Friday, July 4, 2025

 

Bouncing of cheque complaint by money lender- maintainable?

                        Part-2

Though, earlier, the money lending aspect, necessity of registration of money lender and obtaining license by money lender as per Punjab Registration of Money Lenders Act 1938{PROMLA) with a view to maintain complaint under section 138 of Negotiable Instruments Act have already been discussed, but given the magnitude of the matter and the judicial precedents, including, recent judgments pronounced in this regard by hon’ble Delhi High Court in a matter captioned as Hansraj Bansal Vs State & Anr Crl. Rev 228/2017 along with connected matters, it is felt necessary to further deliberate on the matter. The Money lending Act as prevailing in different states inclusive of Punjab Registration of Money Lenders Act, 1938 (PROMLA), as also Bengal Money-Lender’s Act, 1940, Karnataka Money Lenders Act 1961, Gujarat Money lenders Act 2011 and Bombay Money Lenders Act, 1946 has also been contextually referred to in respect of maintaining complaints u/s 138 of Negotiable Instruments Act.

 

The judgment rendered in Hansraj Bansal (Supra) is a comprehensive one and decided on 12.09.2023 and crave for reference of it with finding recorded therein so mas to complete the discussion as undertaken.

As a prelude it is to be taken note of that the Negotiable Instruments Act, 1881 was enacted to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 has inserted new Chapter XVII comprising sections 138 to 142 with effect from 01.04.1989 in the Act. Section 138 of the Act provides the penalties in case of dishonour of cheques due to insufficiency of funds etc. in the account of the drawer of the cheque. However, as Sections 138 to 142 of the Act were found inadequate, in catering to the issues of dishonour of cheques, hence, the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, amended sections 138, 141 and 142 and inserted new sections 143 to 147 in the Act aimed at speedy disposal of cases relating to dishonour of cheque, through their summary trial as well as making them compoundable. Similarly, Section 143 A and Section 148 of Negotiable Instruments Act was included in the Act by Negotiable Instruments Act (Amendment) Act 2018 and came into effect on 01.09.2018. Prior thereto, Negotiable Instruments (Amendment Act) 2015 was enacted for bringing out comprehensive change. 

Reverting to the complaint in Hansraj Bansal (Supra), the facts of the aforesaid complaints are very interesting. The petitioner was the complainant before the ld Trial Court and he was examined under section 165 of Indian Evidence Act, 1872. The petitioner in examination under section 165 of Indian Evidence Act, 1872 had stated that he has filed around 15-20 complaints under section 138 of the Act against 12 persons. He had given money to some of the several respondents for their chit funds activities and money was given to rest of the respondents due to friendly relations. Thereafter a show cause notice was also ordered to be issued to the petitioner to explain as to whether he is engaged in business of money lending and if he is so engaged, whether, he has any statutory licence, for doing money lending business. All the complaints pertaining to the petitioner as complainant were ordered to be placed on same day. The petitioner replied to the show cause notice, wherein, the petitioner stated that he is not engaged in business of money lending.

The complaints filed by the complainant were dismissed, primarily on ground that the petitioner has violated the provisions of the Punjab Registration of Money Lenders Act, 1938 as he was engaged in business of money lending without licence.

                                FACTUAL MATRIX

The trial court in respect of three complaints had observed that the petitioner in these complaints alleged that the respondent no.2 was engaged in the business of committee (chit funding) and has sought financial assistance from the petitioner against several pronotes and issued cheques on completion of the date of each pronote in discharge of the liability. It was further observed that amount was advanced by the petitioner on the basis of pronote and subsequently the cheques were issued by the respondent no 2 and issuance of the cheques doesn’t mean that the amount in question was advanced by the petitioner on basis of a Negotiable Instrument, rather, was advanced on the basis of promissory notes. Accordingly, transaction is covered by the definition of loan as provided in the Punjab Registration of Money Lenders Act,1938 (In short “PROMLA”). The trial court in respect of three complaints observed that the petitioner in these complaints alleged that amounts were advanced as financial assistance to the respondents no.2 for a definite period and after completion of the period, the respondents no.2 stated to have issued the cheques in discharge of liabilities, so it cannot be said that the amounts were advanced by the petitioner on the basis of a negotiable instrument but on oral assurance by the respondents no.2 to repay within the agreed time period. Accordingly amount advanced is covered within the term ‘loan’.

