was dishonoured with an endorsement funds insufficient. Without having sufficient funds the accused has issued the cheque in question and he should not issue the cheque without sufficient funds. Even after the issuance of the statutory notice of the complainant as required under Section 138 of the Act, the accused did not care to even reply or to arrange payment of the amount or taken any steps for discussion. Despite all the lacunae the Court below went wrong in holding that the accused is not liable for punishment.
After assessing the entire evidence, 1 hold that the essential ingredients of Section 138 of the Act are brought out and the evidence of the complainant is supported by the documents and the accused is liable to be convicted for the said offence. Accordingly, the acquittal of the accused is set aside. A-1, A-2, A-3, A-5 and A-7 are convicted for the offence under Section 138 of the Act. Since A-4 and A-6 have resigned prior to the issuance of the cheque in dispute, they are entitled for benefit of doubt.
K. Bhaskaran v. Sankaran Vaidhyan Balan (1997) 7 SCC 510 : 1999 Cri LJ 4606 The Apex Court in this case held in paras 28, 29, 30, 31 and 32 as under :
28. In this context a reference to Section 29(2) of the Code is necessary as it contains a limitation for the Magistrate of the First Class in the matter of imposing fine as a sentence or as a part of the sentence. Section 29(2) reads as thus :
"29. (2) The Court of a Magistrate of the First Class may pass a sentence of imprisonment for a term not exceeding three years, or of fine not exceeding five thousand rupees, or of both.
29. The trial in this case was held before a Judicial Magistrate of the First Class who could not have imposed a fine exceeding Rs. 5.000/- besides imprisonment. The High Court while convicting the accused in the same case could not impose a sentence of fine exceeding the said limit.
30. It is true, if a Judicial Magistrate of the First Class were to order compensation to be paid to the complainant from out of the fine realized the complainant will be the loser when the cheque amount exceeded the said limit. In such a case a complainant would get only the maximum amount of rupees five thousand.
31. However, the Magistrate in such cases can alleviate the grievance of the complainant by making resort to Section 357(3) of the Code. It is well to remember that this Court has emphasized the need for making liberal use of that provision (Hari Singh v. Sukhbir Singh . No limit is mentioned in the sub-section and therefore, a Magistrate can award any sum as compensation. Of course while fixing the quantum of such compensation the Magistrate has to consider what would be the reasonable amount of compensation payable to the complainant. Thus, even if the trial was before a Court of a Magistrate of the First Class in respect of a cheque which covers an amount exceeding Rs. 5000 the Court has power to award compensation to be paid to the complainant.
The Apex Court further observed in para 32 as follows with regard to question of sentence and award of compensation :
The question of sentence and award of compensation must be considered by the trial Court. We deem it feasible that the Magistrate shall hear the prosecution and the accused on those aspects. Of course, if the complainant and the accused settle their disputes regarding this cheque, in the meanwhile, that fact can certainly be taken into consideration in determining the extent or quantum of sentence.
Hence, this Court being the appellate Court is not supposed to consider about the sentence or the compensation to be payable as directed by the Apex Court in the case referred to above.
In the result the appeal is partly allowed upholding the acquittal of A-4 and A-6. Whereas A-1 to A-3, A-5 and A-7 are convicted for the offence under Section 138 of the Act and the trial Court is directed to hear the accused on the question of sentence and award the same and also compensation to the complainant. The trial Court is to issue summons to the complainant as well as to the accused within two weeks from the date of receipt of this judgment along with records and hear the complainant as well as the accused, as directed by the Apex Court in K. Bhaskaran v. Sankaran Vaidhyan Balan 1999 Cri LJ 4606 (supra), and award sentence and compensation as per law.
Accordingly the appeal is partly allowed.