Karnataka High Court
Apara Enterprise Solution vs M/S Inflow Technologies Pvt Td on 28 April, 2026
Author: V Srishananda
Bench: V Srishananda
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CRL.RP No. 583 of 2021
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF APRIL, 2026
BEFORE
THE HON'BLE MR. JUSTICE V SRISHANANDA
CRIMINAL REVISION PETITION No.583 OF 2021
(397(Cr.PC) / 438(BNSS)
BETWEEN:
1. APARA ENTERPRISE SOLUTION
PRIVATE LTD, UNIT-2,
LOWER LEVEL,
GROUND FLOOR, NO.139,
OXFORD TOWERS, KODIHALLI,
AIRPORT ROAD,
BANGALORE-560017
(HANDED OVER TO OFFICIAL LIQUIDATOR
(EX. COMPANY)
PIN 560 017
2. SRI MANPREET SING SIDHU
S/O RAJENDER SINGH,
AGED ABOUT 55 YEARS,
R/AT NO.17, GRACE VILLA,
5TH MAIN, SANTRUPTI LAYOUT,
KOTHANUR DINNE, J.P.NAGAR,
7TH PHASE,
Digitally MANAGING DIRECTOR OF
signed by R
MANJUNATHA APARA ENTERPRISES PVT. LTD,
Location: BANGALORE - 560 078.
HIGH COURT
OF 3. SMT.VIDYALAKSHMI SIDHU
KARNATAKA
AGED ABOUT 52 YEARS
R/AT# 17, GRACE VILLA,
5TH MAIN, SANTRUPTI LAYOUT,
KOTHANUR DINNE, J.P NAGAR,
7th PHASE,
(DIRECTOR OF APARA ENTERPRISES PVT. LTD,
COMPANY)
BANGLAORE - 560078
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CRL.RP No. 583 of 2021
...PETITIONERS
(BY SRI. JAIRAJ G, ADVOCATE)
AND:
M/S INFLOW TECHNOLOGIES PVT TD
NO.33, AND 34, INDIRANAGAR 1ST STAGE,
OFF 100 FEET ROAD, BANGALORE 38.
REP. BY SRI PREM KUMAR.
...RESPONDENT
(BY SRI R.KIRAN, ADVOCATE)
THIS CRIMINAL REVISION PETITION IS FILED UNDER
SECTION 397 R/W 401 CODE OF CRIMINAL PROCEDURE
PRAYING TO SET ASIDE THE JUDGMENT AND SENTENCE
DATED 25.08.2015 PASSED BY THE LEARNED XIV ACMM,
BANGALORE IN C.C.NO.26048/2013 AND THE JUDGMENT
DATED 06.03.2021 PASSED BY THE HON'BLE LVII ADDITIONAL
CITY CIVIL JUDGE, MAYO HALL UNIT AT BANGALORE IN
CRL.A.NO.25120/2015 AND ACQUIT THE PETITIONERS.
THIS PETITION HAVING BEEN RESERVED FOR ORDERS,
COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:-
CORAM: HON'BLE MR. JUSTICE V SRISHANANDA
CAV ORDER
Accused who suffered an order of conviction for the
offence punishable under Section 138 of the Negotiable
Instruments Act, 1881 confirmed in C.C.No.26048/2013
confirmed in Criminal Appeal No.25120/2015 is the revision
petitioner.
2. Facts which are utmost necessary for disposal of the
present revision petition are as follows:
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CRL.RP No. 583 of 2021
2.1 Respondent/complainant lodged a complaint under
Section 200 of the Code of Criminal Procedure with XIV
Additional Chief Metropolitan Magistrate, Mayo Hall Unit,
Bengaluru, alleging commission of the offence punishable under
Section 138 of the Negotiable Instruments Act, 1881
contending that, complainant is a company incorporated under
the provisions of the Indian Companies Act, 1956 carrying on
the business of Information and Technology products and
services. It also had its business in distribution of software and
hardware.
2.2 It is further found from complaint averments that
second accused being the Managing Director and third accused
being the Director of the accused No.1/Company, viz., Apara
Enterprise Solutions Private Limited had the business
transaction with the complainant.
2.3 Accused No.2 issued a cheque towards the
repayment of the amount outstanding to the complainant.
There was a business transaction of purchase orders and
invoices to the tune of Rs.4,84,27,931/-. When the same was
demanded repeatedly, payment was postponed. Ultimately
second accused being the Managing Director of the first
accused Company issued an acknowledgment of debt on
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16.03.2011 and agreed to pay the amount with 15% interest
calculated upto 31.01.2011 which works out to Rs.72,95,708/-.
2.4 Towards the repayment, fifteen cheques were
issued. Out of those cheques, cheque No.853204 dated
20.04.2012 was to the tune of Rs.72,95,710/- and cheque No.
853205 dated 20.05.2012 was a sum of Rs.76,595/- drawn on
State Bank of India, Bengaluru.
2.5 Both the cheques on presentation got dishonored
with an endorsement 'funds insufficient'. A legal notice was
issued to the accused calling upon the amount covered under
the cheques to be repaid.
2.6 Notice was not claimed by the accused and
therefore, complainant sought for action against the accused.
3. Learned Trial Magistrate after completing necessary
formalities, summoned the accused. Accused Nos.2 and 3
appeared before the Court and plea was recorded. The accused
pleaded not guilty. Therefore, trial was held.
4. In order to prove the case of the complainant, authorized
signatory of the complainant by name Sri Prem Kumar was
examined as PW-1 and placed on record as many as 70
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documentary evidence which are exhibited and marked as
Exhibits P-1 to P-70.