The trial court in its orders referred to section 3 of the Punjab Registration of Money Lenders Act, 1938 (PROMLA) and definitions of loan as per section 2(8) and money lender as per section 2(9) which reads as under:-

Section 3. Suits and applications by money-lenders barred, unless money-lender is registered and licensed-

 Notwithstanding anything contained in any other enactment for the time being in force, a suit by a money lender for the recovery of a loan, or an application by a money-lender for the execution of a decree relating to a loan, shall, after the commencement of this Act, be dismissed, unless the money lender –

(a) at the time of the institution of the suit or presentation of the application for execution; or

(b) at the time of decreeing the suit or deciding the application for execution –

(i) is registered; and

(ii) holds a valid licence, in such form and manner as may be prescribed; or

(iii) holds a certificate from a Commissioner granted under section 11, specifying the loan in respect of which the suit instituted, or the decree in respect of which the application for execution is presented; or

(iv) if he is not already a registered and licensed money- lender, satisfies the Court that he has applied to the Collector to be registered and licensed and that such application is pending: provided that in such a case, the suit or application shall not be finally disposed of until the application of the money-lender for registration and grant of licence pending before the Collector is finally disposed of.

As per Section 2(8) "Loan" means an advance whether secured or unsecured of money or in kind at interest and shall include any transaction which the court finds to be in substance a loan, but it shall not include –

(i)           an advance in kind made by a landlord to his tenant for the purposes of husbandry; Provided the market value of the return does not exceed the market value of the advance as estimated at the time of advance.

(ii)          a deposit of money or other property in a Government Post Office Bank, or any other Bank, or with a company, or with a co-operative society or with any employer as security from his employees;

(iii)        a loan to, or by, or a deposit with any society or association registered under the Societies Registration Act, 1860, or under any other enactment;

(iv)        a loan advanced by or to the Central or any [State] Government or by or to any local body under the authority of the Central or any [State] Government;

(v)          a loan advanced by a bank, a co-operative Society or a company whose accounts are subject to audit by a certificated auditor under the Indian Companies Act, 1913;

(vi)        a loan advanced by a trader to a trader, in the regular course of business, in accordance with trade usage;

(vii)    an advance made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note.

2( 9) "Money-lender" means a person, or a firm carrying on the business of advancing loans as defined in this Act, and shall include the legal representatives and the successors-in-interest whether by inheritance, assignment or otherwise, of such person or firm; provided that nothing in this definition shall apply to –

(a) a person who is the legal representative or is by inheritance the successor-in-interest of the estate of a deceased money-lender together with all his rights and liabilities; provided that such person only –

(i) winds up the estate of such money-lender;

(ii) realises outstanding loans;

(iii) does not renew any existing loan, nor advance any fresh loan;

(b) a bona fide assignment by a money-lender of a single loan to anyone other than the wife or husband of such assignor, as the case may be, or any person, who is descended from a common grand-father of the assignor.

The trial court in orders observed that amount advanced by the petitioner falls within the definition of ‘loan’ as per Punjab Registration of Money Lenders Act, 1938 (PROMLA) and in the absence of any explanation by the petitioner, it can be safely said that the petitioner is a money lender within the meaning of Section 2(9) of the Punjab Registrations of Money Lenders Act, 1938. The trial court in support of its orders has referred two decisions delivered by the Bombay High Court in Anil V Purshottam, Criminal Application No. 630 of 2009 in Criminal Appeal (stamp) No. 139 of 2009 decided on dated 21.11.2009 and Tinki Nagpur V Unknown, Criminal Appeal No. 467/2009 decided on 12.01.2010.

The Bombay High Court in Anil V Purshottam (Supra)  observed as under:-

“Here, I may refer to the provisions of the Bombay Money Lenders Act, 1946. Section 5 of the said Act lays down that no money lender shall carry on business of money lending except in the area for which he has been granted a licence and except in accordance with the terms and conditions of such licence. It is not the case of present applicant complainant that he has any money lending licence.

