Supreme Court held that once the execution of the cheque Is admitted, the dispute regarding the interest rate of the loan has no defence.
Once the issuance of a cheque is established under Sections 138, 139, and 118(a) of the Negotiable Instruments Act, 1881, a rebuttable presumption arises that the cheque was issued to discharge a legal liability, and any discrepancies in interest rates or additional evidence must be substantial and valid to dislodge this presumption
The Supreme in its judgment, has addressed an appeal concerning the dishonour of a cheque under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act). The appeal, filed by Mr. B. Ragunath for the appellant, challenged the decision of the High Court of Judicature at Madras, which had upheld the acquittal of the respondent by the Appellate Court.
The dispute originates from a loan transaction between the appellant, a chit fund company, and the respondent. Over a period of two years, the respondent borrowed a total of Rs. 21,09,000 from the appellant. To partially discharge this debt, the respondent issued a cheque for Rs. 19,00,000, which was dishonoured due to an 'Account Closed' endorsement. Subsequent legal proceedings ensued after the statutory notice was ignored by the respondent, leading the complainant to file a case under Section 138 of the N.I. Act.
The Trial Court convicted the respondent based on the evidence provided by the appellant, which included testimony and documentary evidence establishing the cheque's issuance against an existing debt. The respondent was sentenced to one year of simple imprisonment and fined Rs. 38,00,000 as compensation.
On appeal, the Appellate Court allowed the respondent to introduce additional evidence, which included receipts purportedly showing partial repayments. The Court concluded that the cheque was not issued towards a legally enforceable liability and acquitted the respondent. This decision was subsequently upheld by the High Court.
The Supreme Court found merit in the appeal, noting several critical errors in the Appellate Court’s judgment. The Court observed that the Appellate Court had incorrectly relied on discrepancies regarding the interest rate and repayment receipts to acquit the respondent. The Court emphasized that:
Presumption under N.I. Act: Under Sections 138, 139, and 118(a) of the N.I. Act, once the issuance of the cheque is admitted, there is a presumption that it was issued in discharge of a legal liability. The burden to rebut this presumption lies with the respondent, who failed to do so convincingly.
Interest Rate Discrepancy: The Court criticized the Appellate Court for giving undue weight to variations in interest rates between the pronotes and the Statement of Accounts. It clarified that minor discrepancies in interest rates should not undermine the validity of the cheque issued to cover a legally due amount.
Tamil Nadu Act Consideration: The Court disagreed with the Appellate Court’s reliance on the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003. It noted that even if the agreed interest rate exceeded statutory limits, the respondent should have contested this through appropriate channels rather than using it as a defence in this case.
The Supreme Court set aside the Appellate Court’s order and restored the Trial Court’s judgment, with modifications. The respondent was directed to pay a fine of Rs. 28,50,000, which is one and a half times the amount mentioned in the cheque. The sentence of imprisonment was waived due to the respondent's advanced age and personal circumstances, provided that the fine is paid within eight months; otherwise, imprisonment will be enforced. The appeal was allowed in the terms outlined above, and parties were instructed to bear their own costs.
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