Rajaram Sriramulu Naidu (D) vs Maruthachalam (D) - The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.

 Supreme Court (18.01.2023) Rajaram Sriramulu Naidu (D) vs Maruthachalam (D) [ Criminal Appeal No. .1978 of 2013] held that;

• The   presumption   under   Section 139 is a rebuttable presumption and the onus   is   on   the   accused   to   raise   the probable defence. The standard of proof for rebutting   the   presumption   is   that   of preponderance of probabilities. 

• To  rebut  the  presumption,  it  is open for the accused to rely on evidence led by him or the accused can also rely on the   materials   submitted   by   the complainant in order to raise a probable defence.  

• Inference   of   preponderance   of probabilities can be drawn not only from the   materials   brought   on   record   by   the parties   but   also   by   reference   to   the circumstances upon which they rely. 

• That it is not necessary for the accused   to   come   in   the   witness   box   in support   of   his   defence,   Section   139 imposed an evidentiary burden and not a persuasive burden.

• The scope of interference in an appeal against acquittal is limited.  Unless the High Court found that the appreciation of the evidence is perverse, it could not have interfered with the finding of acquittal recorded by the learned Trial Court.  

• The   adjudication   in   civil   matters   is   based   on preponderance of probabilities whereas adjudication in criminal cases is based on the principle that the accused is presumed to be innocent and the guilt of the accused should be proved to the hilt and the proof should be beyond all reasonable doubt.

Excerpts of the Order;

# 1. The   Criminal   Appeals   challenge   the   common   judgment and order of conviction and sentence dated 28th October 2008 and   30th  October   2008   passed   by   the   Madras   High   Court whereby the Appellant has been convicted under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 1 “the N.I. Act”) and has been sentenced to a fine of Rs. 7 Lakhs in each case in respect of two cheques for an amount of Rs. 3.5 Lakhs.  

# 2. The   Civil   Appeals   challenge   the   judgments   dated   08th August 2011 and 03rd  February 2012 passed by the Madras High Court whereby the Original Suits filed by the plaintiffs respondents for recovery of money on the basis of promissory notes were decreed. 

# 3. For the sake of convenience, the parties will be referred to as their status before this Court. 

# 4. Since both the Criminal Appeals arise out of a common judgment,   we   consider   it   apposite   to   refer   to   the   facts   in Criminal Appeal No.1978 of 2013.  Insofar as the Civil Appeals are concerned, while they arise out of different judgments, for the sake of convenience, we shall refer to the facts arising from Civil Appeal No.10501 of 2013.  

# 5. The   present   appeals   arise   from   the   following   factual matrix: 

5.1 In 1992, the Appellant ­Rajaram’s wife subscribed to a 5­ year chit­fund with one Maruthachalam, the Respondent in   Criminal   Appeal   No.   1978/2013   and   Civil   Appeal No.10500/2013. Upon the Respondent ­Maruthachalam’s persuasion   that,   in   order   to   be   a   successful   bidder,   a security by way of a blank cheque must be submitted, the Appellant   submitted   two   signed   blank   cheques   bearing nos. 237954 and 237956 on behalf of his wife, since she did not have a bank account. It is to be noted that the cheques   were   drawn   on   the   account   of   M/s   Brinda Engineering,   the   sole   proprietorship   concern   of   the Appellant, maintained with the Laxmi Vilas Bank Ltd.

 5.2 It is further the case of the Appellant that in 1995, his wife subscribed   to   yet   another   5­year   chit­fund   with   the Respondent­Maruthachalam. 

5.3 In 1997, the bank account on which the said cheques were drawn was closed due to non operation. 

5.4 The first chit matured in 1997 and, since the wife of the Appellant   was   never   a   successful   bidder,   thus,   the Appellant   and   his   wife   repeatedly   requested   the Respondent to release the amount of the chits, but the Respondent never did so. On the contrary, the Respondent promised   to   keep   the   amount   as   a   deposit   and   pay interest.     Similarly,   the   second   chit   matured   in   1999, whereafter   also   the   wife   of   the   Appellant   was   never   a successful   bidder.   Thereafter,   repeated   requests   for releasing the subscription amount to the tune of Rs. 6 lakhs for both the chits were made on their behalf, but to no avail. Finally, the Appellant and his wife threatened the Respondent with legal action, whereupon the Respondent immediately   presented   the   cheques   for   encashment without any information or intimation to the Appellant. 

5.5 The Cheque No. 237954 was dated 20th  October 1999 in favour of Respondent ­Nachimuthu (who happens to be the brother in law of Maruthachalam) for an amount of Rs. 3,50,000/,   and   was   presented   for   encashment   on   04th November 1999 by the Respondent through his banker Indian Overseas Bank. The said cheque returned unpaid on   14th  November   1999   with   an   endorsement   stating “account closed”.  

