Delhi District Court
:: vs :: on 7 May, 2022
IN THE COURT OF MR. SAHIL KHURMI, METROPOLITAN
MAGISTRATE (N.I. ACT)- 02,
ROUSE AVENUE COURT COMPLEX: NEW DELHI
DLND020125482016
Case No: 49434/2016
S. Onkar Singh Taneja
S/o Sh. Harbhajan Singh Taneja
R/o C-146, Naraina Vihar, New Delhi
...... Complainant
::Versus::
S. Jaspal Singh
S/o Shingara Singh
R/o L-47 A, Bal Udayan Road,
Uttam Nagar, New Delhi .......Accused
Offence Complained of: 138 NI Act
Plea of the Accused: Not guilt
Date of Institution: 15.07.2016
Arguments Heard On: 25.04.2022
Date of Judgment: 07.05.2022
Decision: Acquittal
CC No: 49434/2016 Page 1 of 22
JUDGMENT
1. Vide this judgment, I shall decide the present matter, CC No. 49434/2016, filed by complainant S. Onkar Singh Taneja against the dishonor of cheque bearing no. 154309 dated 30.05.2016 drawn on Axis Bank Ltd. Uttam Nagar Branch, New Delhi.
2. Shorn to unnecessary details, the brief facts of the case put forth by the complainant are that accused was introduced with the complainant by a common friend and accused gave a proposal to the complainant regarding a project and developing a site in Uttam Nagar and the complainant was lured by the accused to enter into an agreement wherein the complainant had to invest Rs. 18,00,000/- and as per the said agreement, the complainant gave a sum of Rs. 18,00,000/- to the accused and he assured the complainant fixed incentive of Rs. 5,25,000/- and in case the accused fails to repay the amount after expiry of 4 months, the accused shall be liable to pay penalty of Rs. 5% per month.
3. It is further stated by complainanant that the accused made part payment of Rs. 14,25,000/- and for remaining part payment of Rs. 26,15,000/- he issued the cheque in question which was dishonored with the reason "funds insufficient".
4. Legal demand notice dated 11.06.2016 was sent to the accused. The accused failed to repay the amount within 15 days. Hence the present complaint.
5. The complainant examined himself as CW-1 in pre- summoning evidence, and relied upon his evidence by way of affidavit along with the following documents: -
CC No: 49434/2016 Page 2 of 22S.No. Documents relied upon Exhibited as:
1. Copy of agreement dated Ex. CW-1/A 26.06.2013 (OSR)
2. Copy of Police Complaint Ex. CW-1/B
3. Original Cheque Ex. CW-1/C
4. Cheque return memo dated Ex. CW-1/D 01.06.2016
5. Copy of legal notice dated Ex. CW-1/E 11.06.2016
6. Postal Receipts Ex. CW-1/F
7. Speed post envelope Ex. CW-1/G (colly)
6. On appearance of accused, notice of accusation u/s 251 Cr.PC was served upon the accused on 08.03.2018, to which the accused pleaded not guilty and claimed trial. He admitted his signatures on the cheque but denied the contents of cheque to be filled by him. He further stated that he has no liability towards the cheque in question as the cheque in question was given for security which has been misused by accused. He further stated that he had taken loan of Rs. 13,00,000/- from complainant and returned Rs. 14,25,000/- to the complainant.
7. Application u/s 145 (2) NI Act was moved on behalf of the accused, which was allowed on 08.03.2018. Thereafter, the complainant was examined and duly cross-examined on 20.12.2018. Thereafter, CE stood closed vide separate statement of complainant.
8. Thereafter, all the incriminating evidence was put to accused and his statement u/s 313 Cr.PC was recorded on 14.05.2019. Thereafter, matter was fixed for DE.
9. Thereafter, an application u/s 315 Cr.P.C was filed on CC No: 49434/2016 Page 3 of 22 19.07.2019. Thereafter DW-1 and DW-1 and DW-2 was examined, cross-examined and discharged on 17.01.2020. Thereafter DW-3 examined, cross examined and discharged on 14.02.2020. Vide separate statement of accused DE stood closed and the matter was fixed for final arguments.
