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Assoo Hajee v. K.I Abdul Latheef & Another
Factual and Procedural Background
The appellant filed a complaint under Section 138 of the Negotiable Instruments Act based on a transaction evidenced by Ext. P6 agreement. Ext. P6 referred to two cheques drawn by the 1st respondent in favour of the appellant: one for Rs. 5,000 as a deposit and another (cheque No. DLBC 890885 drawn on Dhanalakshmi Bank, Palluruthy) described in the agreement as a blank cheque given towards any liability that might fall due from the 1st respondent. When a liability allegedly arose, the blank cheque was filled in (dated 19-08-1993) and presented to the bank, but it bounced for want of funds. Statutory notice was issued and did not result in payment, and a complaint under Section 138 was filed.
At trial the court below acquitted the 1st respondent, finding that the presumption under Section 139 was not applicable because the cheque had been issued when the accused did not, in fact, owe the complainant and because it was a blank cheque; the lower court observed that the complainant should have produced books of account to establish an enforceable liability. The appellant challenged that acquittal by way of the present appeal.
Legal Issues Presented
- Whether the presumption under Section 139 of the Negotiable Instruments Act applies to the cheque in question (Ext. P1/Ext. P6) given that it was initially a blank cheque but later filled and presented.
- Whether the cheque, having been filled and presented after alleged verification of accounts, was issued for the purpose of discharging a debt or other liability so as to attract liability under Section 138 of the Negotiable Instruments Act.
- Whether precedent decisions (including those on post-dated cheques and cheques issued by guarantors) are applicable to the facts of this case and, if so, to what extent they affect the maintainability of the complaint under Section 138.
Arguments of the Parties
Appellant's Arguments
- The appellant relied on Ext. P6 agreement which referred to the cheque as security for liabilities that might arise and stated both cheques in the agreement.
- Counsel for the appellant maintained that accounts were verified in the presence of the respondent's representative, the respondent then filled in the cheque (including date 19-08-93) and thereby acknowledged the liability; this activates the presumption under Section 139 in favour of the appellant.
- The appellant relied on decisions of higher courts (Anil Kumar Sawhney v. Gulshan Rai; Beena v. Muniyappan; I.C.D.S. Ltd. v. Beena Shabeer) to support the contention that prosecution under Section 138 could be sustained, though the opinion records the appellant's counsel accepting that some cited decisions may have limited application to the facts.
Respondent's Arguments
- The respondent (as recorded in the opinion) admitted that when the cheque leaf was initially handed over there was no liability at that time.
- Counsel for the respondent contended that certain precedents (for example I.C.D.S.) were not applicable because those involved guarantor arrangements, which do not exist in the present case.
- The respondent challenged the applicability of Section 139's presumption on the ground that the cheque was issued when the accused did not owe the complainant and that the cheque was a blank cheque; the court below held that the complainant ought to have produced books of account to prove liability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anil Kumar Sawhney v. Gulshan Rai (1994 (1) KLT 111) | Decision concerning post-dated cheques: a post-dated cheque becomes a cheque under the Act on the date mentioned and, if presented and dishonoured, prosecution under Section 138 will lie. | The court stated this decision concerns post-dated cheques and held it did not apply to the present facts because the cheque here was a blank cheque and not a post-dated cheque. |
| Beena v. Muniyappan (2001 (3) KLT 950 (SC)) | Principle that it is the duty of the drawer to prove that the cheque had not been issued to discharge a debt or liability on his part. | The court recorded that this principle does not have much application to the facts of the present case. |
| I.C.D.S. Ltd. v. Beena Shabeer (2002 (3) KLT 218 (SC)) | The Supreme Court held that cheques issued by a guarantor could be the subject matter of prosecution under Section 138; the language of Section 138 ("any cheque" and "other liability") is broad. | The court reproduced the Supreme Court's reasoning to explain the breadth of Section 138, but also noted that the I.C.D.S. case involved guarantor liability and therefore, factually, it was not directly applicable to the present matter (there being no guarantor arrangement here). |
Court's Reasoning and Analysis
The court undertook the following analytical steps based on the material in the record:
- Documentary foundation: Ext. P6 agreement expressly referred to the two cheques, including the blank cheque said to be given towards any liability. The agreement therefore linked the blank cheque to potential liabilities of the 1st respondent.
- Presentation and dishonour: The blank cheque was subsequently filled (bearing date 19-08-93), presented to the bank and returned for want of funds; statutory notice was issued and did not elicit payment.
- Evidence on verification and filling of cheque: PW-1 (the complainant) testified that representatives of the respondent had examined the accounts, that the amount and date were entered in Ext. P1 (the cheque) in the presence of the respondent's representative and the respondent's son, and that there was no cross-examination on this point. The court treated this unchallenged testimony as establishing that the entries (including date) were made after verification of accounts and thus the cheque became a cheque "on 19-08-93" when the liability was acknowledged.
- Presumption under Section 139: Given that the cheque was filled in and presented for payment, and that there was evidence (unchallenged) of account verification and acknowledgement of liability, the court held that the presumption under Section 139 operated in favour of the appellant. The respondent did not rebut that statutory presumption on the record.
