Bangalore District Court
He Presented The Cheque For Encashment ... vs On 11.05.2021. The Accused Issued ... on 30 March, 2022
1 CC.24278/2021 (J)
IN THE COURT OF THE XV ADDL CHIEF METROPOLITAN
MAGISTRATE AT BANGALORE CITY.
Dated this the 30th Day of March2022
Present: Lokesh Dhanapal Havale. B.A.L.L.B.,
XV Addl.C.M.M., Bangalore.
Judgment U/s.355 of the Cr.P.C. 1973.
1.Sl.No.of the case CC.No.24278/2021
2.Name of the Complainant: Mr.M.Gangadhar,
S/o.late Mr.Dodda Muniyellappa,
Aged about 42 years,
Resident of Govindapura village,
Arabic College Post,
Bangalore560 045.
3.Name of the accused: 1. Sree Gowri Ganesha Chits
Private Limited,
No.307, 1st floor, 7th Cross,
2nd main road, Domlur Layout,
Bangalore560 071,
Represented by its Managing
Director.
2. Mr.M.Lokesh Reddy,
Managing Director,
Sree Gowri Ganesha Chits
Private Limited,
No.307, 1st floor, 7th cross,
2nd main road,
Domlur layout,
Bangalore560 071.
4.The offence complained of : U/s.138 of Negotiable Instruments
Act.
5.Plea of the accused: Pleaded not guilty.
6.Final Order: Acting U/s.255(1) Cr.P.C., accused is
Acquitted.
2 CC.24278/2021 (J)
7.Date of final Order 30.03.2022.
***
This complaint is filed U/Sec.200 of Cr.P.C. against the accused
for the offence punishable U/Sec.138 of the Negotiable Instruments
Act, 1881.
2. The facts of the complaint in brief are as under:
The accused No.1 is a company incorporated under the
Companies Act and that the accused No.2 is the Managing Director of
the accused No.1 company. The accused are in chit funds business. The
accused No.1 is having branches at several places including a branch at
Vijayanagar, Bangalore. The complainant was a subscriber in respect of
two chits of Rs.10,00,000/ conducted by the accused No.1 at its
Vijayanagara branch, Bangalore. He was having two chits in his name
in the same chit group of Rs.10,00,000/. The duration of the chit was
for 40 months and the monthly subscription in respect of each chit was
Rs.25,000/. He was the successful bidder in the auctions held by the
accused No.1 in the months of April, 2019 and May, 2019 in respect of
his two chits in the same chit group. He was the last person to bid in
the auction in respect of his two chits in the same chit group. After he
became the successful bidder in respect of two chits of the same chit
group of Rs.10,00,000/, the complainant executed all the necessary
documents required by the accused No.1 so as to enable the accused
No.1 to make payment of the prized chit amount in respect of the said
two chits at the earliest. He has been demanding the accused No.2 to
make payment of the prized amounts in respect of the said two chits to
him. Though the accused No.1 was under an obligation to pay the
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prized chit amount within a period of 15 days from the date of the
auction, the accused failed to pay the amount. Even after repeated
demands and requests made by him, the accused No.2 postponed the
payment except transferring a sum of Rs.3,00,000/ in the month of
June 2020 to his account. The accused No.2 promised to pay interest
at the rate of 18% per annum from the date of the auction till the date
of payment as there was delay of more than one year. Finally during
first week of December 2020, the accused No.2 issued five post dated
cheques for different amounts covering only the prized amounts in
respect of the said two chits. Out of the five cheques, one cheque was
bearing No.523149 dated 30.04.2021 for Rs.3,00,000/ drawn on
Corporation Bank, Vijayanagar Branch, Bengaluru in favour of the
complainant. He presented the cheque for encashment on 30.04.2021
through his account in State Bank of India, Sultan Palya branch,
Bengaluru and it was dishonored with a shara "Funds Insufficient" on
01.05.2021. He issued the legal notice to the accused on 08.05.2021
through RPAD and courier service and it was duly served on the
accused on 11.05.2021. The accused issued cheque for discharge of
legal liability, which was dishonored and failed to pay the amount even
after 15 days from the date of service of notice. Hence prayed to punish
the accused and compensate the complainant.
3. After the institution of the complaint, cognizance was
taken and the case was registered as PCR No.11765/2021. The sworn
statement of the complainant was recorded and on the basis of sworn
statement and other materials on hand the criminal case was registered
against the accused and summons was issued to him. In response to the
service of summons, the accused No.2 appeared through his learned
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counsel and got enlarged on bail. The prosecution papers supplied to
the accused No.2 and the substance of accusation for the offence
punishable U/s.138 of Negotiable Instruments Act was read over to the
accused No.2. He pleaded not guilty and claimed to be tried.