5. As against the material evidence placed on record by the
complainant, Sri Manpreet Singh Sidhu, second accused got
examined himself as DW-1. He placed on record eight
documentary evidence which were exhibited and marked as
Exhibits D-1 to D-8.
6. Thereafter, learned Trial Magistrate on cumulative
consideration of the oral and documentary evidence placed on
the record by both the sides, convicted the accused and
sentenced as under:
"Acting under Section 255(2) of Cr.PC accused are
hereby convicted and accused Nos.2 & 3 are being the
Managing Director and Director of accused No.1
Company are sentenced to undergo simple
imprisonment for one year for the offence punishable
under Section 138 of Negotiable Instrument Act.
Acting under Section 357(3) of Cr.PC accused are
directed to pay a compensation/fine of
Rs.1,00,55,000/- to the complainant towards the loss
and injury suffered by him.
In the total compensation/fine amount, a sum of
Rs.5,000/- shall be deposited as fine to the State.
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CRL.RP No. 583 of 2021
In default of the aforesaid compensation/fine amount
accused Nos.2 & 3 shall further undergo simple
imprisonment for three months."
7. Being aggrieved by the same, accused filed an appeal
before the District Court in Criminal Appeal No.25120/2015.
8. Learned Judge in the First Appellate Court, after securing
the records, heard the arguments in detail and on re-
appreciation of the material evidence on record, dismissed the
appeal of the accused. However, the First Appellate Court
modified the judgment of the learned Trial Magistrate by
enhancing the default sentence from three months to one year
inter alia, holding in paragraph Nos.24 to 31 as under:
"24.In this case, issuance of Cheques is admitted by
the accused and the signature on Cheques Exs.P2 and
P3 are also admitted, but denies that said Cheques
have been issued for discharge of liability. On the
other hand, according to them cheques were issued
as security. It is pertinent to note that when the
Cheques has been issued as security and when the
repayment is not made as agreed, holder in due
course has got every right to present the Cheque for
encashment. When the accused themselves admitted
regarding issuance of Cheques as security, now they
cannot claim that there is no liability.
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25. Another contention taken by the accused that
Exs.P67 and 68 are issued by mistake of fact. On
perusal of Ex.P67 it reflects that on 10.3.2011
accused discloses that they are desirous to settle the
matter and willing to extend cooperation. Further
agreed by the arrangement to restructure the debt
and settle the matter by making payments in
installments, wherein they admitted that they are
having balance of Rs.4,38,90,544/. Further, they
agreed to pay by the end of March2012 and agreed to
continue the business plan and also requested not to
resort to any legal recourse as stated in the notice of
the complainant as accused are willing to go for
amicable settlement.
26. Further Ex.P68 reflects that accused persons
acknowledged the debt and also disclosed about
invoice number and outstanding dues. Further
disclosed that they sought some more time to clear
outstanding dues and also agreed to pay interest at
the rate of 15% per annum on all outstanding
balances, until such amounts have been paid in full.
Further it is notified the amount of interest that has
accrued and is payable at the end of each calendar
quarter whereupon they will promptly provide inflow
with a post dated cheque to cover such debt. So, I
am of the opinion that accused persons acknowledged
the debt. How they can go back to their stand? The
accused cannot claim that Exs.P67 and 68 are issued
by mistake of fact.
27. According to accused, in another case accused are
acquitted on the ground that Cheque issued as
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security. In my opinion, each case should be proved
independently. Any order passed by the co bench
cannot be applied to another cobench and the
accused cannot take benefit that in another case
accused are acquitted, hence they should claim on par
to acquit in this case. The complainant had produced
the invoices, which got marked as Exs.P22 to 51,
which supports the contention of the complainant.
Further, Ex.P69 discloses about the detail transaction
with accused No.1
28. Further, the accused persons had produced copy
of the Notice and evidence given by them in other
Court and Tax paid invoices, Company petition and
the judgment. These documents nothing to do with
this case and it is not sufficient evidence to rebut the
presumption available in favour of the complainant.
Filing a Company Petition before Bombay High Court
against Yahoo Company does not vitiate the
proceedings of this case and later does not bar filing
of the complaint u/S.138 of N.I.Act for the reason
complainant already filed Company Petition. It is
pertinent to note that accused No.2 is the signatory of
the Cheque and accused No.3 is having control over
the daytoday affairs of accused No.1 Company.
Accused Nos.2 and 3 are also parties to the Escrow
Account agreement. Though accused No.1 agreed for
making settlement and acknowledged existence of
debt as per Exs.P67 and 68, not bothered to come
forward to clear outstanding and to settle the matter.
So, in my opinion, the accused failed to rebut the
presumption available u/S.138 of N.I.Act in favour of
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complainant. Further failed to establish that the
Cheques not issued for discharge of debt or liability.
On the other hand, complainant had produced
sufficient material evidence before this Court to show
that accused had issued cheques as per Exs.P2 and
P3 for discharge of debt and when the Cheques has
been presented for encashment, it has been
dishonoured for the reason 'funds insufficient' and in
spite of service of notice, accused not bothered to
comply the demand made in the notice. When the
accused failed to rebut the presumption and failed to
establish their defence, I am of the opinion that the
Court has no hesitation to hold that complainant
proved the guilt of the accused.