Section 10 of the Act lays down that no court shall pass a decree in favour of a money-lender in any suit to which said Act applies unless the court is satisfied that at the time when the loan or any part thereof, to which the suit relates was advanced, the money-lender held a valid licence, and if the court is satisfied that the money-lender did not hold a valid licence, it shall dismiss the suit. In other words, carrying on money lending business without licence debars a person from doing money lending and recovering the amount through court. As per explanation to Section 138 of the Negotiable Instruments Act "debt or other liability" means a legally enforceable debt or other liability. So, a loan advanced by a money lender who is doing business of money lending, without licence is not a debt or other liability and provisions of Section 138 of the Act will not apply to such transaction. In the light of above, it cannot be said that in the present case, that the cheque issued by the Respondent in favour of the applicant was for the liability enforceable in law”.

The Bombay High Court in Tinki Nagpur V Unknown Supra)  observed as under:-

“The words "No court" and "in any suit" used in the Section are wider in scope to embrace any suit or proceeding initiated by a money lender, who is required to hold and prove valid license for money lending for the relevant period of the loan transaction or transactions. The trial Court was, therefore, entitled to insist upon the complainant for production of valid license for money lending and also to infer in view of Section 114 (g) of the Evidence Act that the document withheld was unfavourable to the complainant who withheld it. Thus, the legal position cannot be disputed that Courts are bound to dismiss the suit by money lender for recovery of loans when such money lender was found carrying on business of money lending on the date or dates of the transaction without having valid money lending license”.

The trial court in Hansraj Bansal (Supra), ultimately opined that the petitioner has violated the provisions of the Punjab Registration of Money Lenders Act, 1938 (PROMLA), as he is engaged in the business of money-lending without requisite license and accordingly dismissed the complaints as mentioned hereinabove.

            Versions of petitioner before Delhi High Court

The petitioner challenged orders on grounds that orders are bad in eyes of law and suffer from legal infirmity. The trial court has erred in jurisdiction to pass the extra-judicial dismissal orders without explaining the statute properly. A money lender requires to be permanently engaged in the said business with repetition and continuity. The trial court has referred to the judgments which exclusively deal with the civil suits for recovery by money lenders and none of the said judgements exclusively applicable to the criminal complaints under the provisions of the Act. The Punjab Registration of Money Lenders Act,1938 (PROMLA) is applicable to suits only, and not to complaints under the Act. The trial court has erred in passing the order of dismissal whereas the trial court itself has summoned the respondents after being satisfied about the legality of the complaints. The orders passed by the trial court has caused miscarriage of justice and if the trial court was of the view that the complaints are hit under any provisions of the law then the trial court should have dismissed the complaints and acquitted the respondents no.2, only,  after conclusion of trial.

It was contended by the petitioner that the trial court should not have dismissed the complaints at a pre-trial stage without evidence having been led by the petitioner and cited decision of the Supreme Court In Re: Expeditious Trial of Cases Under Section 138 of N.I. Act, 1881, AIR 2021 SC 1957 wherein it was held that section 258 Cr.P.C. is not applicable to a summons case instituted on a complaint and as such section 258 Cr. P.C. cannot be applied in respect of the complaints filed under Section 138 of the Act. The Trial Court is not conferred with inherent power either to review or recall the order of issuance of process.

It was further contended that the Trial Court is not conferred with inherent power either to review or recall the order of issuance of process. Reference was made to Court on its Own Motion V State, Neutral Citation No: 2022/DHC/001932, wherein it was held that the court of a Magistrate does not have the power to discharge the accused upon his appearance in court in a summons trial case based upon a complaint in general, and particularly, in a case under section 138 of the Act, once cognizance has already been taken and process issued under Section 204 Cr.P.C and trial court should not have abruptly dismissed the complaints filed by the petitioner after taking cognizance and issuing process to the respondents no 2 till the completion of trial. Moreover, it was also argued that issue of applicability of provisions of the Punjab Registration of Money Lenders Act, 1938 (PROMLA) to the complaints filed under the Act and whether this issue can be decided without evidence being led to show that the petitioner was a money lender. Reference was made to the following judgments:

