Delhi District Court
Rangappa vs . S. Mohan Decided On 07.05.2010: on 20 April, 2011
IN THE COURT OF SH. RAKESH KUMAR SINGH:
METROPOLITAN MEGISTRATE (NI ACT)-1, CENTRAL:
ROOM NO.-42, TIS HAZARI COURT COMPLEX, DELHI
20.04.2011
JUDGMENT
a. Serial No. of the case
915/10
b. Date of the commission of the offence
02.12.1997
c. Name of the complainant
M/s Gagan Enterprises
d. Name of accused person and his parentage and residence
Kerala State Co-operative Marketing Federation Ltd.
K. Ramakrishna Pillai, MD, Kerala State Co-operative Marketing Federation Ltd.
N. P. Arumugham Mani (wrongly mentioned in the complaint as Arun Mohan Mani), Branch Manager, Kerala State Co-operative Marketing Federation Ltd.
e. Offence complained of or proved Dishonor of cheques due to stop payment punishable under Section-138 NI Act.
f. Plea of the accused and his examination (if any) Not guilty. Supply of sub standard materials. No liability.
g. Final Order
Held guilty. Convicted.
h. Date of such order
20.04.2011
i. Brief reasons:
The complaint case at all relevant point of time being tried as summons trial, deserves a judgment to be pronounced under Section-355 Cr.PC.
2. Before proceeding further, it would be appropriate to quote the Hon'ble Supreme Court in Rangappa vs. S. Mohan decided on 07.05.2010:
M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 1 "Ordinarily in cheque bouncing cases, what the courts have to consider is whether the ingredients of the offence enumerated in Section 138 of the Act have been met and if so, whether the accused was able to rebut the statutory presumption contemplated by Section 139 of the Act."
Discussion on Legal provisions:
3. It is well settled that there are certain mandatory presumptions of law under the Negotiable Instruments Act. Such presumptions may be summarized in the following manner:
3.1 Section-118 of Negotiable Instruments Act reads as under:
"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, endorsed, negotiated or transferred, was accepted, endorsed, negotiated or transferred for consideration;"
Presumptions are:
i. Cheque was drawn for consideration;
ii. Cheque was transferred for consideration;
iii. Cheque was accepted for consideration.
3.2. Section-139 of Negotiable Instruments Act reads as under:
"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."
Presumptions are:
i. Holder of the cheque has lawfully received the cheque, meaning thereby that the holder was in lawful possession of the cheque;
M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 2 ii. The cheque was given in discharge of any debt or liability;
iii. Legally enforceable debt or liability was in existence at the time of issuance of the cheque; (contrary view has been overruled by the three judges bench of Hon'ble Supreme Court in Rangappa vs S. Mohan decided on 07.05.2010).
iv. The cheque was of the nature as described in section-138;
v. The cheque was drawn by the person who was maintaining the account pertaining to the cheque;
vi. Amount of money mentioned in the cheque was intended to be given;
3.3. Section-146 of Negotiable Instruments Act reads as under:
"146. Bank's slip prima facie evidence of certain facts.-
The court shall, in respect of every proceeding under this Chapter, on production of bank's slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved."
Presumptions are:
i. The cheque has been dishonoured;
ii. The cheque has been so dishonoured for the reason mentioned in the
memo.
3.4. A three judges bench of Hon'ble Supreme Court in Rangappa Vs. S. Mohan decided on 07.05.2010 has observed that:
"15. Coming back to the facts in the present case, we are in agreement with the High Court's view that the accused did not raise a probable defence. As noted earlier, the M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 3 defence of the loss of a blank cheque was taken up belatedly and the accused had mentioned a different date in the 'stop payment' instructions to his bank. Furthermore, the instructions to 'stop payment' had not even mentioned that the cheque had been lost. A perusal of the trial record also shows that the accused appeared to be aware of the fact that the cheque was with the complainant. Furthermore, the very fact that the accused had failed to reply to the statutory notice under Section 138 of the Act leads to the inference that there was merit in the complainant's version. Apart from not raising a probable defence, the appellant-accused was not able to contest the existence of a legally enforceable debt or liability. The fact that the accused had made regular payments to the complainant in relation to the construction of his house does not preclude the possibility of the complainant having spent his own money for the same purpose. As per the record of the case, there was a slight discrepancy in the complainant's version, in so far as it was not clear whether the accused had asked for a hand loan to meet the construction-related expenses or whether the complainant had incurred the said expenditure over a period of time. Either way, the complaint discloses the prima facie existence of a legally enforceable debt or liability since the complainant has maintained that his money was used for the construction-expenses. Since the accused did admit that the signature on the cheque was his, the statutory presumption comes into play and the same has not been rebutted even with regard to the materials submitted by the complainant. "
In Bharat Barrel & Drum Manufacturing Company v. Amin Chand Pyarelal, (1993) 3 SCC 35 (Para. 12) it has been held that:
"Upon consideration of various judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbably or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 4 by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour. The court may not insist upon the defendant to disprove the existence of consideration by leading direct evidence as the existence of negative evidence is neither possible nor contemplated and even if led, is to be seen with a doubt. The bare denial of the passing of the consideration apparently does not appear to be any defence. Something which is probable has to be brought on record for getting the benefit of shifting the onus of proving to the plaintiff. To disprove the presumption, the defendant has to bring on record such facts and circumstances upon consideration of which the court may either believe that the consideration did not exist or its non-existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that it did not exist."