29. The accused No.1 is a Company and accused
No.2 is Director having control over the accused No.1
Company. The Company does not have a physical
body. In the event of conviction when the default is
committed by the Company and the Company's
responsible persons for the affairs are also liable. In
this case, trial Court on appreciating the evidence of
both the parties and come to the conclusion that
accused are committed the offence u/S.138 of N.I.
Act. Accordingly, convicted the accused Nos.2 and 3
holding that they are Managing Director and Director
of the accused No.1 Company are sentenced to
undergo simple imprisonment for one year for the
offence punishable u/S.138 of N.I.Act. 30. The object
of the ingredients of Negotiable Instruments Act is
that 'to bring back the credibility to inculcate faith in
the efficacy of Banking operations in transacting
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business on Negotiable Instruments in general to
bring the erring drawer to book, so that such
irresponsibility is not perpetuated and also to protect
the honest drawer and safeguard the payee who is
alomost a loser.' This has been observed by the
Hon'ble Apex Court in the case of Vinaya Devanna
Nayak Vs. Ryot Sewa Sahakari Bank Ltd. in 2008 (2)
SCC 305. Further, regarding punishment is
concerned, the Court can pass order imposing fine or
sentencing him imprisonment or both. 31. In the
present case in hand, the trial Court convicted the
accused Nos.2 and 3 who are the Managing Directors
of accused No.1 Company sentencing them to
undergo simple imprisonment for one year. I did not
find any reason to interfere with respect to the
imposition of fine and compensation is concerned.
Accused Nos.2 and 3 are the Managing Directors of
accused No.1 Company. So, I am of the opinion that
in default of payment of fine amount, it is fit to
impose default sentence on the accused Nos.2 and 3.
With the above discussion, I am of the opinion that
the sentence imposed by the trial Court is required to
be modified. There is no reason to interfere with the
fine imposed by the trial Court. Therefore, I am of
the opinion that trial Court rightly appreciated all the
aspects and rightly convicted the accused and this
Court did not find any illegality in the finding of the
trial Court. Accordingly, point No.1 is answered in
Affirmative and point No.2 is answered in partly
Affirmative."
9. Ss
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10. Being aggrieved by the same, accused has preferred the
present revision petition on following grounds:
The Judgment and order of courts below are
perverse opposed to law and materials on records
and liable to be set-aside.
Both the courts below have grossly erred in ignoring
abundant rebuttal evidence available on record by
drawing assumption and presumption inadmissible in
law.
Both the courts below have failed to observe that,
not only there are abundant materials available in
the form of documents but also material elicited in
the cross examination of the PW-1 to rebut the
presumption under Sec.139 of N.I.Act.
Both the courts below have failed to observe that,
there was tripartite between the agreement
complainant/respondent the petitioners and one
Yahoo.com company and as per the contract, the
respondent has agreed to supply the goods to Yahoo
on the basis of purchase orders by the petitioners to
the respondent only on the conditions that, Yahoo
Company shall make the payment by depositing the
invoice amount directly to the "ESCROW
ACCOUNT" of the Respondent and petitioners
wherein, the Respondent is the sole beneficiary.
And in-fact, the said contract/agreement was acted
upon by the Respondent and the Yahoo Company,
respect of supplying the good to yahoo and receiving
payments through the ESCROW ACCOUNT.
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CRL.RP No. 583 of 2021
Both the courts below have failed to observe that, as
per the respondent, goods were delivered to Yahoo
Company and there were no disputes regarding the
quality and quantity of goods supplied and Yahoo
Company was liable to make the payments and the
above facts have been suppressed by the
Respondent before the court elicited in the cross
examination of (PW-1). Hence, the Respondent has
not come before the court with clean hands.
Both the courts below have failed to observe
that, the petitioners are not liable to pay the
amount covered under the cheque which, has
been proved by oral and documentary evidence
like Ex.P.65 ESCROW Agreement, Ex.D1 dt.
01/06/2011 notice issued to Yahoo company by
the Respondent holding them responsible and liable
and further the respondent filing a company petition
before the Hon'ble High Court at Bombay against the
Yahoo Company holding it solely liable which is
marked as Ex.D7.dt.20/06/2012, and non-
mentioning of the alleged acknowledgment of debt
Ex. P.68 and issuance of cheques by the petitioner.
Both the courts below have grossly erred in
observing that, Ex.D1 dt. 01/06/2011 is a demand
notice made to the petitioners Company which is
wrong. Since, Ex. D1 is the legal notice issued by the
Respondent to the Yahoo.com company holding them
responsible for liability which is more precisely as per
Sec. 41 and 53 of Indian Contract Act.
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Both the courts below have totally ignored the
evidence of the defence witness and the documents
relied by him and proving that, the cheques have
been issued only as security and that, the petitioners
are not liable to pay amounts mentioned in Ex.P.68
THE DISPUTED ACKNOWLEDGMENT OF DEBT.
Since, it has been proved beyond doubts that, it
contains materials supplied on cash transaction and
material supplied to Yahoo Company which are
admitted to be payable by Yahoo.com only and
Respondent/Complainant has already initiated
proceedings like winding up petition, filing of Civil
suit etc., against Yahoo.com.
Both the courts below have failed to observe that,
the petitioner were acquitted in the first case
based on the same set of facts and documents
in respect of 6 cheques out of 15 cheques
alleged to have been issued by the petitioner
No.1 in CC.NO.26017/2012 which is marked as
Ex.D8. and the present cheques Ex. P.2 & Ex.P.3 are
said to have been issued to-wards interest.