- Precedents: The court examined the precedents relied upon by the parties. It found the Anil Kumar decision (post-dated cheque) inapplicable to a blank cheque; considered that Beena v. Muniyappan's principle did not have much application to the facts; and noted I.C.D.S. Ltd. v. Beena Shabeer establishes that cheques issued by guarantors can be prosecuted under Section 138, but that I.C.D.S. was factually distinguishable because no guarantor arrangement existed in the present case.
- Procedural and ancillary facts: The court noted that the respondent had filed a civil suit (O.S. No. 558/93) apprehending misuse of the cheque, which was dismissed for default and not restored—an admitted fact—and that the bank intimation of dishonour was not disputed.
- Conclusion of analysis: On the totality of the unchallenged evidence (especially PW-1's testimony about account verification and filling of the cheque), the court concluded that there was proof of an outstanding liability acknowledged by the respondent when the cheque was filled and presented, and that the presumption under Section 139 was not successfully rebutted. Therefore, the elements necessary for an offence under Section 138 were established.
Holding and Implications
Holding: The 1st respondent is convicted of the offence punishable under Section 138 of the Negotiable Instruments Act.
Consequences and orders made by the court (direct effects on the parties):
- The respondent is sentenced to pay a fine of Rs. 55,000/-.
- On realization of the fine, Rs. 52,000/- shall be paid to the appellant as compensation.
- In default of payment of the fine, the respondent shall undergo simple imprisonment for six months.
- The fine amount is to be paid within six weeks from the date of receipt of a copy of the judgment.
Broader implications: The opinion does not purport to set a new precedent beyond application of settled principles (including the presumption under Section 139 and the scope of Section 138 as discussed in cited authorities). The practical effect is the reversal of the lower court's acquittal and conviction of the respondent on the facts of this case; no novel legal principle was announced by this judgment.
1. The complaint filed by the appellant under Section 138 of the Negotiable Instruments Act failed and 1st respondent/accused was acquitted. Therefore, this appeal. The facts of this case are not in dispute. There was a dealing between the parties in terms of Ext. P6 agreement. Whether the 1st respondent was the dealer of the appellant or agent of the appellant is immaterial when Ext. P6 agreement is admitted.
2. Ext. P6 agreement discloses that the 1st respondent had drawn two cheques in favour of the appellant. One for an amount of Rs. 5000/- as deposit and another, cheque No. DLBC 890885, drawn on Dhanalakshmi Bank, Ltd., Palluruthy, the cheque in question. This was a blank cheque. Both the cheques are referred to in Ext. P6 agreement and it is made clear that this blank cheque, was towards the liability that may fall due from the 1st respondent. When there was certain dues payable by 1st respondent, the cheque was presented in the bank. It was bounced for want of funds. Statutory notice did not result in payment of the amount. Therefore, the complaint was filed by the appellant.
3. The Court below found that the presumption under Section 139 of the Negotiable Instruments Act was not applicable, because the cheque was issued when the accused really not owed the complainant. It was also a blank cheque. That the cheque was issued against an enforceable liability has to be proved by the complainant. The complainant ought to have produced the books of accounts to prove such liability. Thus it was found by the court below that the accused was not guilty of the offence punishable under Section 138 of the Negotiable Instruments Act. This finding is challenged in this appeal.
4. The learned counsel for the appellant relied on the decisions of the Apex Court in Anil Kumar Sawhney v. Gulshan Rai (1994 (1) KLT 111), Beena v. Muniyappan (2001 (3) KLT 950 (SC) and I.C.D.S Ltd. v. Beena Shabeer (2002 (3) KLT 218 (SC).
5. The decision in Anil Kumar's case is one in respect of post dated cheque. A post dated cheque is only a Bill of Exchange. The post dated cheque becomes a cheque under the Act on the date mentioned in the cheque. When presented to the bank, if it was not cashed, necessarily a prosecution under Section 138 will lie. Admittedly, here the cheque was a blank cheque, not even dated. So the said decision does not have any application.
6. The decision in Beena v. Muniyappan is to the effect that it is the duty of the drawer to prove that the cheque had not been issued to discharge a debt or liability on his part. That also does not have much application to the facts of this case.
7. The decision in I.C.D.S' case is in respect of a cheque said to be issued in the capacity as a guarantor. The husband of the drawer of a cheque entered into an agreement with M/s. I.C.D.S Ltd. The drawer of the cheque was the guarantor and the cheque was issued in her capacity as guarantor. The cheque was presented to the bank of the drawer. It was bounded with the remark “insufficient fimds”. Prosecution under Section 138 was initiated. The drawer invoked Section 482 of the Cr. P.C for quashing the complaint which was allowed on the ground that it being a cheque from the guarantor it could not be said to have been issued for the purpose of discharging any debt or liability and the complaint under Section 138 of the Negotiable Instruments Act, 1881 was maintainable. The matter was taken up by the I.C.D.S Ltd. to the Apex Court. The Supreme Court held as follows:
“10. The language, however, has been rather specific as regards the intent of the legislature. The commencement of the section starts with the words “Where any cheque”. The above noted three words are of extreme significance, in particular, by reason of the user of the words “any” - the first three words suggest that in fact for whatever reason if a cheque is drawn on an account maintained by him with a banker in favour of another person for the discharge of any debt or other liability, the highlighted words if read with the first three words at the commencement of Section 138, leave no manner of doubt that for whatever reason it may be, the liability under this provision cannot be avoided in the event the same stands returned by the banker unpaid. The Legislature has been careful enough to record not only discharge in whole or in part of any debt but the same includes other liability as well. This aspect of the matter has not been appreciated by the High Court, neither been dealt with or even referred to in the impugned judgment.
