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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

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.

50. 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.