4. During trial the complainant examined as PW1 and got
marked Ex.P.1 to P.7. The statement of the accused No.2 U/s. 313 of
Cr.P.C. was recorded. The accused No.2 did not lead defence evidence.
5. I have heard the argument of both learned counsels and
perused the entire materials. The following points would arise for my
consideration.
1. Whether the complainant proves that the accused
No.2 being the Managing Director of accused No.1
company issued the cheque bearing No.523149
dated 30.04.2021 for Rs.3,00,000/ drawn on
Corporation Bank, Vijayanagar Branch, Bengaluru
in favour of the complainant the discharge of legally
enforceable debt/liability and on its presentation for
encashment, it was dishonored with an
endorsement of "Funds Insufficient" in the account
maintained by the accused and the accused has not
paid the amount even after 15 days from the date of
service of notice and thereby accused committed an
offence punishable U/Sec.138 of N.I. Act, 1881 ?
2. Whether the accused rebuts the presumption
U/s.139 of N.I.Act?
5 CC.24278/2021 (J)
3. What order?
6. My answers to the above points are as under.
Point No.1 : In the Negative
Point No.2 : In the Affirmative
Point No.3 : As per final order for the
following;
REASONS
7. Point No.1 & 2: The points are taken together for discussion
to avoid repetition of facts and evidence. At this juncture, it is necessary
to go through the provisions of N.I.Act before proceeding further. The
provisions under Section 118(a) and 139 of the Act., 1881 are
extracted and they reads thus;
"118. Presumptions as to negotiable
instruments. - Until the contrary is proved,
the following presumptions shall be made:
(a) of consideration - that every
negotiable instrument was made or drawn
for consideration, and that every such
instrument, when it has been accepted,
indorsed, negotiated or transferred, was
accepted, indorsed, negotiated or
transferred for consideration.
6 CC.24278/2021 (J)
(b) as to date: that every Negotiable
Instrument bearing date was made or drawn
on such date;
"139. Presumption in favour of holder.
It shall be presumed, unless the
contrary is proved, that the holder of a
cheque received the cheque of the nature
referred to in section 138 for the discharge,
in whole or in part, of any debt or other
liability."
8. On plain perusal of the provisions under Section 118(a)
and 139 of the N.I.Act., as extracted herein above, it can be seen that
initially the presumptions constituted under these two provisions
favour the complainant. However, it is open to an accused to raise a
defence to rebut the statutory presumptions. An accused can raise a
defence, wherein the existence of legally enforceable debt or liability
can be contested.
9. It is also well established that an accused for discharging
the burden of proof placed upon him under a statute need not examine
himself. He may discharge his burden on the basis of the materials
already brought on record. An accused has constitutional rights to
maintain silence. Standard of proof on part of the accused and that of
the prosecution in a Criminal case is different. The prosecution must
prove the guilt of an accused beyond all reasonable doubts, the
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standard of proof so as to prove a defence on the part of an accused is
"Preponderance of probabilities".
10. Under the light of above extracted provisions of the Act, I
have perused the oral and documentary evidence on record. In order to
prove his case, the complainant examined himself as PW.1 and got
marked Ex.P.1 to P.7. Ex.P.1 is the cheque bearing No.523149 dated
30.04.2021 for Rs.3,00,000/ drawn on Corporation Bank, Vijayanagar
Branch, Bengaluru issued in favour of the complainant and Ex.P.1(a) is
the signature of the accused No.2 on the cheque. Ex.P.2 is the Bank
endorsement dated 01.05.2021, which was issued with a Shara "Funds
Insufficient". Ex.P.3 is the office copy of the statutory notice dated
08.05.2021. Ex.P.4 and 5 are the Postal receipts for having sent the
statutory notice to the accused through registered post. Ex.P.6 is the
postal acknowledgment issued by postal authority for having served the
notice on the accused. Ex.P.7 is the track consignment letter issued by
the postal authority for having served the notice on the accused.
Ex.P.7(a) is the Certificate U/s.65B of Indian Evidence Act.
11. I have perused the exhibits on which the complainant has
placed his reliance. On plain perusal of the exhibits, it is clear that the
cheque at Ex.P.1 bearing No.523149 dated 30.04.2021 for
Rs.3,00,000/ drawn on Corporation Bank, Vijayanagar Branch,
Bengaluru was presented through the Bank within its validity for
encashment and the Bank issued endorsement as per Ex.P.2 on
01.05.2021 with shara "Funds Insufficient". The complainant issued
statutory notice dated 08.05.2021 as per Ex.P.3 within time from the
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date of receipt of Bank Memo. The notice was served on the accused as
per Ex.P.6 and 7. The accused denied the service of notice. The counsel
for the accused also suggested the same to PW1 but he has denied it.