5.6 The   other   Cheque   No.   237956   was   dated   25th  October 1999 in favour of the Respondent ­Maruthachalam for an amount   of   Rs.   3,50,000/­,   and   was   presented   for encashment on 04th  November 1999 by the Respondent through   his   banker   Indian   Overseas   Bank.   The   said cheque too returned unpaid on 14th November 1999 with an endorsement stating “account closed”. 

5.7 Statutory Notices dated 15th November 1999 were sent in respect of the aforesaid dishonoured cheques, which were  duly   replied   by   the   accused/Appellant   denying   the existence   of   any   legally   enforceable   debt   and   stating therein   that   the   Respondent   is   liable   to   pay   the   chit amount along with subsequent interest. Since the amount was not paid, the Respondents instituted Complaint Cases under Section 138 of the N.I. Act, being CC No. 26 of 2000 in respect of Cheque No. 237954 and CC No. 32 of 2000 in respect   of   Cheque   No.   237956.   Both   the   cases   were dismissed by the learned Trial Court on 10th  July 2001 vide separate judgments.  

5.8 Pursuant to the dismissal of the aforesaid cases, both the Respondents instituted civil/original suits for recovery of money on the basis of Promissory Notes.  

5.9 Original Suit No. 112/2003 (earlier OS No. 602/2002) was instituted by the Respondent­Nachimuthu, alleging that the Appellant had borrowed a sum of Rs. 3 Lakhs on 20th October 1998 from him and had executed a promissory note on the same day thereby promising to repay the same with interest at 24% per annum. It was further alleged that the Appellant had issued a cheque on 20th  October 1999   for   Rs.   3,50,000/­   towards   the   discharge   of   his liability   and   when   the   same   was   presented   for encashment,   it   was   dishonoured   as   the   Appellant   had closed   the   account.   Criminal   Case   No.   32/2000   was pursued   under   Section   138   of   the   N.I.   Act   which   was dismissed against which an appeal was pending before the High Court. 

5.10 Another Original Suit No. 266 of 2004 (earlier OS 746 of 2002) was instituted by the Respondent­Maruthachalam, alleging that the Appellant had borrowed a sum of Rs. 3 Lakhs on 25th October 1998 from him and had executed a promissory note on 25th October 1998, thereby promising to repay the same with interest at 24% per annum. It was further alleged that the Appellant issued a cheque on 20th 7 October 1999 for Rs. 3,50,000/­ towards the discharge of his   liability   and   when   the   same   was   presented   for encashment,   it   was   dishonoured   as   the   Appellant   had closed   the   account.   Criminal   Case   No.   26/2000   was pursued   under   Section   138   of   the   N.I.   Act   which   was dismissed against which an appeal was pending before the High Court. 

5.11 Original Suit No. 112 of 2003 and Original Suit No. 266 of 2004   came   to   be   dismissed   vide   judgment   dated   06th January 2004 and 29th July 2005 respectively. As against both   the   judgments,   appeals   were   preferred   before   the High Court.  

5.12 The Appeals against the judgments in criminal matters were allowed by the High Court vide common judgment and order of conviction and sentence dated 28.10.2008 and 30th October 2008.  

5.13 In Appeal, Original Suit No. 266 of 2004 and Original Suit No. 112 of 2003 were decreed by the High Court vide judgments dated 08th August 2011 and 03rd February 2012 respectively. 

5.14 The Appeals against all the 3 judgments of the High Court are before us and are being disposed of vide this common judgment. 

# 6. We   have   heard   Ms.   Neha   Sharma,   learned   counsel appearing for the Appellants in all the appeals, and Mr. V. Prabhakar, learned counsel appearing for both the Respondents in all the appeals.  

# 7. Ms.   Neha   Sharma   submits   that   the   High   Court   has erroneously   reversed   the   well reasoned   judgements   of   the learned Trial Court. She submitted that blank cheques issued in the year 1992 by way of security for chit funds were misused by the Respondents in the year 1999. She further submitted that   in   the   year   1999,   when   the   cheques   were   sent   for encashment, the Appellant was no longer the proprietor of M/s Brinda Engineering and the bank account on which the said cheques were drawn was not operated after 1992, and had already   closed   in   1997   due   to   non­operation.   She   further submitted that even before the account was closed down, the wife   of   the   Appellant   became   the   sole   proprietor   of   the enterprise, and thus, the appellant could not have signed the said cheques in the capacity of the proprietor of M/s Brinda Engineering. 

# 8. The   learned   counsel   submitted   that   the   Respondents herein did not have the financial capacity to lend an amount of Rs.3,00,000/­ each as on 20th October 1998 and 25th October 1998,   when   the   promissory   notes   were   said   to   have   been executed.   It   is   further   submitted   that   although   it   was   the Respondents’ case that they had given the amounts out of their agricultural income, since they had not declared the same in their Income Tax Returns from 1992­-1999, thus, there was no material to show that they could have lent money. To buttress her submissions, the learned counsel relies on the judgment of this Court in the case of, Basalingappa v. Mudibasappa [(2019) 5 SCC 418 11].  