It has come in the evidence of PW-2 Vijay in the
other case filed by the Respondent in respect of 6
cheques in C.C.NO.26017/2012 that, Yahoo
Company has not denied the liability which goes to
the root of the case and which is clear from the
above facts that, the petitioners are no where
benefited in the transactions.
Both the courts below have failed to observe that,
One Mr.Vijay examined as PW-2 in connected case
above who has the fullest knowledge of the
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transactions between the parties has not been
examined in the instant case as such, and adverse
inference should have been drawn against the
prosecution more particularly due to the fact that he
has admitted in cross examination in that case that,
the cheques have been issued as a security and
Yahoo.com company is alone liable to pay etc..
Both the courts below have failed to observe that,
the complainant has taken a definite and consistent
stand that, goods were supplied to Yahoo company
and they are liable to pay and there is no demand by
the respondent/complainant asking the petitioners to
pay the amount defaulted by Yahoo company.
There is nothing on record to show that, the
Respondent/Complainant accepted the alleged offer
made by the petitioners as per Ex. P.68 on the other
hand there is abundant material to show that the
Respondent/complainant has not at all presented the
cheques, on respective dates on the cheques. But,
only proceeded against Yahoo Company for the
recovery holding them solely responsible for the
payment.
Both the courts below failed to observe that, the
alleged acknowledgement of debt Ex.P.68 is false
and within the knowledge of the
respondent/complainant as the same contains cash
bills and invoice not payable by the
petitioners/accused which cannot be treated as debt
as such using the Ex. P.68, the alleged
acknowledgement of debt known to be false as
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evidence in a judicial proceedings amount to offence
punishable under sec.196 of IPC.
It has come in the evidence that, the
respondent/complainant has filed a civil suit for
recovery against the Yahoo as the liability was
seriously disputed, the trial court appellant should
have either acquitted the petitioners/accused or
waited for the result of the Civil suit which has
resulted in grave miscarriage of justice for the
reason that, the respondent/complainant has filed a
civil suit clearly claiming that, out of the 16 purchase
order/invoices Ex.P.19 to 24 amounting TO 8.56
Crore is due from Yahoo.com, and the
petitioners/accused jointly and severally, thereby
making it clear that, there is no due/liability in
respect of the invoice of yahoo in Ex. P.66 in
respect of which the alleged cheques have been
issued.
It is submitted that, the civil suit has been decreed
for a sum of Rs. 8.56 Crore holding Yahoo and the
petitioners liable in respect of five (5) invoices which
are not the invoices in Ex. P.68 Acknowledgment of
debt which is a clear inference that, nothing is due
in respect of the invoices against which
cheques has been issued.
The erroneous judgment/order of the courts below
has resulted in grave miscarriage of justice leading
to unlawful gain to the respondent/complainant and
unlawful loss to the petitioner since, the first 3
invoices shown in Ex.p.68 are payable by Yahoo
company as per the evidence of the
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respondent/complainant in his cross examination.
And further there is no due at all in respect of
these three invoices.
Both the courts below have failed to note that, the
respondent/Complainant has not laid any claim in
respect of the invoices above against which the
cheques are issued in the civil suit leading to the
inference that, nothing is due in respect of these
invoices and consequently dishonour of the cheques
does not amount to the offence under the N.I.Act,
since, "THERE IS NO LEGALLY ENFORCEABLE
DEBT".
It is humbly submitted that, the judgment has been
passed during the pendency of the civil suit and the
civil suit has been concluded and the matter in the
alternative deserves to be re-tried. Since, the suit
has been decreed not only against Yahoo but, the
decree is in respect of invoices not shown in Ex.P.68.
and the total liability is the decreed amount only.
Both the courts below failed to observe that there is
no evidence as against the petitioner No.3 except
alleging that she is a director and she is not a
signatory to any of the documents including Ex. P.68
and cheques in question.
Both the courts below failed to observe that
petitioner No.3 cannot be held liable for the wrong
acknowledgment of debt and issuance of cheque by
petitioner No.2 for a sum not due by the company.
Both the courts below failed to observe that there is
no evidence is led to show has to why the second
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cheque Ex. P.3 has been issued at all and why the
remaining cheques where not presented at all for
encashment.
The appellate court below has grossly erred in
enhancing the punishment in a criminal appeal
against conviction by modifying the sentence in
default of fine from 3 months SI to one year SI which
is illegal.
Looking to totality of the circumstances and proved
facts indicates and conclusively point out that, the
alleged issuance of acknowledgement of debt Ex.P.68
and reply notice Ex.P.67 have been made purely due
to "MISTAKE OF FACT" and it is wrong
acknowledgement of debt."
11. Sri G.Jairaj, learned counsel for the revision petitioner,
reiterating the grounds of urged in the revision petition,
vehemently contended that the transaction was with one Yahoo
India Private Limited ('Yahoo Limited' for short), after direct
dealing between accused Company and complainant was
stopped as per escrow agreement.
12. As such, Yahoo Limited was required to deposit the
amount into the escrow account. The invoices marked as
Exhibits P-19 to P-27 were in the name of Yahoo Limited,
wherein, materials were supplied to Yahoo Limited. Therefore,
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there is no privity of contract between the complainant and
accused.
13. As such, there was no legally recoverable debt involved
under Exhibits P-2 and P-3 cheques which has not been
appreciated by both the Courts in proper perspective and
wrongly convicted the accused resulting in miscarriage of
justice.