However as per the documents at Ex.P.6 and P.7, the defence of non
service of notice could not be taken into consideration. The complaint
was filed on 31.05.2021, which is within limitation. The accused No.2
has not disputed the cheque and signature on the cheque. Therefore,
the documents on record clearly show that the complainant has
complied the ingredients of Section 138(a) to (c) of the N.I.Act.
Therefore the presumptions U/s.118 and 139 of the N.I.Act arise in
favour of the complainant. The presumptions are rebuttable and the
burden is on the accused to rebut the presumptions. Once the issuance
of cheque is proved, the presumption arises that the cheque was issued
for legally enforceable debt/liability. However the actual existence debt
or liability can be contested. The accused can rebut the presumptions
by raising probable defence and proving it relying on the evidence of
the complainant or by leading his direct evidence.
12. The accused did not lead the defence evidence. It is settled
law that he need not lead defence evidence and he can very well rely
on the evidence adduced by the complainant. The counsel for the
accused crossexamined PW1. The defence of the accused as set up in
the cross examination of PW1 is that there are no documents to
substantiate the case of the complainant that he was the subscriber of
the chit in the Vijayanagar branch of accused No.1 company and he
was the successful bidder in respect of his two chits in the chit group of
Rs.10,00,000/ run by the accused No.1 company. The service of notice
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was disputed. It is also the defence that the cheque in question was
issued as security in respect of the transactions of the accused No.1
company and the blank cheque issued by the accused in favour of some
other person was misused by the complainant.
13. As far as the service of the notice to the accused is
concerned, the stand of the accused could not be considered as the
service of notice was proved by the complainant by producing Ex.P.6
and P.7. Further the defence taken by the accused as to the security
cheque is also vague. It is not suggested to PW.1 as to whether the
cheque was issued as security to him. If so, in respect of which
transaction it was issued is also not suggested. It is suggested to PW.1
that the cheque issued to some other person was misused by him.
However it is not suggested to PW.1 as to who was that other person
and what was his transaction with the accused and what was his
relation with PW.1. There is no specific defence and there is no clarity
in the defence. Moreover it is settled law that even though the cheque
is issued for security, it attracts the provisions U/s.138 of N.I.Act.
Therefore the defence of the accused that the blank signed cheque was
issued as security and it was misused by the accused is also not
believable.
14. The Hon'ble Supreme Court of India in the case of
Rangappa Vs. Mohan reported in 2011 (11) SCC 441 held that the
presumption mandated by Section 139 of N.I.Act does indeed include the
existence of legally enforceable debt or liability. It is rebuttable
presumption and it is open to the accused to raise a defence wherein the
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existence of legally enforceable debt or liability can be contested. However
there can be no doubt that there is an initial presumption which favours
the complainant. Section 139 of the Act is an example of reverse onus
clause that has been included in furtherance of the legislative objective of
improving the credibility of negotiable instruments. Therefore the as per
the presumption U/s139 of N.I.Act, if the cheque and signature are
admitted then it shall be presumed that there is legally enforceable
debt.
15. The Hon'ble Supreme Court of India in the case of
Rangappa Vs. Mohan reported in 2011 (11) SCC 441 also held that
in the absence of compelling justifications, reverse onus clauses usually
imposed an evidentiary burden and not persuasive burden. Keeping this in
view, it is settled position that when an accused has to rebut the
presumption U/s.139, the standard of proof for doing so is that of
preponderance of probabilities. Therefore, if the accused is able to raise
probable defence which creates the doubt about existence of legally
enforceable debt or liability, the prosecution can fail. The accused can rely
on the material submitted by the complainant in order to raise such
defence and it is conceivable that in some cases the accused may not need
to adduce evidence of his/her own. Therefore though the accused failed
to prove his specific defence, he can still rely on the evidence of the
complainant to rebut the presumptions by pointing out the infirmities
in the case of the complainant, which creates doubt on the case of the
complainant.
