Delhi Court Convicts Company For Cheque Bounce Matter, Rejects Defence Of Security Cheques

In a complaint filed against Seams & Stitches Exports Pvt Ltd and one Kamal Kantor, a Delhi Court convicted the company under section 138 of the Negotiable Instrument Act, 1881 in a cheque bounce case. 

Factual Matrix

Accused No. 1 is engaged in the business of garment export previously known as Pentacle clothing Private Limited and with effect from 17.09.2017, the name changed to Seam & Stitches Exports Private Limited. Further, accused No. 2 Mr. Kamal Kantor is a director in the accused No.1 company and also the signing authority for the accused No.1 company. It is stated that Accused No .1 company represented by accused no.2 had taken on lease the complainant’s property situated at plot No. A-11, Phase -11, Noida-201305, District Gautam Budh Nagar, Uttar Pradesh for a monthly consideration of Rs.1,65,000/- vide lease agreement dated 06.06.2013. The complainant alleges that the accused persons had stopped paying the rent to the complainant regularly since the month of June, 2017. It is alleged that initially, the accused had issued 19 cheques to the complainant for payment of outstanding rent out of which payment for two cheques namely cheque bearing no. 672917 and 672916 was cleared through NEFT payment. Subsequently, to re-pay the outstanding liability of Rs 12,62,250/- the accused had issued 13 fresh cheques and four cheques from old schedule were continued. Hence, total 17 cheques including cheques in question for an amount of Rs 74,250/-each were issued to clear the outstanding dues of Rs 12,62,250/-. It is alleged that out of said 17 cheques, cheque bearing no. 673269, 673270, 673271 ,673272, 673273, 673274, 673275 and 673277 (hereinafter referred to as ‘cheques in question’) for an amount of Rs 74,250 each drawn on Indian Overseas Bank, Janpath Branch signed by accused No. 2 on behalf of accused no.1 company were presented for collection to the complainant’s bank and returned dishonoured vide return memo dated 17.06.2020 for insufficient funds.  

The accused persons in their plea under section 251 Cr.P.C. pleaded not guilty and opted to contest the case and disclosed the following defence: “ Devika Exports already has advance of Rs. 4,90,000/- which is also mentioned in the lease agreement and we had asked the complainant to adjust the amount qua cheque in question against the advanced amount and it was assured to us by the proprietor Mr. Vineet Sood that once the property is transferred in the name of firm the cheque in question amount will be adjusted against the advanced amount. However, the property got transferred and still the complainant did not adjust the cheque in question against the advanced amount and he presented the cheque in question. After adjusting the deposit which the complainant has we are ready to pay the outstanding balance.”  

What does the law on cheque bouncing say?

The law as it stands today is that once the issuance of a cheque by the accused is proved, presumptions under sections 118 (a) and 139 of the N.I. Act, 1881 are automatically activated in favour of the complainant. That said, the presumptions as however are rebuttable in nature and for rebuttal of the same the accused can either adduce evidence to prove that cheque in question was not supported by any consideration and in suitable cases may not even step into the witness box as the accused can rebut the same by placing reliance on the material brought on record by the complainant. In other words, the accused can either lead evidence and prove his defence on scale of preponderance of probabilities or he can show sufficient gaps in the case of the complainant so to create a reasonable doubt in the mind of the court regarding the version of the court.

The court relied on Supreme Court's judgement in CC Haji Alvi Vs Palapetty Muhammed (2007) 6 SCC 555 wherein it has been observed 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 presumption 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 requirement 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 complaint must contain basic facts regarding the mode and manner of the issuance 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 provision would effectuate the object and purpose for which proviso to Section 138 was enacted, namely, to avoid unnecessary hardship to an honest drawer of a cheque and to provide him an opportunity to make amends.”  