It is pertinent to mention that the mandatory presumptions extend also to the existence of legally enforceable debt or liability. See a three judges bench decision of Hon'ble Supreme Court in Rangappa Vs. S. Mohan decided on 07.05.2010 (earlier contrary view in Krishna Janardhan Bhat v. Dattatraya G. Hegde, (2008) 4 SCC 54 has been overruled). It was held by their Lordships that:
"14. In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan Bhat (supra) may not be correct."
4. Issues to be answered:
i. Whether dishonour due to stop payment is covered under Section-138 NI Act;
ii. Necessity of separate legal demand notice to the accused No-2;
iii. Whether Punjab & Sind Bank is the holder in due course and not the complainant;
iv. Issue of sub standard materials. M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 5 Dishonour due to stop payment:
5. An issue has been raised by the accused persons that since the dishonour was due to the stop payment instructions issued to the bank, the same can not fall under Section-138 NI Act. Reliance has been placed upon a judgment of Hon'ble Supreme Court in M/S. Electronics Trade & Technology Development Corpn. Ltd., Secunderabad vs M/S. Indian Technologists & Engineers (Electronics) Pvt.
Ltd. And Another, AIR 1996 SC 2339.
5.1. However, I am of the considered opinion that a dishonour due to stop payment is definitely covered under Section-138 NI Act. Subsequent decisions of the Hon'ble Supreme Court leave no manner of doubt.
5.2. Hon'ble Supreme Court in M.M.T.C. Ltd. and Anr. v. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234 has held that:
"... The authority shows that even when the cheque is dishonoured by reason of stop payment instruction, by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge in whole or in part, of any debt or liability. Of course this is a rebuttable presumption. The accused can thus show that the 'stop payment' instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. ..."
Hon'ble Supreme Court in Goa Plast (Pvt.) Ltd. v. Chico Ursula D'Souza, (2003) 3 SCC 232 has observed that:
"Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with the object of inculcating faith in the efficacy of banking operations and giving credibility to negotiable instruments in business transactions. These provisions were intended to discourage people from not honouring their commitments by way of payment through cheques. The court should lean in favour of an interpretation which M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 6 serves the object of the statute. A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely. The purpose of a post-dated cheque is to provide some accommodation to the drawer of the cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be allowed to abuse the accommodation given to him by a creditor by way of acceptance of a post-dated cheque. In view of Section 139, it has to be presumed that a cheque is issued in discharge of any debt or other liability. The presumption can be rebutted by adducing evidence and the burden of proof is on the person who wants to rebut the presumption. This presumption coupled with the object of Chapter XVII of the Act leads to the conclusion that by countermanding payment of a post-dated cheque, a party should not be allowed to get away from the penal provision of Section
138. A contrary view would render S. 138 a dead letter and will provide a handle to persons trying to avoid payment under legal obligations undertaken by them through their own acts which in other words can be said to be taking advantage of one's own wrong. ..."
Necessity of separate legal demand notice to the accused No-2:
6. In the present case, service of notice upon the accused company has not been disputed. What is disputed is that no separate notice was served upon accused No.-2.
6.1. I consider that once a legal demand notice is served upon a drawer company under proviso-(b) to Section-138 NI Act, there remains no necessity to serve a notice upon the individual directors of the accused company to make them liable under Section-141 NI Act.
6.2. Hon'ble High Court of Delhi in Jain Associates And Ors. vs Deepak Chawdhary & Co. 80 (1999) DLT 654 has held that:
"15. As regards the requirement of service of notice on all the partners i.e. petitioners No. 2 and 3 is concerned the notice was to be served "on the drawer of the cheque". In the present case, the drawer is a partnership firm acting through one of its partner. Section 141 of the Act is a deeming provision holding every person who was incharge of and was reasonable to the company for the conduct of the business of the company or partnership firm as well as the firm shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Section 141 does not require that each and every partner of the firm is required to be issued notice. The M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 7 above said deeming provision imposing vicarious liability is to be seen in the right of the observations of the Supreme Court in M/s. Electronics Trade and Technological Development Corp. Ltd. Secundrabad Vs. M/s. Indian Technologist and Engineers 1996 JCC 155 supra. Accordingly on the basis of the language of clause (b) of proviso to Section 138, one finds it difficult to accept that each and every partner or Director is required to be served with a notice."