# 9. Per   contra,   Mr.   V.   Prabhakar,   learned   counsel   for   the Respondents, submits that the Appellant­Raja Ram had failed to produce any material evidence to substantiate the claim that his   wife   subscribed   to   the   chit­funds   run   by   Respondent, Maruthachalam.   He   submitted   that   the   High   Court   rightly observed that no material was produced by the Appellant­ Raja Ram   to   prove   that   the   cheques   and   promissory   notes   were issued only as a security for such a chit. He further submitted that no legal proceedings were initiated for the recovery of the alleged amount due by the Appellant either. 

# 10. The   learned   counsel   submitted   that   there   arose   no occasion for the Appellant ­Raja Ram to issue a blank cheque in the year 1992 for a chit to be subscribed much later in the year 1995. It is further submitted that even if certain amounts are not accounted for in the Income Tax Returns, this is a matter concerning only the defaulter and Revenue Authority. Thus, a borrower cannot be allowed to take advantage of the same solely on the ground that such an amount does not reflect in the Income   Tax   Returns.   The   learned   counsel   relied   on   the judgments of this Court in the cases of Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197] ,  Rohitbhai Jivanlal Patel v. State of Gujarat and Anr [(2019) 18 SCC 106] ,  Kalamani   Tex   and   Anr   v.   P.   Balasubramanian [(2021) 5 SCC 283]   to buttress his submissions.  

# 11. We shall first consider the Criminal Appeals.   

# 12. This Court in the case of Baslingappa v. Mudibasappa (supra) has summarized the principles on Sections 118(a) and 139 of the N.I. Act.  It will be relevant to reproduce the same. 

• “25.  We   having   noticed   the   ratio   laid down by this Court in the above cases on Sections   118(a)   and   139,   we   now summarise the principles enumerated by this Court in following manner: 

• 25.1.  Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability. 

• 25.2.  The   presumption   under   Section 139 is a rebuttable presumption and the onus   is   on   the   accused   to   raise   the probable defence. The standard of proof for rebutting   the   presumption   is   that   of preponderance of probabilities. 

• 25.3.  To  rebut  the  presumption,  it  is open for the accused to rely on evidence led by him or the accused can also rely on the   materials   submitted   by   the complainant in order to raise a probable defence.   Inference   of   preponderance   of probabilities can be drawn not only from the   materials   brought   on   record   by   the parties   but   also   by   reference   to   the circumstances upon which they rely. 

• 25.4.  That it is not necessary for the accused   to   come   in   the   witness   box   in support   of   his   defence,   Section   139 imposed an evidentiary burden and not a persuasive burden.

• 25.5. It is not necessary for the accused to come in the witness box to support his defence.” 

# 13. It can thus be seen that this Court has held that once the execution of cheque is admitted, Section 139 of the N.I. Act mandates a presumption that the cheque was for the discharge of any debt or other liability.  It has however been held that the presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities.  It has further been held that to rebut the presumption, it is open for the accused to rely on evidence   led   by   him   or   the   accused   can   also   rely   on   the materials submitted  by the complainant  in order to  raise  a probable   defence.   It   has   been   held   that   inference   of preponderance of probabilities can be drawn not only from the materials brought on record by the parties but also by reference to the circumstances upon which they rely. 

# 14. In   the   said   case,   i.e.  Baslingappa   v.   Mudibasappa (supra), the learned Trial Court, after considering the evidence and material on record, held that the accused had raised a probable   defence   regarding   the   financial   capacity   of   the complainant.       The   accused   was,   therefore,   acquitted. Aggrieved thereby, the complainant preferred an appeal before the   High   Court.     The   High   Court   reversed   the   same   and convicted the accused.  This Court found that unless the High Court came to a finding that the finding of the learned Trial Court   regarding   financial   capacity   of   the   complainant   was perverse, it was not permissible for the High Court to interfere with the same.  

# 15. In the present case, the accused appellant had examined Mr. Sarsaiyyn, Income Tax Officer, Ward No.18, Circle (II) (5), who produced certified copies of the Income Tax Returns of the 15 complainant for the financial year 1995­-96, 1996­-97, 1997­-98 and 1998-­99.  The certified copies of the Income Tax Returns established that the complainant had not declared that he had lent Rs.3 lakh to the accused.  It further established that the agricultural income also was not declared in the Income Tax Returns.   

# 16. The   learned   Trial   Court   further   found   that   from   the income which was shown in the Income Tax Return, which was duly exhibited, it was clear that the complainant(s) did not have financial capacity to lend money as alleged.   

# 17. The appellant had also examined D.W.2 ­Thiru Iyyappan, Assistant Manager, City Union Bank, Ramnagar Branch with regard to bank transactions made by the sole proprietorship firm, M/s Brinda Engineering.   

# 18. D.W.3 ­Mr. Subramaniam, Manager, Lakshmi Vilas Bank, Ganapathy Branch was also examined on behalf of the defence. The said witness also deposed that the complainant had signed 16 the   application   form   to   introduce   the   accused   to   open   the account in the bank.   