10. Thereafter, final arguments were heard on behalf of both the parties.
11. I have heard the counsels for both parties at length, considered the evidence led by them carefully and have perused the court records thoroughly.
INGREDIENTS OF OFFENCE AND DISCUSSION
12. Before going into the facts of the present case, it would be apposite to discuss the legal standards required to be met by both sides. In order to establish the offence under Section 138 of NI Act, the prosecution must fulfil all the essential ingredients of the offence, as highlighted below:
1st Ingredient: The cheque was drawn by a person on an account maintained by him/her for payment of money and the same is presented for payment within a period of 3 months from the date on which it is drawn or within the period of its validity;
2nd Ingredient: The cheque was drawn by the drawer for dis- charge of any legally enforceable debt or other liability;
3rd Ingredient: The cheque was returned unpaid by the bank due to either insufficiency of funds in the account to honour the cheque or that it exceeds the amount arranged to be paid from that account on an agreement made with that bank;
4th Ingredient: A demand of the said amount has been made by the payee or holder in due course of the cheque by a notice in CC No: 49434/2016 Page 4 of 22 writing given to the drawer within thirty days of the receipt of in- formation of the dishonour of cheque from the bank; and 5th Ingredient: The drawer fails to make payment of the said amount of money within fifteen days from the date of receipt of notice.
13. In order to prove the aforesaid ingredients, the complainant has proved the following:
(a) The complainant has proved the original cheque, Ex. CW1/C, which the accused has not disputed as being drawn on the ac-
count of the accused. It is not disputed that the cheque in ques- tion was presented within its validity period. The accused has ad- mitted his signatures on the cheque.
(b) The cheque in question was returned unpaid vide return memo Ex. CW1/D due to the reason, "Insufficient funds" which is also not disputed by accused.
(c) The complainant has proved on record legal notice Ex. CW1/E dated 11.06.2016, postal receipt Ex. CW1/F, and speed post Ex. CW1/G. NON-RECEIPT OF LEGAL DEMAND NOTICE:
14. The accused has stated in his plea of defense u/s 251 CrPC and statement u/s 313 CrPC that he did not receive the legal no- tice. During the final arguments, counsel for accused relied upon para 15 of decision of Hon'ble SC in C.C. Alavi Haji vs Palapetty Muhammed & Anr. (2007) 6 SCC 555 to impress upon the point that the presumptions under Section 114 IEA and Section 27 of General Clauses Act would operate only if the legal notice is addressed on the correct address of the accused.
CC No: 49434/2016 Page 5 of 22However, he stated that in the present case the legal notice was not sent on the correct address of the accused. The relevant para of said judgement is as follows:
15. Insofar as the question of disclosure of necessary particulars with regard to the issue of notice in terms of proviso
(b) of Section 138 of the Act, in order to enable the Court to draw presump-
tion or inference either under Section 27 of the G.C. Act or Section 114 of the Evidence Act, is concerned, there is no material difference between the two provisions. In our opinion, therefore, when the notice is sent by registered post by correctly addressing the drawer of the cheque, the mandatory re-
quirement of issue of notice in terms of Clause (b) of proviso to Section 138 of the Act stands complied with. It is needless to emphasise that the com-
plaint must contain basic facts regard-
ing the mode and manner of the is-
suance of notice to the drawer of the cheque. It is well settled that at the time of taking cognizance of the complaint under Section 138 of the Act, the Court is required to be prima facie satisfied that a case under the said Section is made out and the aforenoted mandatory statutory procedural requirements have been complied with. It is then for the drawer to rebut the presumption about the service of notice and show that he had no knowledge that the notice was brought to his address or that the address mentioned on the cover was incorrect or that the letter was never tendered or that the report of the postman was incorrect. In our opinion, this interpretation of the provi- sion would effectuate the object and CC No: 49434/2016 Page 6 of 22 purpose for which proviso to Section 138 was enacted, namely, to avoid un- necessary hardship to an honest drawer of a cheque and to provide him an op-
portunity to make amends.