(i)           Samarendra Nath Das V Supriyo Maitra, 2005 SCC OnLine Cal 628 (Calcutta High Court)

(ii)         Jupiter Brokerage Services Ltd. V Ektara Exports Pvt. Ltd., 2015 SCC OnLine Cal 10514 (Calcutta High Court),

(iii)       Dhanjit Singh Nanda V State & another, 2009 SCC OnLine Del 261 (Delhi High court)

(iv)       Ravinder Paul V Ashwani Kumar, 2020 SCC OnLine P&H 4606 Punjab & Haryana High Court)

(v)          Satyanarayana V M/s Sandeep Enterprises, 2004 SCC 8 OnLine Kar 427 (Karnataka High Court).

It was thus contended that the provisions of the Punjab Registration of Money Lenders Act, 1938 are not a bar for a complaint case filed under the Act and rather than an appeal, revision petition is maintainable and can be filed directly before the high court in the above backdrop.

                        RESPONDENTS PLEA

As per the respondent the revision petitions were not maintainable without invoking jurisdiction of the Sessions Court, since, the complaints were dismissed during the trial and queries were put to the petitioner in examination under section 165 of the Indian Evidence Act, 1872 as he had filed multiple complaints against several persons on the basis of pronote and the petitioner also admitted that he had no licence of money lending though he had filed multiple complaints against the various persons i.e. the respondents. Moreover, if money lending is prohibited without license, then, it cannot be legally enforceable under the Act and hence the present petitions are liable to be dismissed.

                            REFLECTIONS

(i)          The petitioners had filed several complaints against the respondent no.2 (accused) u/s 138 of NI Act;

(ii)        The premise of the complaint was loan advanced;

(iii)      The petitioner had no license and had not registered as a money lender under PROMLA;

(iv)      Pre-summoning evidence was led and thereafter cognizance for offence punishable under section 138 of the Act was taken against the respondents no.2/ accused and summons were issued;

(v)         Notice under section 251 Cr.P.C. was given to the respondents no.2 to which no guilty was pleaded and  claimed trial;

(vi)      The trial court before recording evidence, post notice under section 251 Cr.P.C., examined the petitioner under section 165 of Indian Evidence Act, 1872;

(vii)    The petitioner/complainant had admitted that he had filed around 15-20 complaints under section 138 of the Act against 12 persons;

(viii)  A show cause notice was also issued to the petitioner to explain as to whether he is engaged in business of money lending and is having any statutory licence for doing money lending business;

(ix)      The petitioner responded to the show cause notice and had stated that he is not engaging in business of money lending;

(x)         The complaint was dismissed at that stage itself, primarily, on ground that the petitioner is not having valid money lending licence as per the Punjab Registration of Money Lenders Act, 1938;

FINDINGS BY HIGH COURT

The loan does not include in its ambit an advance made on the basis of a negotiable instrument as defined in the Act other than a promissory note. Section 2(9) of PROMLA defines money lender which means a person or a firm carrying on the business of advancing loans.

The issue before the Delhi High Court in Hansraj Bansal (Supra) needing judicial consideration was that :

“Whether a person can be debarred from filing and prosecuting complaint under section 138 of the Act if he is doing business of money lending without holding a valid licence and whether there is apparent conflict between section 3 of Punjab Registration of Money Lenders Act, 1938 and section 138 of the Act and whether there is apparent conflict between section 3 of Punjab Registration of Money Lenders Act, 1938 and section 138 of the Act.?”

The various judgments/precedents  as narrated below were examined by the Delhi High Court, The reliance placed are as under:

SUPREME COURT

(1) The Supreme Court in Gajanan & others V Seth Brindaban, 1971 SCR (1) 657 has observed that the registration of a money lender does not afford to debtors any additional protection not available under the other provisions of the Act. An unregistered money lender can be punished only for the collective act of carrying on the business of money lending and not for every loan advanced by him without a registration certificate.

(2)                The Supreme Court in Electronics Trade & Technology Development Corporation Ltd., Secunderabad V Indian Technologists & Engineers (Electronics) (P) Ltd. and another, (1996) 2 SCC 739 has observed that the object of bringing section 138 on statute appears to inculcate the faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments and section 138 intended to prevent dishonesty on the part of the drawer of negotiable instrument to draw a cheque without sufficient funds in his account maintained by him in a book and induce the payee or holder in due course to act upon it.