# 19. D.W.4­ Mr.   Ganesan,   Village   Administrative   Officer, Ganapathy Village was also examined and he deposed that the land in S.F. No. 591/3 and 592/3 was in joint ownership, and, in the aforesaid survey numbers, the names of 27 persons were found.   

# 20. After analyzing all these pieces of evidence, the learned Trial   Court   found   that   the   Income   Tax   Returns   of   the complainant   did   not   disclose   that   he   lent   amount   to   the accused, and that the declared income was not sufficient to give loan of Rs.3 lakh.  Therefore, the case of the complainant that he had given a loan to the accused from his agricultural income was found to be unbelievable by the learned Trial Court.  The learned Trial Court found that it was highly doubtful as to whether the complainant had lent an amount of Rs.3 lakh to the   accused.   The   learned   Trial   Court   also   found   that   the  complaint had failed to produce the promissory note alleged to have been executed by the accused on 25th October 1998.   After taking   into   consideration   the   defence   witnesses   and   the attending circumstances, the learned Trial Court found that the defence was a possible defence and as such, the accused was entitled to benefit of doubt.  The standard of proof for rebutting the   presumption   is   that   of   preponderance   of   probabilities. Applying this principle, the learned Trial Court had found that the accused had rebutted the presumption on the basis of the evidence of the defence witnesses and attending circumstances. 

# 21. The scope of interference in an appeal against acquittal is limited.  Unless the High Court found that the appreciation of the evidence is perverse, it could not have interfered with the finding of acquittal recorded by the learned Trial Court.    

# 22. Insofar as the reliance placed by Mr. Prabhakar on the judgment of this Court in the case of  Bir  Singh   v.  Mukesh Kumar  (supra)   is   concerned,   in   the   said   case,   though   the  accused   was   convicted   by   the   learned   Trial   Court,   which conviction was maintained by the Appellate Court, the High Court in its revisional jurisdiction interfered with the same and acquitted the accused. This Court found that in exercise of revisional   jurisdiction   under   Section   482   of   the   Code   of Criminal Procedure, 1973, the High Court could not, in the absence of perversity, upset concurrent findings of fact.  In any case, in the said case, the accused had not led evidence with regard to the financial capacity of the complainant.  This Court held that once a cheque was signed and handed over by the accused, it would attract presumption under Section 139 of the N.I. Act in the absence of any cogent evidence to show that the cheque was not issued in the discharge of a debt.  

# 23. In   the   case   of  Kalamani   Tex   and   another   v.   P. Balasubramanian  (supra),   the   learned   Trial   Court   had dismissed   the   complaint.     In   appeal,   at   the   behest   of   the complainant,   the   same   was   allowed   and   the   accused   were convicted for the offence punishable under Section 138 of the N.I. Act.  In an appeal at the behest of the original accused, this Court  while affirming  the order of  the High  Court  observed thus:

• “18.  Considering the fact that there has been an admitted business relationship between   the   parties,   we   are   of   the opinion that the defence raised by the appellants does not inspire confidence or meet the standard of “preponderance of probability”. In the absence of any other relevant material, it appears to us that the High Court did not err in discarding the   appellants'   defence   and   upholding the onus imposed upon them in terms of Section 118 and Section 139 of NIA.” 

# 24. It can thus be seen that in the facts of the said case, this Court found that the defence raised by the appellants/accused did   not   inspire   confidence   or   meet   the   standard   of “preponderance of probability”.  

# 25. In the present case, we are of the considered opinion that the defence raised by the appellant satisfies the standard of “preponderance of probability”. 

# 26. Insofar as the reliance on the judgment of this Court in the case of  Rohitbhai   Jivanlal   Patel   v.   State   of   Gujarat  and Anr.  (supra) is concerned, in the said case, the learned Trial Court had acquitted the accused, the High Court, in appeal, reversed the acquittal and convicted the accused for the offence punishable under Section 138 of the N.I. Act.   Affirming the order of the High Court, this Court held that merely by denial or merely by creation of doubt, the accused cannot be said to have rebutted the presumption as envisaged under Section 139 of the N.I. Act.   This Court held that unless cogent evidence was led   on   behalf   of   the   accused   in   defence   of   his   case,   the presumption under Section 139 of the N.I. Act could not be rebutted.     As   such,   the   said   judgment   also   would   not   be applicable to the facts of the present case. 

# 27. In that view of the matter, we are further of the considered view that the High Court was not justified in reversing the order of acquittal of the appellant.   

# 28. That leaves us to consider the Civil Appeals.   Insofar as the   Civil   Appeals   are   concerned,   the   High   Court,   by   two different judgments and orders, has reversed the judgments and   orders   of   the   learned   Trial   Court   dismissing   the   suits, thereby decreeing them.  It is a settled proposition of law that the standard of proof in criminal proceedings differs with that in civil proceedings.  