15. Perusal of the court file shows that the legal notice dated 11.06.2016 (Ex. CW-1/E) mentions the address of accused as: L- 47A, Bal Udyan Road, Uttam Nagar, New Delhi and also at T-68, Vishwas Nagar, Uttam Nagar, New Delhi and the speed post was returned with remarks "left" on the first address and "incom- plete address" on the second address.
16. Further perusal of case file shows that an application for furnishing fresh address of accused was filed by complainant on 25.08.2017 in which the fresh address of accused is mentioned as: RZ-68, T Extension, Gali no. 3, Vishwas Park, Uttam Nagar, New Delhi which is the same address mentioned by the accused in his bail bonds.
17. The accused stated in his defence evidence that:
In 2013 I used to live in L-47, Bal Udyan Road, Uttam Nagar, New Delhi. After that I shifted to T-68, Vish- was Park, Uttam Nagar. After that I shifted to my present address i.e S-108, Parampuri, Uttam Nagar, Delhi-59.
18. Thus, regarding the first address of accused at L-47 Bal Udyan Road, Uttam Nagar, New Delhi it is stated by accused that he used to live there in 2013 whereas the legal demand notice is of 11.06.2016 and the same is corroborated by report of speed post which mentions "left". Thus, it stands proved by accused that the legal demand notice was not sent to him at his correct ad- dress.
CC No: 49434/2016 Page 7 of 2219. Regarding the second address of accused mentioned in the legal demand notice, the same mentions T-68, Vishwas Nagar, Uttam Nagar, New Delhi whereas the admitted address of ac- cused from his evidence and bail bonds is T-68, Vishwas Park, Uttam Nagar. The defect of mentioning Vishwas Nagar in place of Vishwas Park is also corroborated from the fact that an appli- cation for furnishing fresh address of accused was filed by com- plainant on 25.08.2017 in which the fresh address of accused is mentioned as: RZ-68, T Extension, Gali no. 3, Vishwas Park, Uttam Nagar, New Delhi which is the same address mentioned by the accused in his bail bonds.
20. Thus, it stands proved by the accused that the legal notice was sent on incorrect address of accused. Therefore, it is seen that the legal demand notice sent to the accused was not sent on the correct address of the accused and thus, the essential ingredi- ent of sending legal demand notice on correct address of accused is not proved by complainant. Thus, this defence of accused succeeds.
(d) The fact that the payment was not made within 15 days of the receipt of the legal notice is also not disputed.
As such, on the basis of the above, the first, third, fourth and fifth ingredient of the offence under Section 138 NI Act stands proved against the accused.
21. As far as the proof of second ingredient is concerned, the complainant is required to prove that the cheque in question was issued by the accused and it was drawn by the drawer for discharging a legally enforceable debt. The accused admitted his signatures on the cheque in question at every stage; from notice CC No: 49434/2016 Page 8 of 22 under section 251 Cr.P.C. to his statement under section 313 Cr.P.C. Thus, presumption under section 118(a) and under section 139 of NI Act arises against the accused. Unless the contrary is proved, it shall be presumed that the cheque in question was drawn for a consideration and that the complainant received the cheques in question in discharge of a debt/ liability from the accused. In order to rebut the presumptions, the burden of proof shifts to the accused to prove on a preponderance of probabilities that there was no liability for the amount of cheque in question.
(Reliance placed on Triyambak S. Hegde vs Sripad decided by 3 judge bench of Hon'ble SC on 23.09.2021 and Basalingappa vs Mudibasappa (2019) 5 SCC 418)
22. Therefore, in the present matter, the onus of proof is now upon the accused to raise a probable defence and to rebut the presumption of the existence of a legally recoverable debt arisen in favour of the complainant. Now let us examine the defence raised by the accused and evaluate the same. Contents/Particulars of cheque not filled by accused:
23. It is contended by the accused that the particulars on the cheque in question were not filled by him. It is settled law that filling of particulars of cheque by any person other than the drawer does not invalidate the cheque and shall still attract the presumption under Section 139 of the NI Act. The same was held by the Hon'ble Supreme Court of India in the decision cited as Bir Singh vs Mukesh Kumar (2019) 4 SCC 197. The apex court observed as follows:
"37. A meaningful reading of the provisions of the Negotiable Instruments Act including in particular, Sections 20, 87 and 139, makes CC No: 49434/2016 Page 9 of 22 it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability. It is immaterial that the cheque may have been filled in by any person other than the drawer, if the cheque is duly signed by the drawer. If the cheque is otherwise valid, the penal provisions of Section 138 would be attracted.
38. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence."
24. Thus, the signatures of the accused on the cheque in question being admitted, the plea that the particulars of cheque were not filled by the accused is not defensible. Defence of security cheque:
25. It is stated by accused that the he had given three blank signed cheques for security purpose to accused at the time of taking loan of Rs. 13 lacs and cheque in question is one of them.
26. The defence of security cheque has been discussed by Hon'ble High Court of Delhi at length in the case of Credential Leasing & Credits Ltd. Vs. Shruti Investments & Anr. (2015) 3 BC 691 wherein Hon'ble High Court has relied upon Suresh Chandra Goyal v. Amit Singhal, Crl. Appeal Nos. 601/2015 decided on 14.05.2015, holding that:
There is no magic in the word "security cheque", such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section CC No: 49434/2016 Page 10 of 22 138 of the Act is preferred) was given as a "security cheque", the Magistrate would acquit the accused. The expression "security cheque" is not a statutorily defined expression in the NI Act. The NI Act does not per se carve out an exception in respect of a 'security cheque' to say that a complaint in respect of such a cheque would not be maintainable. There can be mirade situations in which the cheque issued by the accused may be called as security cheque, or may have been issued by way of a security, i.e. to provide an assurance or comfort to the drawee, that in case of failure of the primary consideration on the due date, or on the happening (or not happening) of a contingency, the security may be enforced. While in some situations, the dishonor of such a cheque may attract the penal provisions contained in Section 138 of the Act, in others it may not."
(emphasis supplied)
27. Recently, Hon'ble Supreme Court in Sripati Singh (since deceased) through his son Gaurav Singh v. State of Jharkhand and Anr., CRIMINAL APPEAL NOS. 1269-
1270 OF 2021, decided on 28.10.2021 has held that:
A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. 'Security' in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan CC No: 49434/2016 Page 11 of 22 amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated under Section 138 and the other provisions of N.I. Act would flow.
28. Thus, the legal position that emanates from the above quoted judgments of the Hon'ble High Court of Delhi and Hon'ble Supreme Court of India is that it does not make a differ-
ence whether the cheque has been given towards payment actu- ally due or for security purposes, what has to be seen by this court is that there should be existing legally enforceable debt or liability as on the date mentioned on the cheque
29. Now it is to be seen that even if the cheque in question was given by the accused to complainant for security purpose, the burden is on the accused to prove that there is no legally enforceable debt on him against the complainant. However, the said burden is to be proved on basis "preponderance of probability." Now let us examine if the accused has proved that there was no legally enforceable debt on him to the tune of amount of cheque in question.
SOURCE OF FUNDS:
30. The accused has raised the defence that complainant has failed to prove the source of funds of Rs. 5 lacs, given in cash to the accused.
CC No: 49434/2016 Page 12 of 2231. In APS Forex Service Private Limited v. Shakti Inter- national Fashion Linkers AIR 2020 SC 945, the Hon'ble Supreme Court has clarified and explained the issue as follows:
We are of the view that whenever the accused has questioned the financial capacity of the complainant in sup- port of his probable defence, despite the presumption under Section 139 of the N.I. Act about the presumption of legally enforceable debt and such presumption is rebuttable, thereafter the onus shifts again on the com- plainant to prove his financial capac- ity and at that stage the complainant is required to lead the evidence to prove his financial capacity, more particularly when it is a case of giv- ing loan by cash and thereafter is- suance of a cheque.
(emphasis added)
32. The crux of the aforesaid decision of the Hon'ble Supreme Court has been summarized by the Hon'ble Kerala High Court in Sunitha v. Sheela Antony, 2020 SCC OnLine Ker 1750.