(3) The Supreme Court again in Goa Plast (P) Ltd. V Chico Ursula D’Souza, (2004) 2 SCC 235 while dealing with the objects and ingredients of Sections 138 and 139 of the Act observed as under:-

“The object and the ingredients under the provisions, in particular, Sections 138 and 139 of the Act cannot be ignored. Proper and smooth functioning of all business transactions, particularly, of cheques as instruments, primarily depends upon the integrity and honesty of the parties. In our country, in a large number of commercial transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of cheques in commercial transactions was eroded to a large extent. Undoubtedly, dishonour of a cheque by the bank causes incalculable loss, injury and inconvenience to the payee and the entire credibility of the business transactions within and outside the country suffers a serious setback. Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment enacted the aforesaid provisions. The remedy available in a civil court is a long-drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee”.

(4) The Supreme Court in Indian Bank Association and others V Union of India (UOI) and another, Writ Petition (Civil) No. 18 of 2013 decided on 21.04.2014 also observed that sections 138 to 142 of the Act were found to be deficient in dealing with the dishonoured cheques. The legislature inserted new Sections 143 to 147 by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 and earlier to this the Negotiable Instruments Act, 1881 was amended by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 whereby a new Chapter XVII was incorporated for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque to encourage the culture of use of cheques and enhancing the credibility of the instrument.

 

It is held in Hansraj Bansal (Supra) that:

“Every statute is enacted for specific purpose and intent and should be read as a whole. The legislature enacts statutes and legislation and takes appropriate precautions at time of drafting and enacting different legal provisions but sometimes conflicts appears in interpretation of different statutory provisions. In this eventuality Doctrine of Harmonious Construction needs to be adopted. The legal provisions contained in one particular statute cannot be read to defeat legal provisions contained in another statute and both legal provisions contained in different statute should be given maximum effect in their operation and applicability. The Punjab Registration of Money Lenders Act, 1938 and Chapter XVII of the Negotiable Instruments Act, 1881 which was incorporated by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 for providing penalties in case of dishonour of cheques with an objective to encourage the culture of use of cheques and enhancing the credibility of the instrument. Both statutory provisions were enacted with different objectives and intent and are operational in independent and separate legal spheres. There is no apparent conflict between section 3 of the Punjab Registration of Money Lenders Act, 1938 which apparently bars civil remedy for a money lender who is not having valid licence or certificate for doing business of money lending and Chapter XVII of the Act which provides criminal Page 30 CRL.REV.P. 228/2017 & connected matters remedies and penalties in case of dishonor of a cheque due to reasons as mentioned in section 138 of the Act”.

So far as the legal issue to the effect that whether a complainant who is not having valid licence or certificate for money lending can institute can still prosecute complaint under section 138 of the Act, came for consideration before several High Courts.

Delhi High Court

(i)           In Dhanjit Singh Nanda V State & Another, Crl.M.C.209/2009 decided on 09.02.2009 rejected the argument that the complainant is debarred from recovering loan amount as he is not a registered money lender. It was observed as under:-

“The next argument addressed by the petitioner that the respondent was debarred from recovering the loan amount being not a registered money lender does not lie in the mouth of the petitioner for two reasons: The petitioner took the loan from the respondent voluntarily and even executed an agreement in this regard whereby he agreed to repay the same after ninety days with interest. At the same time, he also issued the cheque in question for the repayment of the loan but became dishonest when the cheque was presented for encashment. The 2nd reason to reject the argument of the petitioner is that the proceedings under Section 138 of NI Act are not recovery proceedings, but are proceedings to punish a person who after issuing a cheque fails to honour the same and also commits a default in paying the said amount on receipt of the notice.”

(ii)        In Kajal V Vikas Marwah, Crl.A. 870/2013 decided on 27.03.2014 the issue -if the complainant is not holder of money lending licence, can he be debarred from filing complaint under section 138 of the Act is also on similar line.