# 29. A   distinguishing   fact   between   the   criminal   proceedings and the civil proceedings in the present case is that, while in the criminal proceedings the complainant had failed to produce the promissory notes, in the civil proceedings, the complainant had proved the promissory notes.  The High Court found that the Civil Appeals were required to be decided on the basis of the preponderance of probabilities.  The High Court found that the  complainant had established that he was working as a LIC Agent,   that   his   father   was   owning   extensive   agricultural properties and that he was deriving agricultural income.   The High Court, on the basis of the evidence placed on record, relying   on   the   preponderance   of   probability,   came   to   a conclusion that the plaintiff had the financial ability to lend the sum of Rs.3 lakh as on 20th October 1998.  The High Court also found that the appellant’s wife was not examined as a witness in the said case so as to probabilize the defence plea.   The High Court found that the best available evidence was withheld by the defendants/appellants herein and as such, the principle of adverse inference was also applicable.    

# 30. Though it was sought to be argued before the High Court that in view of the judgment in the criminal proceedings, the suit(s) was also liable to be dismissed, the High Court rightly observed   that   the   adjudication   in   civil   matters   is   based   on preponderance of probabilities whereas adjudication in criminal cases is based on the principle that the accused is presumed to be innocent and the guilt of the accused should be proved to the hilt and the proof should be beyond all reasonable doubt.   

# 31. We,   therefore,   find   no   reason   to   interfere   with   the judgments and orders passed by the High Court in the Civil Appeals.  However, in the facts and circumstances of the case, we are inclined to modify the decree.  During the pendency of the proceedings before this Court, the appellants have deposited an amount of Rs.7 lakh and Rs. 2 lakh pursuant to the orders of this Court dated 20th  February, 2009 passed in Criminal Appeal No. 1978 of 2013 (arising out of Special Leave Petition (Criminal) No.1456 of 2009 and connected matter and dated 13th  August, 2012 passed in Civil Appeal No.10501 of 2013 (arising out of Special Leave Petition (Civil) No.23036 of 2012). The said amount has been directed to be invested in a Fixed Deposit Receipts from time to time.   We are, therefore, of the view that, in the facts and circumstances of the present case,the decree needs to be modified restricting it to the amount already deposited by the appellants in both the proceedings with interest accrued thereon.  

# 32. In the result, we pass the following order: 

• (i) Criminal Appeal Nos. 1978 of 2013 and 1990 of 2013 are allowed and the common judgment of conviction dated 28th  October 2008 and order of sentence dated 30th  October   2008   respectively   are   quashed   and   set aside.  The judgments and orders dated 10th July 2011 passed by the learned Trial Court is confirmed.  

• (ii) Civil Appeal Nos. 10500 of 2013 and 10501 of 2013 are dismissed. However, the decrees of the High Court are modified,   thereby   restricting   them   to   the   amount already deposited by the appellants in this Court in the civil   and   criminal   proceedings,   along   with   interest accrued thereon.   

• (iii) The respondents in both the Civil Appeals would be entitled to withdraw 50% of the amount each from the amount deposited in this Court with interest accrued upto date.  

# 33. There shall be no order as to costs.  Pending application(s), if any, shall stand disposed of. 

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Prasad Raykar S/o Vidyadhar V Raikar Vs. B T Dinesh S/o T A Bharamappa - As a legal representative of the father, the accused is liable to repay the loan to the complainant. Therefore, the contention raised by the respondent counsel is not acceptable and on the other hand, the complainant is not able to prove the liability of the accused and the cheque was dishonored, thereby, the accused is liable for the punishment under Section 138 of N.I. Act and the complaint is maintainable.

 High Court of Karnataka (02.01.2023) in Prasad Raykar S/o  Vidyadhar V Raikar Vs. B T Dinesh S/o T A Bharamappa  [Criminal Appeal No.725 of 2011]  held that;

• As a legal  representative of the father, the accused is liable to  repay the loan to the complainant. Therefore, the  contention raised by the respondent counsel is not  acceptable and on the other hand, the complainant is  not able to prove the liability of the accused and the  cheque was dishonored, thereby, the accused is liable  for the punishment under Section 138 of N.I. Act and  the complaint is maintainable. 

 

Excerpts of the order;

This appeal is filed by the appellant-complainant  under Section 378 of Cr.P.C. for setting aside the  judgment of acquittal passed by the Second Additional  District and Sessions Judge, Davanagere in  Crl.A.No.140/2010 dated 07.04.2011 and to confirm  the judgment of conviction and sentence passed by  the Principal Senior Civil Judge and CJM, Davanagere  in C.C.No.1303/2009 dated 18.10.2010.  