14. He would further contend that as per Section 41 of the
Indian Contract Act, 1872, when there is no privity of contract
between the complainant and accused, there is no legally
recoverable debt at all which is a sine qua non for holding that
accused has committed an offence punishable under Section
138 of the Negotiable Instruments Act, 1881 in view of the fact
that Exhibits P-2 and P-3 cheques were dishonored.
15. It is also emphasized by Sri Jairaj that there is a clear
admission by PW-1 in his cross-examination that Exhibits P-19
to 27/invoices are in the name of Yahoo Limited and materials
were supplied to said Yahoo Limited.
16. He brings to the notice of the Court that a notice came to
be issued by the complainant on 01.06.2011 to Yahoo Limited.
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Amount was demanded from Yahoo Limited. Since the said
notice was admitted by P.W-1, in his cross-examination said
notice was marked as Exhibit D-1.
17. He also brings to the notice of the Court that P.W-1 has
admitted that a Company Petition came to be filed by the
complainant against Yahoo Limited before the High Court of
Judicature, Mumbai. There is an admission by PW-1 that as per
Exhibit P-68, acknowledgment of debt is not mentioned.
18. Sri Jairaj also pointed out that there is a suit pending in
O.S No.5466/2012 wherein accused and Yahoo Limited are
party defendants.
19. According to Sri Jairaj, there is one more case filed in C.C
No.26107/2012 in respect of Exhibits P-19 to P-24 invoices and
acknowledgment of debt vide Exhibit P-68.
20. Therefore, cheques in question were issued as security
which has not been properly appreciated by both the Courts
and recorded an order of conviction has thus resulted in
miscarriage of justice and sought for allowing the revision
petition.
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21. In support of his arguments, Sri Jairaj, placed reliance on
the judgment of the High Court of Kerala at Ernakulam in the
case of Mr.Danikutti Philip vs. Mr.Johnykutty J, passed in
Criminal Appeal No.1965/2025 dated 26.03.2026,
wherein it has been held as under:
"9. Coming to the legal issue involved in this case,
Sections 15 and 56 of the NI Act assumes significance.
Section 15 of the NI Act deals with indorsement and
Section 56 of the NI Act deals with indorsement for part
of the sum due. Section 15 of the NI Act provides as
under:
"15. Indorsement.--When the maker or holder of a
negotiable instrument signs the same, otherwise
than as such maker, for the purpose of negotiation,
on the back or face thereof or on a slip of paper
annexed thereto, or so signs for the same purpose a
stamped paper intended to be completed as a
negotiable instrument, he is said to indorse the
same, and is called the "indorser."
Section 56 of the NI Act provides as under:
"56. Indorsement for part of sum due.--No
writing on a negotiable instrument is valid for
the purpose of negotiation if such writing
purports to transfer only a part of the amount
appearing to be due on the instrument; but
where such amount has been partly paid, a note
to that effect may be indorsed on the
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instrument, which may then be negotiated for
the balance".
10. In Dashrathbhai's case (supra), in paragraph No. 30,
while addressing the indorsement required to be made
under Sections 15 and 56 of the NI Act, the Supreme
Court held as under:
"30. In view of the discussion above, we
summarise our findings below:
(i) For the commission of an offence under S.
138, the cheque that is dishonoured must
represent a legally enforceable debt on the date
of maturity or presentation;
(ii) If the drawer of the cheque pays a part or
whole of the sum between the period when the
cheque is drawn and when it is encashed upon
maturity, then the legally enforceable debt on
the date of maturity would not be the sum
represented on the cheque;
(iii) When a part or whole of the sum
represented on the cheque is paid by the
drawer of the cheque, it must be endorsed on
the cheque as prescribed in S. 56 of the Act.
The cheque endorsed with the payment made
may be used to negotiate the balance, if any. If
the cheque that is endorsed is dishonoured
when it is sought to be encashed upon maturity,
then the offence under S. 138 will stand
attracted;
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(iv) The first respondent has made part -
payments after the debt was incurred and
before the cheque was encashed upon maturity.
The sum of rupees twenty lakhs represented on
the cheque was not the 'legally enforceable
debt' on the date of maturity. Thus, the first
respondent cannot be deemed to have
committed an offence under S. 138 of the Act
when the cheque was dishonoured for
insufficient funds; and
(v) The notice demanding the payment of the
'said amount of money has been interpreted by
judgments of this Court to mean the cheque
amount. The conditions stipulated in the
provisos to S. 138 need to be fulfilled in
addition to the ingredients in the substantive
part of S. 138. Since in this case, the first
respondent has not committed an offence under
S. 138, the validity of the form of the notice
need not be decided."
11. Thus the law emerges is that, when a part of the
sum covered by the cheque is paid during the period
between the date on which the cheque is drawn and its
encashment upon maturity, then the legally enforceable
debt on the date of maturity would not be the sum
represented on the cheque. Further, when a part, or the
whole of the sum represented in a cheque is paid by the
drawer, the same must be indorsed on the cheque as
prescribed under Section 56 of the NI Act. Then the
indorsed cheque could be used to negatiate the balance,
if any. On dishnour of cheque, which was presented for
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getting the balance amount, excluding the amount
indorsed as paid, then the offence under Section 138 of
the NI Act would be attracted. However, when part
payment(s) is/are made and the indorsement mandated
under Section 56 of the NI Act failed to be recorded,
presenting the cheque for the whole sum, of which a part
payment has already been paid, does not represent the
legally enforceable debt; thus no offence under the NI
Act would lie in case of dishonour of such a cheque. The
rationale is that, in order to attract an offence under
Section 138 of the NI Act, the dishonoured cheque must
represent a legally enforceable debt.