27. In my view, the crux of the deci-
sions referred to above is the following:
The complainant has no obligation, in all cases under Section 138 of the Act, to prove his financial capacity. But, when the case of the complainant is that he lent money to the accused by cash and that the accused issued the cheque in discharge of the liability, and if the accused challenges the fi- nancial capacity of the complainant to advance the money, despite the presumption under Section 139 of the Act, the complainant has the obliga- tion to prove his financial capacity or the source of the money allegedly lent CC No: 49434/2016 Page 13 of 22 by him to the accused. The com-
plainant has no initial burden to prove his financial capacity or the source of the money. The obligation in that re- gard would arise only when his ca- pacity or capability to advance the money is challenged by the accused.
(emphasis added)
33. It was held by Hon'ble Supreme court in Basalingappa v.
Mudibasappa, (2019) 5 SCC 418 that:
During his cross-examination, when financial capacity to pay Rs. 6 lakhs to the accused was questioned, there was no satisfactory reply given by the complainant. The evidence on record, thus, is a probable defence on behalf of the accused, which shifted the bur- den on the complainant to prove his financial capacity and other facts.
(Emphasis supplied)
34. Therefore, in cases in which the debt transaction is a cash transaction, the accused can raise a probable defense by question-
ing the financial capacity/source of funds of the complainant, and once the said question is raised, the onus shifts on the com- plainant to prove his financial capacity.
35. In the present case, the relevant cross examination of com- plainant conducted on 20.12.2018 is as follows:
I do not remember the exact amount which was lying in my account on 24.06.2013. I do not remember whether in my account there was bal- ance of Rs. 18,00,000/- or more. It is wrong to suggest that I had not paid Rs.5,00,000/- in cash to the accused on 26.06.2013.CC No: 49434/2016 Page 14 of 22
Q. What was the reason you have paid Rs.5,00,000/- in cash when you had paid Rs 13,00,000/- by way of RTGS?
Ans. Because I was having cash of Rs.5,00,000/- in hand at that time. Again said, the accused wanted the payment of Rs.5,00,000/- in cash. The payment of Rs.5,00,000/- was paid in the office of the accused in the pres- ence of two witnesses, i.e. Sh. B.S. Mann and Sh. Sanjeev Kalra.
Q. Do you know the address of the office of the accused at that time?
Ans. I do not remember the exact address, but it was somewhere in Uttam Nagar, New Delhi.
Q. From where you had collected said Rs. 5,00,000/- and what was the denomination of the currency?
Ans. I had collected the said amount from my friends, some amount from my wife's savings. The denomination of the currency was Rs.500/- and Rs.1,000/- notes. I had collected the said amount from one of my friends, Sh. Rajesh Matta and Sh. Gurbir Singh Anand (Sh. Raja). I had collected around Rs.1,25,000/- from Sh. Rajesh Matta and around Rs.70-80 thousands from Sh. Gurbir Singh Anand.
It is correct that I was not having cash readily available with me at that time and I had borrowed the same from my friends.
(Emphasis supplied)
36. Perusal of cross examination of complainant shows that he had admitted that cash was not readily available with him at that CC No: 49434/2016 Page 15 of 22 time and he borrowed the same from his friends namely Rajesh Matta and Gurbir Singh Anand, however these persons were never brought by complainant in his evidence to prove the fact alleged by him of taking money from them for further giving it to the accused. Thus, the said amount of loan being given by com- plainant to accused in cash is not proved by the complainant.
37. Moreover, it is stated by complainant in his cross examina- tion that the payment of Rs. 5 lacs were made in presence of two witness namely Sanjeev Kalra (DW-1) and B.S. Mann (DW-2).
38. However, it is interesting to note that perusal of testimony of both these witnesses shows that both of them stated that a sum of Rs. 13 lacs only was given by the complainant to the accused by RTGS. Thus, the defence of accused that Rs. 5 lacs in cash were given to accused in presence of both these witness, holds no water and the complainant has miserably failed to prove the same. Perusal of said cross-examination of complainant shows that earlier the complainant stated that he was having cash in hand of Rs.5,00,000/- at that time. But thereafter he stated that he was not having cash with him and therefore, he borrowed it from his friends. Thus, accused has taken two contradictory stands.