 

# 2. Heard the arguments of learned counsel for  the appellant and learned counsel for the respondent.  

 

# 3. The case of the appellant before the trial  Court is that he has filed a private compliant under  Section 200 of Cr.P.C. against the respondent-accused for the offence punishable under Section 138 read  with Section 142 of the Negotiable Instruments Act, 1881 (for short 'N.I. Act') alleging that the accused  and complainant are known to each other. The father  of the respondent-accused - Bharamappa said to be  borrowed Rs.2,60,000/- from the complainant appellant on 07.03.2003 for his business and his  family necessities and agreed to pay 2% interest per  month by executing the on-demand promissory note  in favour of the complainant. In the meantime, the father of the accused - Bharamappa died leaving  behind his son-accused as a legal heir i.e., prior to  filing of the private complaint. On the death of  Bharamappa, the complainant asked the accused for  repayment of the loan amount and the accused  requested for sometime. But he has paid Rs.10,000/- to the complainant on 10.06.2005 and the  complainant asked the accused to clear the dues  of his father. Later, the interest as well as principal  amount was calculated for Rs.4,50,000/- and the  accused said to be issued two cheques bearing  Nos.571677 and 571679 drawn on Vijaya Bank,  Davanagere Branch for the sum of Rs.2,25,000/- each  dated 07.06.2006 and 07.07.2006 respectively. The  cheques were presented for encashment which came  to be dishonored as the account was closed. A notice  also served on the accused, but, he did not pay the  amount. Hence, the complaint came to be filed before  the Magistrate. After appearance of the respondent accused, plea was recorded, he claimed to be tried  and on behalf of the complainant, he has examined  himself as PW.1 and got marked 14 documents.  Statement of the accused under Section 313 of Cr.P.C.  was recorded and his case is one of the total denial  and he has not led any evidence. After hearing the arguments, the trial Court found the accused guilty and convicted and sentenced to pay Rs.4,95,000/-  and in default, he shall undergo simple imprisonment  for one year. Out of which, Rs.4,50,000/- payable to  the complainant as compensation under Section 357  of Cr.P.C.  

 

# 4. The judgment of conviction has been  challenged by the accused before the Sessions Judge.  The Sessions Judge being the Appellate Court allowed  the appeal and set aside the conviction and sentence  passed by the trial Court and acquitted the accused.  Hence, the complainant is before this Court by way of  appeal.  

 

# 5. The learned counsel for the complainant  has contended that the judgment of the First Appellate  Court is erroneous and also not correct. The accused  himself has undertaken to discharge the loan  borrowed by his father, but, he has paid Rs.10,000/-  by cash. Subsequently, he has issued two cheques,  but the First Appellate Court failed to consider the  same and set aside the judgment of conviction and  sentence on the ground that there is no legally  enforceable debt which is not correct. Therefore,  prayed for setting aside the judgment of acquittal and  confirm the conviction and sentence passed by the  trial Court.  

 

# 6. Per contra, the respondent counsel has  contended that there is no legally enforceable debt payable by the accused in order to file complaint  against him. The debt is time barred. Therefore, the  learned counsel supported the judgment passed by  the First Appellate Court and hence, prayed for  dismissing the appeal. 

 

# 7. Having heard the arguments of learned  counsel for the parties and on perusal of the records,  the point that arises for my consideration are:  

• 1) Whether the complainant is able to   prove that there is legally enforceable   debt payable by the respondent-  accused ?  

•  2) Whether the judgment of the First   Appellate Court is liable to be set aside ?  

 

# 8. It is not in dispute that the father of the  accused borrowed loan from the complainant and the  father of the accused died prior to filing of the private  complaint. It is alleged that the complainant  approached the accused to repay the loan, where the  accused undertaken to repay the loan and he said to be issued two cheques. The main contention of the  counsel for the accused is that there is no legally enforceable debt payable by him and second  contention is time bound debt which cannot be  enforceable. In this regard, the learned counsel for  the appellant brought to the notice of this Court that  as per Section 29 of the N.I. Act, the legal  representative of the deceased person is liable to  discharge the liability of the father. The learned  counsel has relied upon the judgment of the Hon’ble  Supreme Court in the case of  ICDS Ltd. vs. Beena Shabeer and Anr. reported in (2002) 6 SCC  426.  

 

9. On perusal of Section 29 of the N.I. Act,  which defines as follows:  

• “29. Liability of legal representative signing    A legal representative of a deceased person   who signs his name to a promissory note,   bill of exchange or cheque is liable   personally thereon unless he expressly   limits his liability to the extent of the assets   received by him as such".  

 

# 10. As per Section 29 of the N.I. Act, the legal  representative of the deceased issued a cheque and  he is liable personally. That apart, as per the  judgment of the Hon’ble Supreme Court in the case of  ICDS LTD. stated supra, the Hon’ble Supreme Court  has upheld the judgment of the trial Court wherein in  the said case, a guarantor issued cheque towards  payment of the dues outstanding against the principal  debtor (hire-purchaser of car in the said case) and the  complaint was filed against the guarantor as the  cheque issued by the guarantor came to be  dishonored. Considering the judgment of the Hon’ble  Supreme Court, where, in this case, the accused is  none other than the son of the deceased-father who  borrowed the loan from the complainant and the  accused agreed to repay the same and he has issued  the cheque. Such being the case, as a legal  representative of the father, the accused is liable to  repay the loan to the complainant. Therefore, the  contention raised by the respondent counsel is not  acceptable and on the other hand, the complainant is  not able to prove the liability of the accused and the  cheque was dishonored, thereby, the accused is liable  for the punishment under Section 138 of N.I. Act and  the complaint is maintainable.  