11. The issue as regards the coextensive liability of the guarantor and the principal debtor, in our view, is totally out of the purview of S. 138 of the Act, neither the same calls for any discussion therein. The language of the statute depicts the intent of the law-makers to the effect that wherever there is a default on the part of one in favour of another and in the event a cheque is issued in discharge of any debt or other liability there cannot be any restriction or embargo in the matter of application of the provisions of S. 138 of the Act: ‘any cheque’ and ‘other liability’ are the two key expressions which stand as clarifying the legislative intent so as to bring the factual context within the ambit of the provisions of the statute. Any contra interpretation would defeat the intent of the Legislature. The High Court, it seems, got carried away by the issue of guarantee and guarantor's liability and thus has overlooked the true intent and purport of S. 138 of the Act. The judgments recorded in the order of the High Court do not have any relevance in the contextual facts and the same thus does not lend any assistance to the contentions raised by the respondents”.
8. The Supreme Court held that the even cheques issued by guarantor could be a subject matter for prosecution under Section 138, in case it is bounced.
9. It is submitted by the counsel for the appellant that as revealed in Ext. P6 agreement, the cheque has been issued as security for repayment of the amount that may become due. Later, when the respondent committed default, accounts, were verified in the presence of the representative of the respondent and the respondent thereupon filled the cheque with the amount and date and the cheques was thereupon presented to the bank. The date of the cheque was 19-8-93. Though the cheque leaf was signed and given to the appellant earlier, the cheque got its life from 19-08-93, when the accounts were verified and the respondent filled up the cheque. This reveals that the accused accepted that much liability. This cloths the appellant with the presumption under Section 139 in his favour. Necessarily, the finding contained in the impugned judgment has to be reversed, as the respondent did not rebut that presumptions available on the cheque in question, Ext. P1.
10. It is admitted by the respondent that when the cheque was issued, there was no liability at all. There was no supporting evidence from the side of the complainant as to whether the accounts had been verified. No accounts had been produced by the appellant to prove that liability was existing, an offence under Section 138 will arise. The decision in I.C.D.S case did not have an application to the facts of this case, because it was a case of guarantor whereas there is no guarantor in this case. Therefore the appeal has to fail, the counsel submits.
11. As rightly pointed out by the counsel for the respondent, there is no guarantee arrangement in this case. But Ext. P1 is an agreement undertaken by the respondent which refers to the cheque in question styling it as a blank cheque and the purpose of giving such blank cheque in terms of Ext. P6 agreement was that, in case any liability arises, it can be duly met by the cheque in question.
12. Then the crucial point; is whether there was a verification of accounts as suggested by the appellant. PW-1 is the complainant himself. He had deposed that representatives of the respondent had examined the accounts and mentioned the amount in Ext. P1 cheque endorsing the date thereon. It was further deposed that when the account was so examined, the son of the respondent was also present. There was no cross examination on this point on behalf of the respondent. That means this version of the complainant that the entries including the date were made in Ext. P1 by the representative of the respondent in the presence of his son after verifying the accounts remains unchallenged. That being the evidence on record, it is clear that the cheque had been drawn really on 19-08-93 when the necessary entries were made therein after verifying the accounts on behalf of the respondent with respect to the outstanding liability. It became a cheque only on 19-8-93 when the liability was acknowledged and entered in the cheque. Necessarily, there is evidence to show that the appellant has proved a liability outstanding from the respondent.
13. There is no dispute regarding statutory notice or that the complaint was within the period of limitation. In this regard, it has to be noted that immediately after the issuance of statutory notice, the respondent had filed a suit against the appellant/complainant as O.S No. 558/93 in the Munsiff Court, Kochi apprehending that the appellant may misuse the cheque in question. By the time, the cheque itself has been bounced. In spite of that the suit was dismissed for default. No steps were taken by the respondent, for restoration. That is also an admitted fact in this case. The intimation of the bank that the cheque was bounced for want of funds is also not disputed.
14. In such circumstances, the respondent is to be found guilty of the offence punishable under Section 138 of the Negotiable Instruments Act and I do so. Consequently, he is convicted and sentenced to pay a fine of Rs. 55,000/-, out which, on realisation of the amount, Rs. 52,000/- shall be paid to the appellant as compensation. In case of default of payment of fine, the respondent shall undergo simple imprisonment for six months. The find amount shall be paid within six weeks from the date of receipt of a copy of this judgment.
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