Section 138 of N.I. Act does not distinguish between a cheque issued by the debtor in the discharge of an existing debt or other liability, or a cheque issued as a security cheque   

A perusal of the legal demand notice postal receipts and tracking report filed reveals that the legal demand notice has been sent by the complainant to the accused no.1 it is correct address”. It is observed that the accused no.1 had furnished the very same address at the time of framing of Notice u/s 251 Cr.P.C. Moreover, accused no.2 had also furnished the very same address as mentioned in the legal demand notice in his Notice u/s 251 Cr.P.C. and during his Statement of Accused u/s 313 r/w 281 Cr.P.C. Therefore, there remains no doubt that the legal demand notice had been sent at the correct address of the accused persons . Further, since the legal demand notice was addressed correctly, the presumption u/s section 114 of Indian Evidence Act, 1881 enables the court to presume that the legal demand notice would have been delivered at the address of the addressee. Further, section 27 of General Clause Act, 1897 give rise to a presumption of due service. It is therefore manifest that in view of the presumption under section 114 of Indian Evidence Act, 1872 r/w section 27 of General Clause Act, 1897 the presumption of service of legal notice is inferred in favour of the complainant. CC  No. 209/2020       Devika Exports Vs. Seams Stitches. 

Once the execution of the cheques by the accused is proved/admitted, the presumptions of the same being drawn for consideration and in discharge of legally recoverable debt/ liability in terms of section 118 r/w section 139 of the Act is canvassed in favour of the complainant. Now, in the case at hand, so far, the question of existence of basic ingredients for drawing of presumption under section 118 and 139 the NI Act, 1881 is concerned, it is apparent that the Accused no.2 could not deny his signature on the cheques in question  that had been drawn in favour of the complainant on a bank account maintained by the Accused no.1 company for a sum of Rs. 74,250/- each. In reply to notice under section 251 Cr.P.C, the accused no.2 has admitted his signatures on the cheque in question  and also the fact of issuance of the cheque from the bank account maintained by accused no.1 company. Interestingly, accused no.2 has even admitted filling in the details on the cheque in question. Now, taking note of the fact that the accused no.2 has admitted his signatures on cheques in question the reverse onus clause set out in section 139 of the N.I. Act becomes relevant. Contrary to the basic principle of law of evidence, that cast a duty to prove, on  the one making an assertion of the fact, the statue has created a presumption under section 139 of the N.I. Act as per which, unless the contrary is proved, the holder of the cheque is deemed to have received the cheque for discharge in whole or in part, of a debt or liability.

Largely the defence of the accused persons has been that the complainant company is holding onto their security deposit of Rs. 4,95,000/- which ought to have been adjusted towards arrears of rent as per clause 6 of Lease Agreement dated 06.06.2013. Further, accused no.2 has contended that he was coerced to issue the cheques in question as otherwise he was not allowed to vacate the leased property where his machinery, furniture and stocks were also lying. 

The primary defence of the accused person is that the complainant company had the advance deposit of Rs. 4,95,000/- with them and that the said deposit was supposed to be adjusted towards the cheques in question by the complainant. In support of their contention, the accused persons have relied upon clause 6 of the lease agreement dated 06.06.2013. For the purpose of clarity, clause 6 of the lease agreement is quoted as below “6. The LESSEE has deposited with the LESSOR a sum of Rs 4.95,000-(Rupees four lac & Ninety-Five thousand only) by CC  No. 209/2020 Devika Exports Vs. Seams Stitches Exports Pvt. Ltd. cheque bearing no 145882 dated June 06, 2013, as a security deposit of three months. This amount shall be refunded to LESSEE without interest at the time of termination of Lease, after deducting any arrears of lease rent or damage to the property if any, normal wear and tear expected, and only after it has been vacated to the LESSOR in good condition, having been freshly painted and without any damage. The security deposit will be returned after inspection and rectification of any damage as well as payment of any unpaid bills (such as water and electricity) due from the LESSEE”.   