12. On the facts of this case, admittedly, the cheque is
dated 31-10-2017. As per the averments in the
complaint, it could be gathered that the cheque was
presented for collection through the Idukki District
Cooperative Bank, Nedumkandam branch, on 2-11-2017
and the same got dishonoured for want of funds. After
dishonour of the cheque for the first time, the accused
paid Rs 1,94,000 and Rs 1,96,000 on 14-11-2017 and
15-11-2017 respectively to the complainant. It was
thereafter when the accused failed to repay the balance
amount, the cheque was again presented without
making the required indorsement under Section 56 of
the NI Act, and the complainant launched prosecution
claiming Rs 10,90,000 as such, shown in the cheque
itself, without disclosing the part payments in the
complaint. If so, the prosecution could not be held as
one consequent to dishonour of a cheque which
represent a legally enforceable debt coming to Rs
10,90,000. When the prosecution is not for a legally
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enforceable debt in full on the date of presentation of the
cheque, no offence under Section 138 of the NI Act get
attracted.
13. Since the law is settled in the above line, in the
present facts of the case, finding of the learned
Magistrate that offence under Section 138 of the NI Act
is not attracted is perfectly justifiable. In view of the
above, verdict impugned is liable to be confirmed."
22. Per contra, Sri R.Kiran, learned counsel for the
respondent, supports the impugned judgments by contending
that in the entire cross-examination of PW-1, there is no
challenge to the acknowledgment of debt executed by accused
Company signed by accused No.2. The escrow account
agreement (Exhibit P-65) wherein there is an acknowledgment
of debt.
23. As such, the contentions now urged before this Court
cannot be countenanced in law, that too, having regard to the
scope of revision where this Court cannot revisit into the factual
aspects of the matter.
24. He would further invite the attention of this Court to the
cross-examination of DW1(accused No.2) wherein there is a
clear admission that in Exhibit P-68 one of the cheque involved
in the present case bearing No.853204 is mentioned.
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25. He also points out that the witness has put in his
appearance before this First Appellate Court in respect of the
order of acquittal vide Exhibit D-8 and thus sought for dismissal
of the petition.
26. Having heard the arguments of both sides, this Court
bestowed its attention to the material on record meticulously.
27. As could be seen from the material on record, cheques
marked at Exhibits P-2 and P-3 does belong to accused No.1
Company. Signature found in Exhibits P-2 and P-3 is that of
accused No.2.
28. Admittedly, cheques were dis-honoured with an
endorsement of insufficient funds. Legal notice was issued vide
Exhibit P-6. In the said legal notice itself, there is a clear
mention as to the transaction of Rs.4,84,27,931/- and also
there is a mention about the acknowledgment of debt, wherein
interest is calculated on the outstanding amount and dues of
the accused to the complainant was crystallized in a sum of
Rs.72,95,708.99. Two cheques were issued towards the
clearance of the said amount as per Exhibits P-2 and P-3 is also
points placed in Exhibit P-6.
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29. Admittedly the accused has not claimed the notice issued
and return covers are placed on record. Exhibit P-13 is the
office copy of the notice. Exhibits P-19 to P-51 are the copies
of invoices.
30. Important document as per the complainant is the escrow
account agreement marked at Exhibit P-65, wherein there is an
acknowledgment of debt. Said escrow account agreement is
between accused, complainant and Axis Bank. Said agreement
is not in dispute. Words namely 'Escrow Account', 'Company's
Account', 'Business Day' were defined in the said agreement in
clause 1.01.
31. When the transaction has taken place between the
complainant and accused directly, huge arrears was there.
Therefore, an intermediary by name 'Yahoo Limited' took over
the responsibility that Invoices can be raised for supply of
materials and Yahoo Limited would pay the amount for and on
behalf of the accused.
32. That is the stand taken by the accused, but nobody is
examined on behalf of the accused to establish the said
arrangement.
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33. However, Exhibits P-19 to P-24 and P-27 were raised in
the name of Yahoo Limited and also there is a specific
admission that materials were being supplied to Yahoo Limited
which in turn used to supply to the accused company and value
of those materials would be deposited into the escrow account.
34. A notice also came to the issued to Yahoo Limited by the
complainant, which was admitted by PW-1 and marked at
Exhibit D-1. Paragraph 8 is relevant in the said notice which
reads as under:
"8. Take Notice, that we hereby call upon you to
pay the amount of Rs.8,56,48,640.90 (Rupees Eight
Crores Fifty Six Lacs Forty Eight Thousand Six Hundred
Forty and Ninety Paise) within 21 days from the date of
receipt of this notice. You are also liable to pay interest
@ 18% p.a. from the respective due dates of the
invoices on the amount overdue till the date of the
payment. In case of failure to comply with the terms of
this notice, our client has instructed us to initiate
appropriate legal action against you including winding up
proceedings under Section 433 of the Companies Act,
1956, for which all costs and consequences you will be
liable. Further our client also reserves liberty to initiate
appropriate legal action including both civil and criminal
against you and your Directors and all the officials who
are involved in the said transactions without further
notice to you."
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35. It is the case of the accused that another case filed by the
complainant is dismissed and therefore, in the present case
there could not have been any conviction. Likewise, certified
copy of the Company Petition filed before the High Court of
Judicature, Mumbai Company Petition No.425/2012 is also
placed on record and marked as an Exhibit.