16. On perusal of the complaint and the evidence of the
complainant on record, it is clear that the accused No.2 is running chit
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business in the name and style Sree Gowri Ganesha Chits Pvt Ltd as its
Managing Director, which is accused No.1 company. It is a registered
chit fund company and the complainant did not produce any
documents to show that he is the subscriber of two chits in the chit
group of accused No.1 company of value of Rs.10,00,000/. The
company is the registered company carrying on the business of chits
and it has to be carried out by following all the provisions and the rules
under the Chit Funds Act. It is alleged in the complaint that the chit
group of Rs.10,00,000/ was started by the accused No.1 company at
its Vijayanagar Branch and the complainant took two chits of
Rs.10,00,000/ in the same chit group and became the subscriber
paying the monthly subscription of Rs.25,000/ each in respect of two
chits. The date of commencement of the chit group and the chit group
number is not mentioned in the complaint. It is neither mentioned in
the notice nor in the complaint about the chit agreement, passbook and
the receipts for having paid chit installments. No such documents are
produced. PW1 was crossexamined by the counsel for the accused and
it was elicited that the he did not produce the chit agreement. When it
was suggested to PW1 that the chit agreement is to be given to every
subscriber of the chit, PW1 answered that the accused gave the
passbook but it was taken back at the time of issuance of cheque. The
averments made in the complaint and the evidence of the
complainant show that the chit subscribed by the complainant is
not the registered chit and that the accused No.1 company
represented by accused No.2 was also running unregistered chits
apart from the registered chits as per the rules of Chit Funds Act,
which is illegal. If at all the complainant was the subscriber of
registered chit run by the accused No.1 company, he would have
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obtained minimum documents as per the rules of Chit Funds Act such
as application for subscription of the chit, chit agreement, receipts for
having paid installments and documents for having been a successful
bidder etc. It was elicited that there was no chit agreement between
him and the accused. No receipts have been produced for having paid
Rs.25,000/ each in respect of two chits per month. It is the case of the
complainant that the accused made part payment of Rs.3,00,000/ by
way of bank transfer in July, 2020. However the Bank statement was
not produced by the complainant to substantiate the said fact. There is
no document on record to show that the complainant was the
subscriber of the registered chit run by the accused No.1 company. No
prudent man would invest such huge amount by way of monthly
installments without there being any proof for investing the said
amount in the chit. Therefore it is not believable. Hence on perusal of
the oral and documentary evidence on record, this Court is of the
opinion that the complainant failed to prove that he is subscriber of the
registered chit run by the accused No.1 company.
17. It is clear from the complaint and evidence on record that
the chit in which the complainant alleged to have subscribed is
unregistered chit run by the accused No.1. The complainant alleged to
have become subscriber of the chit group of 40 members of worth of
Rs.10,00,000/ and took two chits. The complainant alleged to have
paid all the installments in respect of two chits having monthly
subscription of Rs.25,000/ each per month, which is totally amounting
to Rs.20,00,000/. As discussed above, the complainant failed to prove
that he was subscriber of registered chit run by accused and paid
Rs.20,00,000/ to the accused. Even though it is assumed that the
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complainant is subscriber of the unregistered chit and paid the monthly
subscriptions as alleged and the accused No.2 issued the cheque in
question in discharge of the said chit liability, it is to be considered
whether such liability becomes the legally enforceable debt/liability or
not as per the explanation appended to Section 138 of NI Act.
18. At this juncture, it is important to discuss the issue as to
whether the cheque in question, which is said to have been issued
towards chit liability can be said to have been issued in discharge of a
legal debt or liability. At this juncture it is necessary to discuss the law
governing Chit Funds. The Chit Funds Act, 1982 (hereinafter referred
to as the Chit Funds Act). It provides for mandatory registration of chit
Funds companies, in addition to sanction with respect to each chit
scheme individually. It also mandated a provision for minimum capital
requirements for a company intending to organize a chit funds, written
chit agreements between the foreman and the subscribers detailing
their respective contractual obligations and other similar regulations to
protect investor's interest. As per the rules, a Chit Funds company, in
order to run business is required to first obtain a certificate of
incorporation from the Registrar of Companies. Then the same needs to
be registered with the Chit Funds Department of the government after
compliance with the elaborate formalities including drawing up of bye
laws and spot inspection by the registrar. As per the Act, a prior
registration is mandatory. In addition to the above, every new chit
group organized needs to be approved from the Registrar. Moreover as