39. In the considered opinion of this court, as discussed above in great detail the complainant has failed to show the source of funds of Rs 5 lacs as allegedly given by him in cash by leading any cogent evidence and the accused has been able to raise a probable defense by casting a credible doubt over the source of funds / financial capacity of the complainant to advance the loan in question. Thus, the transaction of giving loan of Rs. 5 lacs in cash to accused is not proved by complainant.
CC No: 49434/2016 Page 16 of 22Defence of no legally enforceable liability
40. It is the case of complainant that he had invested Rs. 18 lacs in the business of accused out of which Rs. 13 lacs were given by RTGS and Rs 5 lacs were given in cash to the accused and it is further case of complainant that there was an agreement Ex. CW-1/A which was executed between the parties in front of two witnesses B.S Mann and Sanjeev Kalra as per which the ac- cused had to pay a fixed incentive of Rs. 5,25,000/- to com- plainant and repay the money to complainant in 4 months failing which the accused shall be liable to pay 5% per month as penalty to complainant.
41. It is further the case of complainant that Rs. 14,25,000/- were received by him from the accused, however for the remain- ing liability of accused, he issued a cheque of Rs. 25,50,000/- which was dishonored. Therefore, as per complainant, the ac- cused had liability of Rs. 40 lacs against the (alleged) loan of Rs 18 lacs given by him.
42. Further, it is apposite to note that the complainant has re- lied upon an agreement which is Ex. CW-1/A which is disputed by the accused. The accused stated that the complainant got his signatures on blank stamped papers and misused the same. The said agreement which is Ex. CW-1/A is allegedly signed by two witnesses namely Sanjeev Kalra (DW-1) and B.S. Mann (DW-2) both of whom have supported and fortified the case of accused.
43. When the said agreement Ex. CW-1/A was confronted to DW-1 Sanjeev Kalra during his cross examination, he stated that, "The agreement was not made before me". He also stated that, "No documents between the parties have been made before CC No: 49434/2016 Page 17 of 22 me". Thus, it can be deciphered that DW-1 who is shown as a witness to the said agreement has not supported the case of com- plainant and thus, the said agreement is not proved by com- plainant. Further, DW-2 BS Mann who is (allegedly) witness to said agreement Ex.CW-1/A was not even confronted this agree- ment during his cross examination by the complainant. The com- plainant had sufficient opportunity to fortify his case by con- fronting this agreement (Ex. CW-1/A) to DW-2 during his cross examination, which was not done by complainant.
44. Thus, it can be concluded that both the witnesses namely Sanjeev Kalra (DW-1) and B.S. Mann (DW-2) had unanimously stated that the complainant had given a sum of Rs. 13 lacs to the accused (and not Rs. 18 lacs as alleged by complainant). Thus, the case of complainant is demolished as both these witnesses have supported and fortified the case of accused. Thus, the com- plainant has failed to show the existence of legally enforceable debt/liability on the accused.
PENALTY CLAUSE IN AGREEMENT
45. It is peculiar to note that that nowhere in the complaint or his evidence on affidavit has the complainant disclosed as to how and when the amount mentioned in the cheque in question be- came due or payable.
46. It emerges that the liability alleged in the present case is in the nature of claim for damages by way of penalty. The dam- ages have been quantified in the agreement (Ex. CW-1/A) itself at 5% per month ( i.e. 60% per annum) on the principal amount. The provision regarding recovery of damages for breach of con- tract, where a sum is named in the contract itself, is covered un- der section 74 of the Indian Contract Act, 1872. Such damages CC No: 49434/2016 Page 18 of 22 can be either in nature of liquidated sum of money, which is the genuine pre-estimate of loss anticipated to be suffered in case of breach of contract or it can be stipulated by way of penalty, which is essentially in terrorem to deter the parties from commit- ting breach of the contract.
47. Thus, the agreement Ex. CW-1/A stipulated an amount of 5% per month as penalty on the principal amount apart from fixed incentive of Rs. 5,25,000/-.
48. The crucial question that arises here is whether such a claim for the entire amount of sum stipulated by way of penalty can be said to be a legally enforceable liability so as to sustain the proceedings under section 138 NI Act?