36. In other words, all that the accused wanted to impress
upon the Trial Court is that cheques marked at Exhibits P-2 and
P-3 are issued as security cheques by the accused Company
and the same has been misused by the complainant to foist a
false case against the accused as no liability was existing to pay
any money under Exhibits P-2 and P-3 by the accused to the
complainant.
37. In this regard, detailed cross-examination of PW-1 did not
yield any positive material, except for the fact that the invoices
marked at Exhibits P-2 and Exhibits P-24 to P-28 are drawn on
Yahoo Limited.
38. It is in this regard, Sri Jairaj with vehemence pressed into
service Section 41 of the Indian Contract Act, 1872. For ready
reference, Section 41 of the said Act is culled out hereunder.
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"41. Effect of accepting performance from third
person.--
When a promisee accepts performance of the promise
from a third person, he cannot afterwards enforce it
against the promisor."
39. On close reading of the above provision, if the third party
is involved with regard to the promise, said third party who has
undertaken to perform the promise, promisee cannot enforce
the obligation against the promisor.
40. In the case on hand, for the escrow agreement Yahoo
Limited is not made as a party. Therefore, it is a private affair
between the accused and the Yahoo Limited. Having not
examined anybody from Yahoo Limited as a witness to establish
that there was no liability at all of the accused to the
complainant Company, the plea taken by the accused that
there was no legally recoverable debt under Exhibits P-2 and P-
3 and cheques which have been given as security has been
misused by the complainant cannot be countenanced in law.
41. Moreover, if the cheques were really misused as is
contented by the accused, positive action should have been
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taken against the complainant for having misused the cheques
which were given as security.
42. No such action is forthcoming on record even after
engaging the services of an advocate and matter was fought
tooth and nail before the Trial Magistrate as well as before the
First Appellate Court.
43. Further, if a cheque is issued towards the security,
whether it would attract the offence under Section 138 of the
Negotiable Instruments Act is no longer res integra.
44. Hon'ble Apex Court in the case of Sripathi Singh (since
deceased) through his son Gaurav Singh vs. State of
Jharkhand and another reported in (2022)18 SCC 614 at
paragraph 22 has held as under:
"22. When a cheque is issued and is treated as
"security" towards repayment of an amount with a time
period being stipulated for repayment, all that it ensures
is that such cheque which is issued as "security" cannot
be presented prior to the loan or the instalment maturing
for repayment towards which such cheque is issued as
security. Further, the borrower would have the option of
repaying the loan amount or such financial liability in any
other form and in that manner if the amount of loan due
and payable has been discharged within the agreed
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period, the cheque issued as security cannot thereafter
be presented. Therefore, the prior discharge of the loan
or there being an altered situation due to which there
would be understanding between the parties is a sine
qua non to not present the cheque which was issued as
security. These are only the defences that would be
available to the drawer of the cheque in a proceeding
initiated under Section 138 of the NI Act. Therefore,
there cannot be a hard-and-fast rule that a cheque which
is issued as security can never be presented by the
drawee of the cheque. If such is the understanding a
cheque would also be reduced to an "on demand
promissory note" and in all circumstances, it would only
be a civil litigation to recover the amount, which is not
the intention of the statute. When a cheque is issued
even though as "security" the consequence flowing
therefrom is also known to the drawer of the cheque and
in the circumstance stated above if the cheque is
presented and dishonoured, the holder of the
cheque/drawee would have the option of initiating the
civil proceedings for recovery or the criminal proceedings
for punishment in the fact situation, but in any event, it
is not for the drawer of the cheque to dictate terms with
regard to the nature of litigation."
45. Even assuming that the cheques were given as security,
accused cannot escape the liability.
46. Lastly, an order of acquittal in the respect of another
cheque issued by the accused in C.C No.26107/2012 produced
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vide Exhibit D-8 and depositions thereon and the complaint
copy is sought to be pressed into service.
47. In the first place, the said document is of no avail to the
accused to further advance his case in seeking an order of
acquittal inasmuch as order of the Trial Magistrate would not
bind this Court.
48. Moreover said order of acquittal is challenged by the
complainant and it is now pending before this Court and
accused has entered appearance. Further, deposition of a
living witness cannot be relied in another proceedings.
49. Therefore, the alleged admissions of PW-2 in the said
case would not improve the case of the accused in establishing
the fact that there is no legally recoverable debt.
50. Further, taking note of these aspects including the
judgment of the Hon'ble Apex Court in the case of Sripathi
Singh supra, the judgment of the Kerala High Court in the case
of Mr.Danikutti Philip supra, is of no avail in advancing the
case of the accused.
51. What is the presumption and how available to the
complainant under Section 139 of the Negotiable Instruments
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Act, 1881 and how same is to be applied before the Court of
law is reiterated by the Hon'ble Apex Court in the case of
Sanjabij Tari vs. Kishore S. Borcar and another reported in
2025 SCC OnLine SC 2069, wherein, it is held as under:
"15. In the present case, the cheque in question has
admittedly been signed by respondent No. 1-accused.
This court is of the view that once the execution of the
cheque is admitted, the presumption under section 118
of the Negotiable Instruments Act, that the cheque in
question was drawn for consideration and the
presumption under section 139 of the Negotiable
Instruments Act, that the holder of the cheque received
the said cheque in discharge of a legally enforceable
debt or liability arise against the accused. It is pertinent
to mention that observations to the contrary by a two-
judge Bench in Krishna Janardhan Bhat v. Dattatraya
G. Hegde [(2008) 141 Comp Cas 665 (SC); (2008) 4
SCC 54; (2008) 2 SCC (Cri) 166; 2008 SCC OnLine SC
106.] have been set aside by a three-judge Bench in
Rangappa v. Sri Mohan [(2010) 11 SCC 441; (2010) 4
SCC (Civ) 477; (2011) 1 SCC (Cri) 184; 2010 SCC
OnLine SC 583.]