 

# 11. In respect of the another contention raised  by the respondent that the debt is time barred one, his father borrowed loan in the year 2003, the cheque  was issued after four years, therefore, there is no liability. In this regard, the complainant has stated  and it is specifically mentioned that the accused has  undertaken to repay the amount and he has paid  Rs.10,000/- within two years and specifically  mentioned that on 10.06.2005, the accused repaid  Rs.10,000/- towards his father’s liability and  thereafter in the year 2006, he has issued two  cheques on this behalf. Therefore, once the amount  was already repaid, the

question of taking contention  that it is barred debt does not arise and it gets  renewed. Therefore, the accused once paid  Rs.10,000/- by cash and subsequently, he issued a  cheque to discharge the liability, he is liable for  discharging his liability of his father. Therefore, the  trial Court has rightly convicted the accused as the  First Appellate Court not considered Section 29 of the  N.I. Act and has erred in acquitting the accused.  Therefore, the judgment of the First Appellate Court is  liable to be set aside.  

 

# 12. Accordingly, the appeal is allowed.  The judgment of the II Additional Sessions  Judge, Davanagere in Crl.A.No.140/2010 is hereby set  aside.    The judgment of the trial Court in  C.C.No.1303/2009 convicting the respondent-accused  is hereby upheld.  

 

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M/s PVS Memorial Hospital & Ors Vs. Dr. Satheesh Iype & Anr. - Moratorium provision contained under Section 14 (1) of IBC would apply only to a corporate debtor and the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the N.I.Act.

High Court of Kerala (05.01.2023) in M/s PVS Memorial Hospital & Ors Vs. Dr. Satheesh Iype & Anr. [Crl. MC No. 8157 of 2022]  held that;

• Moratorium provision contained under Section 14 (1) of IBC would apply only to a corporate debtor and the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the N.I.Act.

• Vicarious liability under sub- section (1)to S.141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm.

• Vicarious Liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company.

 

Excerpts of the order;

This is a petition filed by accused Nos.1 to 7 in CMP No.3280/2019 on the files of Judicial First Class Magistrate Court (Negotiable Instruments Act Cases), Ernakulam, to quash the above CMP (Annexure-A complaint herein) by invoking power under Section 482 of the Code of Criminal Procedure (hereinafter referred as ‘Cr.P.C.’ for convenience).

 

# 2. Two questions require answer in this matter, are as under:

• (i) Is moratorium under Section 14 (1) of the Insolvency and Bankruptcy Code, 2016 would apply to non-corporate debtor/debtors dealt under Section 141 of the Negotiable Instruments Act ?

• (ii) How vicarious liability in criminal law, in terms of Section 141 of the Negotiable Instruments Act would emerge ? and what are the essentials to be stated in the complaint to fasten vicarious liability ?

 

# 3. Heard the learned counsel for the petitioners as well as the learned Public Prosecutor and the learned counsel appearing for the 1st respondent in detail.

 

# 4. I would like to refer the parties in this petition as ‘accused’ and ‘complainant’, with reference to their status before the court below.

 

# 5. Short facts: the complainant, Dr. Satheesh Iype lodged complaint under Section 142 of the Negotiable Instruments Act (hereinafter referred as ‘N.I.Act’ for convenience) before the Magistrate Court alleging that the accused Nos.1 to 7 committed offence punishable under Section 138 of the N.I.Act, since the cheque jointly issued by accused Nos. 2 to 7 representing the 1st accused for Rs.37,20,000/- got dishonored for want of funds, when the cheque was presented for collection.

 

# 6. While seeking quashment of Annexure-A complaint, learned counsel for the petitioners placed reliance on a three Bench decision of the Apex Court reported in [(2021) 6 SCC 258], P.Mohanraj & Ors. v. M/s Shah Brothers Ispat Pvt. Ltd. to contend that, no prosecution against the corporate debtor and its Directors could be possible after moratorium issued in terms of Section 14 (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as ‘IBC’ for convenience). It is specifically pointed out that as per Annexure-B, moratorium order under Section 14 (1) of IBC has been passed in relation to M/s PVS Memorial Hospital Private Ltd., the 1st petitioner herein. Therefore, no prosecution against the petitioners is permissible.

 

# 7. In para.101 and 102 of P. Mohanraj & Ors. v. M/s.Shah Brothers Ispat Pvt. Ltd.’s case (supra) the Apex Court held the legal position as under:

• “101: As far as the Directors/persons in management or control of the corporate debtor are concerned, a Sections138/141 proceeding against them cannot be initiated or continued without the corporate debtor—see [(2012) 5 SCC 661 : (2012) 3 SCC (Civ) 351 : (2012) 3 SCC (Cri) 241], Aneeta Hada v. Godfather Travels & Tours (P) Ltd. This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the Company for the conduct of the business of the Company, as well as the Company. The Court, therefore, in Aneeta Hada held as under: (SCC pp.686-88, paras 51, 56 & 58-59)

• “51. We have already opined that the decision [(1984) 4 SCC 352 : 1984 SCC (Cri) 620], Sheoratan Agarwal v. State of M.P runs counter to the ratio laid down in [(1970) 3 SCC 491 : 1971 SCC (Cri) 97], State of Madras v. C.V.Parekh which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in [(2000) 1 SCC 1 : 2001 SCC (Cri) 174], Anil Hada v. Indian Acrylic Ltd. has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the Company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of tex non cogit and impossibilia gets attracted.

