Court Reaffirms Liability for Security Cheques Under Section 138 of NI Act
In a significant ruling, the Himachal Pradesh High Court dismissed the revision petition filed by Khushinder Singh, thereby upholding the conviction and sentence awarded by the lower courts for the dishonour of a cheque under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). The judgment, delivered by Justice Rakesh Kainthla, reinforces the legal principle that cheques issued as security can still attract liability if dishonoured.
The case originated from a complaint filed by Ambal Khan, alleging that Khushinder Singh had issued a cheque for ?1,40,000 to repay a loan, which was dishonoured due to the closure of the account. The trial court convicted Khushinder Singh and sentenced him to three months of simple imprisonment, along with a compensation order of ?1,70,000. This decision was affirmed by the appellate court, leading to the current revision petition.
The High Court, while deliberating on the revision, highlighted the presumptions under Sections 118(a) and 139 of the NI Act, which place the onus on the accused to rebut the presumption of liability once the issuance of the cheque is admitted. The court noted that mere denial by the accused was insufficient without substantive evidence to counter the presumption.
The judgment emphasized that even cheques issued as security are subject to prosecution under Section 138 if they are dishonoured. The court referred to multiple precedents, including the Supreme Court's rulings, to support the view that the legislative intent behind Section 138 is to ensure the credibility of cheques in financial transactions.
Furthermore, the court addressed the accused's argument regarding the discrepancy between the repayment terms stated in the legal notice and the complaint. It concluded that this discrepancy did not affect the validity of the cheque or the liability under Section 138, especially since the cheque was presented well after the repayment period had lapsed.
The High Court also rejected the argument that the transaction was invalid due to the alleged violation of Section 269SS of the Income Tax Act, which pertains to cash transactions exceeding Rs. 20,000. It clarified that such a violation might attract a penalty but does not render the transaction unenforceable under the NI Act.
In upholding the sentence, the court reiterated the deterrent nature of the penal provisions under the NI Act, highlighting the objective to foster confidence in financial instruments like cheques. The compensation awarded was deemed appropriate to cover the loss of interest and costs incurred by the complainant due to the dishonour of the cheque.
This judgment serves as a stern reminder of the legal liabilities associated with issuing cheques and the stringent enforcement mechanisms under the NI Act to prevent financial fraud and maintain trust in banking transactions.
Bottom line:-
Section 138 of the Negotiable Instruments Act - Presumption under Sections 118(a) and 139 applies when issuance of cheque and signature are not disputed. Reverse onus clause requires the accused to rebut the presumption by evidence. Cheque issued as security or even blank signed cheques attract liability under Section 138.
Statutory provision(s): Section 138 of the Negotiable Instruments Act, Sections 118(a) and 139 of the NI Act, Section 313 of the Code of Criminal Procedure, Sections 269SS and 271D of the Income Tax Act.
Khushinder Singh v. Ambal Khan, (Himachal Pradesh) : Law Finder Doc id # 2948978