Whether Punjab & Sind Bank is the holder in due course and not the complainant:
7. Ld. counsel for the accused has contended that the complainant is not a holder in due course since Punjab & Sind bank had given Rs. 29 lacs to the complainant against this cheque.
7.1. I am unable to accept.
Section-7,8 & 9 NI Act are relevant which read as under:
7. xxxxxx Payee. The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee".
8. "Holder". The " holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.
9. Holder in due course. "Holder in due course " means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
Clearly any person whose name (for payment) is mentioned in the instrument is payee and he will also be the Holder in Due Course if the cheque is payable to order.
Section-13: Explanation (iii)- Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 8 order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.
Name of the complainant is mentioned in the cheques in respect of the payment to be made. The cheque is payable to order by virtue of Explanation-iii to Section-13 NI Act. The complainant thereby became the "Holder in Due Course" by virtue of second part of Section-9 NI Act.
Apart from this, Section-142 NI Act does also apply to the Payee.
7.2. It is not disputed that the cheques were issued by the accused and the same were dishonoured without being paid. Accused can not claim immunity on the ground that the cheques were discounted. It is immaterial that the complainant had any advance from the bank on the basis of bills through cheque discounting facility. It is clear from the statement of PW3 that bank had made a demand of payment from the complainant after the dishonour of the cheques. Once the cheque is issued, it has to be satisfied. Drawer can not claim that with the change of hand, his liability of the cheque vanished. It is not the case of the accused that they have paid the amount of the cheque to the complainant (Interestingly, after the dishonour of the cheques, the bank filed a recovery suit against the complainant and the same has been decreed against the complainant by the Hon'ble DRT-I Delhi).
Pertinently, the cheques were not dishonoured due to the reason that the same were discounted but they were dishonoured for the reasons and payment stopped and (insufficient funds has also been established).
7.3 The contention of the accused deserves to be rejected.
Issue of sub standard materials:
8. Main contention of the accused is based upon the fact that the supply was made but of the sub standard materials and therefore the payment of cheques were directed to be stopped.
8.1. Business transaction has been admitted. There is also no dispute that goods were supplied to the accused. There is also no dispute that accused had already made 30% payment and both the instant M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 9 cheques (for Rs. 25,00,000/- and Rs. 25,15,933/-) pertained to 70% payment. Clearly the cheques were not issued as any security but as a payment.
8.2. Several incidents in respect of the allegations/counter allegations/settlements/recovery suits taken place after the dishonour of the cheques. However, this Court is not required to express any opinion on such matters. What happened prior to the dishonour is material (apart from the necessary requirement of notice and failure of payment which has already been discussed).
8.3. The receiving of goods has not been disputed even it appears from the record that the same goods were sold to the buyers as appearing from the affidavit of Raji Cherian. Once the accused company has sold the goods, they can not escape the liability on the ground of sub standards material. The complainant has also relied upon the certified copy of suit (Ex. DW3/C1) filed by the accused before the Hon'ble High Court of Delhi and in particular on the page-94 thereof which is showing the status that the wheat was dispatched to various flour mills. The affidavit filed by DW3 clearly indicates that the goods were supplied to the buyers. It is one thing to say that commercial disputes have arisen in respect of the supply of goods, it is however another thing to say that on such basis the complainant can be prohibited from presenting the cheque for encashment. The conduct of the accused in further delivering the goods to the buyers is also going against the accused. In my considered opinion, the accused cannot claim that there was no liability in respect of the cheques.
8.4. However, accused has tried to establish the fact that complainant was aware of the sub-standard material and, therefore, he could not have presented the cheque for encashment. In this respect, accused has relied upon the certificate EX. DW2/6 given by one Mr. Mahesh Kumar allegdly an employee of the complainant company.
However, this Mahesh Kumar has never been examined by the accused to prove the so called certificate. In the absence of the statement of Mahesh Kumar who has allegedly written that certificate, the same cannot be read in evidence. Complainant has categorically denied any knowledge of and concerned with the said Mahesh Kumar. In such circumstances, accused ought to have established the factum of such inspection done and the validity of certificate issued by Mahesh Kumar. The accused has failed to do the same. The certificate issued by Mahesh Kumar cannot be read in evidence.
M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 10 8.5. Accused has, however, tried to take a different stand by witness DW4 who said in his affidavit that accused company had not have any knowledge of the procurement/loading and dispatch of wheat. In the facts and circumstances and from all the material available on record, this stand of the witness cannot be accepted. Even the affidavit of Raji Cherian, N.P. Arumughan and statement of all the accused persons are contrary to this stand.