(iii)        In Guddo Devi @ Guddi V Bhupender Kumar, Crl.Rev.P. 1246/2019 decided on 11.02.2020 it is observed that there is no material to conclude that the respondent was carrying on the business of advancing loans. Merely, because the respondent had lent money to three or four persons, did not lead to the inference that the respondent had been carrying out the activity of money lending as a business.

PUNJAB & HARYANA HIGH COURT

(1) In Ravinder Paul V Ashwani Kumar, CRA-S-2319-SB-2012 (O&M) decided on 04.02.2020 observed as under:-

“The trial Court had dismissed the complaint mainly for the reason that the complainant was a money lender, lending money without licence. The Magistrate had not gone into the merits of the case as to whether the necessary ingredients of Section 138 of the Act were established or not. Therefore, the impugned judgment dismissing the complaint for the reason of complainant having been found to be a professional money lender practicing money lending without licence is not sustainable”.

(2) The Punjab & Haryana High Court in Balwant Singh V Mukhtiar Singh, RSA-2844-2015 (O&M) decided on 2.12.2022 held that the plaintiff was regularly and consistently lending money on interest and was not merely a casual or occasional lender. The plaintiff though running the business of money lending neither got registered under Section 4 of the 1938 Act nor even possesses any license under the said Act. Accordingly, the suit for recovery filed on basis of pronote and a receipt itself was liable to be dismissed being not maintainable.

 

                                CALCUTTA HIGH COURT

(i) In Samarendra Nath Das V Supriyo Maitra, C.R.R No. 175/05 decided on 16.12.2005 it is observed that alleged violation of provisions of Money Lenders Act does not bar continuation of proceedings under Section 138 of the Act. It was held as under:-

11. The submissions made is not at all applicable in the present matter. Had it been a money suit instituted by the money lender for the recovery of the loan advanced by him together with interest and for accounting all these submissions would have been relevant. In a criminal proceeding u/s 138 of the NI Act these are not relevant at all. In the instant matter a Magistrate is to consider whether the offence as alleged was committed or not and whether evidence is sufficient to prove complainant's case. Legality or illegality of the contract and existence and non-existence of money lending business by the complainant is not a ground to throw the complainant's case out of Court. If it was a money suit for recovery of the money the accused petitioner would have been definitely in a better position and was entitled to the advantage of violation of Sections 23 and 24 of the Contract Act as well as non-existence of money lending business of the money lender. The accused petitioner has only remedy in the trial to rebut the presumption u/s 139 of the NI Act, and to establish his case by leading evidence, when he would be asked to enter into defence after his examination u/s 313 of the Code would be over. When all the prima facie materials of offence u/s 138 of the NI Act is present sufficient to issue process this, Court would not interfere into the order of the learned Magistrate and would not quash the criminal proceeding or set aside the order of the learned Magistrate. The accused petitioner has remedy only to lead evidence by examining witnesses and producing documents to prove that there was no transaction with complainant or that he did not issue any cheque in favour of the complainant and that there was no existing debt or liability at the time of his entering into defence and leading his evidence”.

(ii) Jupiter Brokerage Services Ltd. V Ektara Exports Pvt. Ltd. & others, C.R.A. No936 of 2013 it is observed that the trial court considered defence of the respondents/accused that the transactions in question were simple lending of money for which the appellant/complainant had no valid licence and hence the provisions of Section 138 or 139 of the Act are not attracted in the case and this argument was accepted by the trial court and the trial court dismissed the appellant/complainant’s case on such ground only. It was observed by the high court that money lending without licence is not totally barred or prohibited by the Bengal Money-Lender’s Act, 1940 which is basically a Regulatory Act and regulates the business of money lending. It was held as under:-

“There cannot be any dispute to the fact that the presumptions both in Section 118 and 139 of the N.I. Act are rebuttable presumptions. In the present case the only point for rebuttable of such presumptions for the respondents/accused is that the transactions in question are illegal transactions as the appellant/complainant has no money-lending licence. As held earlier, lending money without having a money-lending licence itself is not prohibited under the Bengal Money-Lender’s Act, 1940. So, the presumptions in favour of the appellant/complainant stand unrebutted. The respondents/accused cannot, therefore, escape from the liability under Section 138 of the N.I. Act, especially when there is no denial of the fact that the respondents/accused issued the cheques in question which were dishonoured due to insufficient fund in the account of the respondents/accused”.