49. In the landmark decision cited as Fateh Chand vs. Balkis- han Das; 1964 SCR (1) 515, the constitution bench of the Hon'ble Supreme Court of India held that duty not to enforce penalty clause but only to award reasonable compensation is statutorily imposed upon the court by section 74 (referring to the Indian Contract Act, 1872). Thus, in case of breach of an agree- ment, a party is not entitled to recover the entire amount men- tioned in the agreement as penalty but only to a reasonable com- pensation. When an agreement stipulates a penalty clause for breach and a cheque is issued at the time of execution of such agreement for securing the penalty clause, such that the amount of cheque equals the entire amount of penalty stipulated, the cheque is essentially for an amount exceeding a reasonable com- pensation. As such, in the event of breach of such an agreement, the entire amount of cheque does not become due or payable. Ac- cordingly, such a cheque cannot be said to have been issued in discharge of a legally enforceable liability.
CC No: 49434/2016 Page 19 of 2250. Further, it has been recently laid down by a three judge bench of the Hon'ble Supreme Court of India in decision cited as P. Mohanraj & Ors. Vs. M/s Shah Brothers Ispat Pvt. Ltd. in Civil Appeal 10355 of 2018, date of decision 01.03.2021, that section 138 NI Act is really a hybrid provision to enforce pay- ment under a bounced cheque if it is otherwise enforceable in civil law. Since penalty clauses, in entirety, are not enforceable even under civil law, the necessary conclusion is that any cheque issued at the time of execution of an agreement for securing the penalty clause cannot be used to enforce the payment of the en- tire amount of penalty. Therefore, if such a cheque is dishonoured then provision under section 138 NI Act cannot be used to en- force payment thereunder which is not legally due or enforce- able. Further, it is uncontroverted fact that no civil suit for recov- ery of money has ever been filed by the complainant.
51. In view of the above analysis and also the fact that the complainant has not disclosed anywhere that on what basis he is claiming the entire amount of penalty to have become due or payable, this court holds that the cheque in question being issued for securing the penalty clause of the agreement, the same cannot be said to have been issued in discharge of a legally enforceable liability and therefore, proceedings under section 138 NI Act can- not be used to enforce payment thereunder.
52. Thus, the accused has been successful in bringing a probable defence on the basis of preponderance of probabilities that the cheque in question was not issued to the Complainant in discharge of legally enforceable liability existing as on the date of the presentation of the said cheque.
53. At this stage, it should be noted that when the accused CC No: 49434/2016 Page 20 of 22 successfully creates doubt in the complainant's case by drawing inferences from the materials on record and also from circumstances, statutory presumptions under section 118(a) r/w 139 of the Act stand rebutted and burden to proof is then shifted to the complainant to prove the guilt of accused beyond reasonable doubt.
54. Reference can be taken from the decision of the Hon'ble Supreme Court from the case of Bharat Barrel & Drum Manufacturing Company vs. Amin Chand Pyarelal 1999 (3) SCC 35, wherein it has held the following:
"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 improbable 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 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 by showing the non-CC No: 49434/2016 Page 21 of 22
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 evidence as the existence of negative evidence is neither possible not contemplated and even if led, it is to be seen with a doubt..." (Emphasis supplied)
55. Hence, the onus shifted back to the Complainant to prove the existence of the legally enforceable debt. In light of the aforesaid discussion, the Complainant has failed to discharge this burden. In light of these observations, it appears that the Accused has successfully rebutted the presumption under 139 NI Act by the standard of preponderance of probabilities and the Complainant has been unable to prove the existence of legal debt/liability.
56. Accordingly, the ingredients of Section 138 of Negotiable Instruments Act, 1881 are not proved. Therefore, Accused Jaspal Singh is acquitted of the offence punishable under Section 138 of the Negotiable Instrument Act, 1881.
Announced in open court on 07.05.2022.
Note: This judgment consists of 22 pages and each page has been been signed by me.
(Sahil Khurmi) Metropolitan Magistrate (NI Act)-02 RADC/ND/07.05.2022 CC No: 49434/2016 Page 22 of 22