Accused has failed to establish the factum of sub-standard material.
There may still be dispute amongst the parties in respect of the sub-standard material but the material was never returned to the complainant much less before the presentation of the cheque. Accused cannot escape its liability.
The contention is rejected.
8.6. At this stage, judgment of Hon'ble High Court of Delhi in MAGNUM AVIATION (PVT.) LTD. Vs. STATE & ORS. Criminal M.C. No.244 of 2009 decided on 27.08.2010 may be noted. The case of the accused therein was that accused had canceled the order and demanded the return of the cheques. However, the complainant on the basis of the advance cheque had already procured the materials. The accused claimed no liability. Contention of accused was rejected. It was observed and held therein as under:
"6. Learned Additional Sessions Judge had relied upon Shanku Concretes Pvt. Ltd. & Others vs. State of Gujarat & Anr.; 2000 CLJ 1988 wherein the Gujarat High Court observed that the trial court will have to decide whether there was an existing liability on the part of the petitioner which required due discharge within the meaning of Section 138 of the Act and whether bounced cheques were issued to discharge such existing liabilities. The other case relied upon is Supply House, Represented by Managing Partner vs. Ullas; 2006 CLJ 4330 (Kerala) wherein cheques were issued by the accused at the time of placing order for 28 number of mixies. The order was placed on 9th February, 1998 and cheque was of 24th March, 1998. The cheque was got "stop payment" and the accused informed the complainant not to present the cheques to the bank as the complainant had failed to supply the items in time. The Kerala High Court observed that the accused had not incurred liability for the amount covered by the post-dated cheque and unless M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 11 the complainant proves that the liability to be settled was to the tune of the amount of the cheque, he could not have made use of the cheque. The court further observed that cheque cannot be stated to have been issued in discharge of the liability.
7. On the basis of these judgments, learned Additional Sessions Judge came to the conclusion that post-dated cheque issued at the time of placing order is not a cheque against liability. I consider that the above view is contrary to the provisions of Section 138 of the Act. Section 138 of the Negotiable Instruments Act provides that the cheque should have been issued for discharge in whole or in part of any debt or any liability. The explanation states the liability means a legally enforceable liability.
8. If at the time of entering into a contract it is one of the conditions of the contract that the purchaser has to pay the amount in advance then advance payment is a liability of the purchaser. The seller of the items would not have entered into contract unless the advance payment was made to him. A condition of advance payment is normally put by the seller for the reason that the purchaser may not later on retract and refuse to take the goods either manufactured for him or procured for him. Payment of cost of the goods in advance being one of the conditions of the contract becomes liability of the purchaser. The purchaser who had issued the cheque could have been asked to make payment either by draft or in cash. Since giving cheque is a mode of payment like any other mode of payment, it is normally accepted as a payment. The issuance of a cheque at the time of signing such contract has to be considered against a liability as the amount written in the cheque is payable by the person on the date mentioned in the cheque. Where the seller or manufacturer, on the basis of cheques issued, manufactures the goods or procures the goods from outside, and has acted upon the contract, the liability of the purchaser gets fastened, the moment the seller or manufacturer acts upon the contract and procures the goods. If for any reason, the seller fails to manufacture the goods or procure the goods it is only under those circumstances that no liability is created. However, where the goods or raw material has been procured for the purchaser by seller or goods have been manufactured by the seller, it cannot be said that the cheques were not issued against the liability. I consider that if the liability is not construed in this manner, the sole purpose of making dishonour of the cheque as an offence stands defeated. The purpose of making or enacting Section 138 of the N.I. Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 12 into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instrument Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing orders and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing of the goods as was done in this case. "
8.7. Contentions of the accused are rejected.
9. Individual accused No.-2 is Managing Director of the accused company. Accused No.-3 is the Branch Manager of the concerned branch of the accused company. They are liable under Section-141 NI Act.
10. From the above discussion, I am of the considered opinion that accused has failed to rebut the case of the complainant.
11. I accordingly return a finding of guilt against the accused persons.
12. The accused company is hereby convicted for the offence as punishable under Section-138 NI Act, 1881.
12.1. Accused No.-2 & Accused No.-3 are convicted for the offence punishable under Section-138 as vicariously liable under Section-141 NI Act, 1881
13. Let the convicts be heard on the point of sentence.
14. A copy of this order be placed on the official website of the District Court.
(Rakesh Kumar Singh) MM(NI Act)-01, Central 20.04.2011 M/s Gagan Enterprises vs Kerala State Co-operative Marketing Federation Ltd. CC No.-915/2010 13