A perusal of email exchanges dated 12.10.2018 and 20.11.2018 between the complainant and the accused would reveal that the accused was indeed issuing cheques voluntarily towards the outstanding rent and had sought extension of time to issue fresh cheques in place of old ones on account of failure to ensure their encashment and in none of these exchanges the accused had talked of adjusting the security deposit. Further, the ledger statement maintained by the accused persons categorically reveals that the total outstanding dues were indeed Rs. 12,62,250/- which is exactly the same amount as claimed by the complainant to be due towards arrears of rent and hence 17 cheques of Rs 74,250/- each which adds  upto Rs 12,62,250/- were issued. Further, even in the ledger statement the security deposit has not been adjusted by the accused persons themselves which is further suggestive of the fact that the accused persons had prior knowledge of same being not entitled to be adjusted towards outstanding bills/charges and therefore the request for refund was never raised by them in the past.

Indisputably, even the complainant has led no evidence to show that the security deposit have been adjusted/appropriated to cover the damages, however considering the nature of the case where the complainant enjoy the presumption of cheques being issued toward discharge of legal lability, the burden of proof was upon the accused persons to raise a probable defence along the lines that complainant has misappropriated the deposit or that they were entitled to refund of the same. Further, the defence of athe ccused lost its vigour in view of the clear admission by accused no 2 during cross examination dated 16.11.2022 to the effect that he is ready to repay the entire cheque amount if granted some time. Further, the email exchanges and the ledger placed on record by the complainant makes the defence of the accused shallower. Further, the security deposit was given in the year 2013 at the time of commencement of lease and if at all the said amount was to be adjusted, the same would have been adjusted in the ledger also being prepared.

Coming to the Second line of defence taken by the accused is that the cheques in question were given to the complainant out of coercion as they were not otherwise allowed to vacate the premises and take their machinery, furniture and stocks out unless the security cheques were issued. As regards this defence, even if it is assumed that the accused persons were coerced to issues the cheques in question, it does not stand to reason, why the accused persons did not file any police complaint against the complainant after vacating the leased property and regaining the possession of their good and machinery. Further, no steps were taken to issue stop payment instructions to their banker. Moreover, this defence of the accused persons is not only inconsistent but also contradicts their own defence taken at the time of reply to Notice u/s 251 Cr. P.C where the accused persons hinted of being ready to repay the balance amount after adjusting the security deposit and thus naturally admitting the factum of arrears of rent. Accused no.2 in his cross-examination dated 16.11.2022 has testified that he is ready to repay the entire cheque amount if granted sometimes. Further, accused no.2 has also deposed that he has already settled the matter with the complainant qua five cheques out of 17 cheques arising out of the same transaction by making the payment. Hence, in such circumstances where the accused has shown his inclination to repay the payment toward cheques in question, it cannot be believed that cheques were issued out of coercion and not for discharge of legal debt or liability. Accordingly, the defence set up by the accused is hereby rejected.

Further, as far as defence of cheques being issued as security cheques is concerned, een if it assumed that the cheques in question were issued as security cheques, the provision of section 138 still applies in equal measure to security cheque as well. In this regard, a reference is made to the judgment of Hon’ble High Court of Delhi in Suresh Chandra Goyal Vs. Amit Singhal, Crl.L.P, 706/2014 wherein it has been succinctly held that: "Section 138 of N.I. Act does not distinguish between a cheque issued by the debtor in discharge of an existing debt or other liability, or a cheque issued as a security cheque on the premise that on the due future date the debt which shall have crystallized by then, shall be paid. So long as there is a debt existing, in respect whereof the cheque in question is issued, the same would attract Section 138 of NI Act in case of its dishonour.” 

The defence of the cheques being issued as security cheques does not by itself rebut the presumption. Further, the Hon'ble Supreme Court in a recent judgment in the Sunil Todi & Ors v. State of Gujarat, 2021 SCC OnLine SC 1174, has held that the provisions of Section 138 N.I. Act apply to cheques issued on advance basis as well, if at the time of presentation of the same, liability exists. 

In these circumstances, where the accused has led no cogent evidence to prove the non-existence of legal liability at the time of encashment of subject cheques, the defence of the accused does not hold any ground and is hereby rejected.  

The complainant was represented by Advocate Akshay Bhandari.