• xxxx xxxx xxxx xxxx

• 59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the dragnet on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V.Parekh’s case (supra) which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal v. State of M.P’s case (supra) does not correctly law down the law and, accordingly, is hereby overruled. The decision in Anil Hada’s case (supra) is overruled with the qualifier as stated in para.51. The decision in [(1987) 3 SCC 684 : 1987 SCC (Cri) 632], U.P. Pollution Control Board v. Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.

• 102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada would then become applicable. The legal impediment contained in Section 14 IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.”

 

# 8. Apart from that, the learned counsel for the petitioners placed two latest decisions of the Apex Court holding the same view reported in [2022 SCC OnLine SC 1383], Lalankumar Sigh and others v. State of Maharashtra and [2022 (3) KLT 373 (SC)], Dilip Hariramani v. Bank of Baroda, holding the same view.

 

# 9. Thus the legal position emerges in answer to the first question is that moratorium provision contained in Sec.14 (1) of IBC would apply only to corporate debtor and the non-corporate debtor/debtors mentioned in Section 141 of the N.I.Act, continuing to be statutorily liable under Chapter XVII of the N.I Act.

 

# 10. In view of the legal position settled by the Three Bench of the Apex Court, in P. Mohanraj’s case (supra), holding the view that, moratorium provision contained under Section 14 (1) of IBC would apply only to a corporate debtor and the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the N.I.Act. Therefore, the complaint against the petitioners (accused Nos.1 to 7) cannot be quashed, simply on the ground of moratorium order as per Annexure-B. However, the prosecution against the 1st petitioner/1st accused being corporate debtor can be kept in abeyance till finalization of the moratorium proceedings, while allowing prosecution against petitioners 2 to 7, natural persons.

 

# 11. Secondly, it is argued by the learned counsel for the petitioners that, in order to prosecute the Directors of a company, there shall be narration in the complaint with regard to their specific roles in the affairs of the company and otherwise the prosecution under the principles of vicarious liability cannot be proceeded. In this connection the learned counsel placed decision of the Apex Court reported in [2022 (3) KLT 373 (SC)], Dilip Hariramani v. Bank of Baroda and in the said decision, the Apex Court held that:

• “the vicarious liability in the criminal law in terms of S.141 of the NI Act cannot be fastened because of the civil liability. Vicarious liability under sub- section (1) to S.141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm. Vicarious liability under sub-section (2) to S.141 of the NI Act can arise because of the director, manager, secretary, or other officer’s personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company.”

 

# 12. One more decision of the Apex Court reported in Criminal Appeal No.529 of 2017 (Arising out of Special Leave Petition (Crl) No.10899 of 2015), Ashoke Mal Bafna v. Upper India Steel Mfg. & Engg. Co. Ltd. also has been placed in this connection.

 

# 13. The legal position is not in dispute and the same is as held in Dilip Hariramani’s case (supra). Thus as regards to the application of vicarious liability in terms of criminal law as provided under Section 141 of the N.I. Act is concerned, the same cannot be fastened because of the civil liability. Vicarious liability under sub- section (1) to S.141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm. Vicarious liability under sub-section (2) to S.141 of the NI Act can arise because of the director, manager, secretary, or other officer’s personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company.

 

# 14. However, in the present case in paragraph No.1 of the complaint, the complainant specifically alleged that:

“The 1st accused is conducting as multi specialty Hospital at Ernakulam. The 2nd accused is the Managing Director of the 1st accused Company and accused Nos. 3 to 7 are the directors of the 1st accused company. Accused Nos 2 to 7 are persons in charge and responsible to the 1st accused company for the conduct of its business.”

 

# 15. Similarly, in paragraph No.4, it has been contented that:

• “The cheque was executed and issued for and on behalf of the 1st accused by the 2nd accused as per the directions and instructions given by the accused Nos. 3 to 7.”

 

# 16. Thus, the necessary ingredients as has been held in Dilip Hariramani’s case (supra) could be gathered from the averments in the complaint and the rest of the contentions raised by the accused shall be matter of evidence, during trial.

 

# 17. To upshot, it is held that, the twin contentions raised by the learned counsel for the petitioners to quash Annexure-A complaint, found to be not sustainable. However, the prosecution against the 1st petitioner, the corporate debtor shall stand deferred subject to the outcome of moratorium proceedings, while allowing continuance of prosecution against petitioners 2 to 7, the non-corporate debtors/natural persons. Accordingly, this petition stands disposed of.

 

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