per provisions laid down in Sections 4 and 5 of the Chit Funds Act, no
person shall commence or conduct any chit or publish any notice,
circular, prospectus, proposal or other document inviting the public to
14 CC.24278/2021 (J)
subscribe for tickets in any chit unless previous sanction of the State
Government is obtained and unless the chit is registered in that State. A
written chit agreement is mandated as per Section 6 of the Chit
Funds Act, which must include the details regarding the
subscribers, the amount of subscription and various other
particulars. Moreover, the said chit fund agreement is required to
be filed with the Registrar, as per provisions of Section 7. It is also
mandated that the foreman has to provide copy of the chit fund
agreement to all the subscribers, as per provisions of Section 10 of
Chit Funds Act. Most importantly, the subscribers to the chit fund
are entitled to receive a receipt for the payment made by them in
lieu of installments, as per provisions of Section 27 of the Chit
Funds Act. The act also requires the foreman to give security of an
amount equal to the chit amount, before applying for sanction. This has
been done with object of protecting the interest of the investor. As per
Section 13 of the Chit Funds Act, no foreman, other than a firm or
other association of individuals or a company or cooperative society,
shall commence or conduct chits, the aggregate chit amount of which
at any time exceeds twentyfive thousand rupees. It is pertinent to note
that the accused runs registered chit company by name Sri Gowri
Ganesha Chits Pvt Ltd but the complainant did not choose to invest in
registered chit of the accused and instead invested in the unregistered
chit. It is clear that the complainant is not the subscriber of registered
chit. If at all it is registered chit, the complainant would have obtained
all the relevant documents. If the accused did not gave any such
documents except the pass book, nothing would have prevented him
from summoning the documents from the accused No.1 company or
obtaining the copies of the said documents from Registrar of Chits. The
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complainant is uneducated could not be accepted as the valid reason
for not obtaining the documents as prescribed under the law.
19. Therefore the question to be considered is whether such an
agreement between the parties, which is forbidden by law can give rise
to legally enforceable contract. The prosecution U/s 138 of the Act can
be sustained, if the debt or liability is legally enforceable. The
agreement to contribute made by a subscriber to an unregistered chit
Funds being run in violation of the statute is legally unenforceable.
Such an agreement, the object of which is forbidden by law, if given
effect to would defeat the provisions of statute i.e. Chit Funds Act.
Section 4 & 5 of the Chit Funds Act, 1982 prohibit running of a chit
fund or proposing subscriptions in a chit fund without sanction. The
complainant and accused knew that running chit without compliance of
the Act is illegal. Even though they did not know, ignorance of law is
no excuse. The Courts can not enforce an illegal agreement at the
instance of a person, who is himself a party to an illegality or fraud. It
is clear that the inherent infirmities in the case of the complainant are
sufficient to rebut the presumption of legal liability. Thus the
complainant has failed to establish one of the fundamental ingredients
of Section 138 of the Act, i.e. that the dishonoured cheque was issued
in discharge of a legally recoverable debt or liability.
20. The aforesaid reasons are sufficient to hold that the
complainant failed to prove the issuance of cheque by the accused in
his favour in discharge of the legally enforceable debt as alleged. It is
well settled that the accused needs to prove his defence by
preponderance of probabilities. It is sufficient if the doubt is created on
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the alleged transaction. The accused has created the doubt on the
transaction as alleged. Therefore this Court is of the opinion that the
accused rebutted the statutory presumption U/s.139 and 118(a) of the
Act. Accordingly, the accused No.2 representing Accused No.1 company
is found not guilty for the offence punishable U/s.138 of the N.I.Act.
Hence the Point No.1 is answered in the Negative and Point No.2 is
answered in the Affirmative.
21. Point No.3 : In view of the reasons assigned to Point No.1
and 2, I proceed to pass the following:
ORDER
As per the provisions of Sec.255(1) Cr.P.C. the accused No.2 representing accused No.1 company is hereby acquitted of the offence punishable u/s.138 of NI Act, 1881.
The personal bond executed by the accused No.2 stands cancelled and office is directed to refund cash surety of Rs.3,000/ to the accused after appeal period is over.
(Dictated to the Stenographer, transcript thereof is computerized and printout taken by him, is verified and then pronounced by me in Open Court on this the 30th day of March2022.) (Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.
17 CC.24278/2021 (J) ANNEXURE Witnesses examined for the Complainant: PW.1 M.Gangadhar Documents marked for the Complainant: Ex.P.1. Cheque Ex.P.1a Signature of the accused.
Ex.P.2 Bank endorsement.
Ex.P.3 Legal Notice.
Ex.P.4 & P.5 Two Postal receipts.
Ex.P.6 Postal Acknowledgment.
Ex.P.7 Track Consignment Letter.
Ex.P.7(a) Certificate U/s.65B of Indian
Evidence Act
Witnesses examined For Defence: Nil [ Documents marked for Defence: Nil (Lokesh Dhanapal Havale) XV Addl. CMM., Bangalore.