Case Note & Summary
The appellant, M/s P. V. Constructions, through its proprietor S. Venugopalan, filed a criminal appeal against the acquittal of the respondent, K. J. Augusty, under Section 138 of the Negotiable Instruments Act, 1881. The complainant alleged that the accused owed Rs.84,775 for civil works executed by the complainant. Through mutual friends, the parties settled the amount at Rs.81,000, and the accused issued two post-dated cheques: one for Rs.40,000 dated 25-3-2002 and another for Rs.41,000 dated 25-4-2002. The complaint pertained to the first cheque, which was deposited by the complainant but returned dishonoured with the remark 'payment stopped by drawer' on 25-3-2002. The complainant sent a legal notice demanding payment, but the accused failed to pay. The trial court acquitted the accused on the ground that the cheque was dishonoured due to stop payment and not due to insufficiency of funds, and that the cheque was issued as security. The High Court reversed the acquittal, holding that the accused's defence was not proved and that the presumption under Section 139 NI Act applied. The court found that the accused admitted his signature on the cheque and the issuance of the cheque, but failed to rebut the presumption that it was issued for a legally enforceable debt. The court also noted that the stop payment instruction does not absolve the drawer of liability under Section 138. The appeal was allowed, the acquittal was set aside, and the accused was convicted and sentenced to pay a fine of Rs.85,000, with default simple imprisonment for three months.
Headnote
A) Negotiable Instruments Act - Dishonour of Cheque - Stop Payment Instruction - Section 138 - The drawer who issues a cheque and subsequently stops payment before the due date cannot escape liability under Section 138 if the cheque is dishonoured, as the act of stopping payment amounts to an offence under the section. The court held that the accused's defence that the cheque was issued as security and not for a legally enforceable debt was not proved, and the presumption under Section 139 NI Act was not rebutted. (Paras 1-10) B) Negotiable Instruments Act - Presumption of Legally Enforceable Debt - Section 139 - Once the issuance of the cheque and the signature are admitted, the court must presume that the cheque was issued for a legally enforceable debt. The accused failed to rebut this presumption by leading evidence that the cheque was issued as security for a future liability. (Paras 7-9) C) Negotiable Instruments Act - Notice of Demand - Section 138(b) - The complainant sent a valid notice of demand within 30 days of the dishonour, and the accused failed to make payment within 15 days of receipt. The complaint was filed within one month of the expiry of the notice period, satisfying the statutory requirements. (Paras 5-6)
Issue of Consideration
Whether the acquittal of the accused under Section 138 of the Negotiable Instruments Act, 1881, on the ground that the cheque was dishonoured due to 'payment stopped by drawer' and not due to insufficiency of funds, is sustainable in law.
Final Decision
The appeal is allowed. The judgment of acquittal dated 30-9-2005 passed by the Judicial Magistrate, First Class, Mapusa, in Criminal Case No. 88/OA/2002 is set aside. The accused is convicted under Section 138 of the Negotiable Instruments Act, 1881 and sentenced to pay a fine of Rs.85,000, in default to undergo simple imprisonment for three months. Out of the fine, Rs.80,000 shall be paid to the complainant as compensation.
Law Points
- Stop payment instruction before due date does not absolve drawer of liability under Section 138 NI Act if cheque is dishonoured due to insufficiency of funds or arrangement
- presumption under Section 139 NI Act applies
- burden on accused to rebut presumption
- notice of demand must be sent within 30 days of dishonour
- complaint must be filed within one month of notice period expiry.