16. This court is further of the view that by creating
this presumption, the law reinforces the reliability of
cheques as a mode of payment in commercial
transactions.
17. Needless to mention that the presumption
contemplated under section 139 of the Negotiable
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Instruments Act, is a rebuttable presumption. However,
the initial onus of proving that the cheque is not in
discharge of any debt or other liability is on the
accused/drawer of the cheque (see : Bir
Singh v. Mukesh Kumar [(2019) 5 Comp Cas-OL 560
(SC); (2019) 4 SCC 197; (2019) 2 SCC (Cri) 40;
(2019) 2 SCC (Civ) 309; 2019 SCC OnLine SC 138.] .
18. The judgment of this court in APS Forex Services P.
Ltd. v. Shakti International Fashion Linkers [(2020) 12
SCC 724; (2020) 4 SCC (Cri) 505; 2020 SCC OnLine SC
193.] relied upon by learned counsel for respondent No.
1-accused only says that the presumption under section
139 of the Negotiable Instruments Act is rebuttable and
when the same is rebutted, the onus would shift back
to the complainant to prove his financial capacity, more
particularly, when it is a case of giving loan by cash.
This judgment nowhere states, as was sought to be
contended by learned counsel for respondent No. 1-
accused, that in cases of dishonour of cheques, in lieu
of cash loans, the presumption under section 139 of the
Negotiable Instruments Act does not arise.
Approach of some courts below to not give effect to the
presumptions under sections 118 and 139 of the
Negotiable Instruments Act, is contrary to mandate of
Parliament
21. This court also takes judicial notice of the fact that
some district courts and some High Courts are not
giving effect to the presumptions incorporated in
sections 118 and 139 of the Negotiable Instruments
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Act, and are treating the proceedings under the
Negotiable Instruments Act, as another civil recovery
proceedings and are directing the complainant to prove
the antecedent debt or liability. This court is of the view
that such an approach is not only prolonging the trial
but is also contrary to the mandate of Parliament,
namely, that the drawer and the bank must honour the
cheque, otherwise, trust in cheques would be
irreparably damaged.
No documents and/or evidence led with regard to the
financial incapacity of the appellant.
22. It is pertinent to mention that in the present case,
respondent No. 1- accused has filed no documents
and/or examined any independent witness or led any
evidence with regard to the financial incapacity of the
appellant- complainant to advance the loans in
question. For instance, this court in Rajaram v.
Maruthachalam [(2023) 16 SCC 125] has held that the
presumptions under sections 118 and 139 of the
Negotiable Instruments Act, can be rebutted by the
accused examining the Income-tax Officer and bank
officials of the complainant/drawee.
When the evidence of PW-1 is read in its entirety, it
cannot be said that the appellant-complainant had no
wherewithal to advance loan.
27. It is well settled that in exercise of revisional
jurisdiction, the High Court does not, in the absence of
perversity, upset concurrent factual findings (see : Bir
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Singh v. Mukesh Kumar [(2019) 4 SCC 197]). This
court is of the view that it is not for the revisional court
to re-analyse and re-interpret the evidence on record.
As held by this court in Southern Sales and Services v.
Sauermilch Design and Handels GmbH [(2008) 14 SCC
457], it is a well-established principle of law that the
revisional court will not interfere, even if a wrong order
is passed by a court having jurisdiction, in the absence
of a jurisdictional error."
52. Further, no material is available on record to establish the
fact that entire liability of accused was taken over by Yahoo
Limited. Further, filing of the Company Petition by the
complainant Company against the Yahoo Company does not
debar the complainant to initiate criminal action against the
accused company.
53. Furthermore, pendency of civil suit is also of no
consequence in adjudicating the criminal proceedings which can
run parallelly.
54. At the most, if any amount is paid by the accused
pursuant to the Order passed by learned Trial Magistrate
confirmed by the learned Judge in the First Appellate Court,
same shall be given due deduction in the pending civil
proceedings.
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55. Thus, on cumulative consideration of the material on
record, having regard to the limited scope of revisional
jurisdiction, this Court does not find any good grounds to
interfere with the order of conviction recorded by the learned
Trial Magistrate.
56. However, in an appeal filed by the accused, First
Appellate Court had no power to enhance the sentence.
Pertinently, the quantum of sentence was not challenged by the
complainant. Therefore, to the extent that the First Appellate
Court has enhanced the sentence in the appeal filed by the
accused needs to be set-aside and sentence ordered by the
learned Trial Magistrate is to be upheld.
57. In fact, this Court has already taken a similar view in the
case of Gousmodin vs. State of Karnataka in Crl.RP
No.100216/2019 dated 21.04.2025.
58. View of this Court is further fortified by the Hon'ble
supreme Court in the case of Sachin vs. State of
Maharashtra reported in (2025)9 SCC 507.
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59. Consequently, the following:
ORDER
i. Revision Petition is allowed-in-part. ii. While maintaining the conviction of the accused for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, sentence ordered by learned Trial Magistrate is upheld by setting aside such portion of the Order of the First Appellate Court where it has suo motu enhanced the sentence from 3 months to one year, in the absence of challenge to the quantum by the complainant.
iii. Time is granted to pay the amount till 10th May 2026.
Sd/-
(V SRISHANANDA) JUDGE kcm