                        Karnataka High Court

A Division Bench of Karnataka High Court in V. Satyanarayana V Sandeep Enterprises, 2005 CriLJ 12 while interpreting money lender also observed as under:-

“Even otherwise, if assumed that the cheques were issued by the petitioner/accused in the course of money lending - business, that itself does not attract the provisions contained in Karnataka Money Lenders Act. This is because, under said Act, money lender means "a person, who carried on the business of money lending" and to say that one is a money lender, he or she must carry on & connected matters business in money lending in the State and, to record an activity as business, there must be a course of dealings carried with a profit motive. In other words, money lending must be carried on as profession. If the money lending was not with profit motive or, not carried on as a profession, he or she does not become a money lender under the Karnataka Money Lenders Act. So, a stray instance of lending money does not show carrying on the business of money lending as profession or with profit motive”.

In Hansraj Bansal (Supra) The Delhi High Court has thus held as under:

It is acceptable proposition of law that section 3 of Punjab Registration of Money Lenders Act, 1938 does not limit operation of section 138 of the Act and both are independent and mutually exclusive to each other. If a person advances a loan even without having a valid money lending licence or certificate he can institute and prosecute complaint under section 138 of the Act on basis of cheques and he has to satisfy only the mandatory requirements of section 138 of the Act”.

It was further observed in the Hansraj Bansal (Supra) that  cognizance was taken under section 138 of the Act and notice under section 251 Cr.P.C. was given for offence under section 138 of the Act, and the trial court, abruptly examined the petitioner under section 165 of Indian Evidence Act, 1872, wherein, the petitioner stated that he has filed around 15-20 complaints under section 138 of the Act against 12 persons and he had given money to some of the respondents for their chit fund activities and money was given to rest of the respondents due to friendly relations. It was also observed that issuing  a show cause notice to the petitioner during trial which is absolutely unknown in summon trial as per Chapter XX of the Code of Criminal Procedure, 1973 and thus, seeking explanation as to whether he is engaged in business of money lending and if he is so engaged, whether he has any statutory licence for doing money lending business and further all the complaints pertaining to the petitioner as complainant were ordered to be placed on same day. It is also a matter of record that the petitioner replied show cause notice wherein the petitioner stated that he is not engaged in business of money lending. Thereafter the trial court has held that the petitioner advanced loan to many persons assumed without any legal and factual basis that the petitioner is a money lender and loans advanced by the petitioner to the respondents fall with in definition of loan as per Punjab Registration of Money Lenders Act, 1938.The information given by the petitioner in response to queries put to him under section 165 of the Indian Evidence Act, 1972 was confined to only that he had given money to the respondents which did not reflect in any manner his activities as professional manner. The petitioner in reply to show cause notice categorically stated that he is not engaged in business of money lending. It was thus held by the hon’ble Delhi High Court that the trial court should not have dismissed the complaints and the orders are outcome of complete non-application of judicial mind by the trial court and in total contravention of procedure laid down in Chapter XX of the Code of Criminal Procedure, 1973. It was held that the orders dated 15.07.2015 and 20.08.2015 are illogical, abrupt and completely illegal and cannot be sustained in view of the accepted proposition of law and the trial court should have proceeded with trial of complaints under section 138 of the Act. The trial court should not have dismissed the complaints under section 138 of the Act filed by the petitioners merely on basis of statement of the petitioners recorded under section 165 of the Indian Evidence Act, 1972 and reply given by the petitioner in response to show cause notice. The trial court reliance on two decisions delivered by the Bombay High Court was misplaced under given facts and circumstances of present petitions.

The Delhi High Court in Hansraj Bansal (Supra) also referred to the Supreme Court in Re: Expeditious Trial of Cases under Section 138 of N.I. Act, 1881, AIR 2021 SC 1957 wherein it is held by the Supreme Court that Section 258 of Cr. P.C. is not applicable to a summons case instituted on a complaint and as such section 258 Cr. P.C does not have any role to play in respect of the complaints filed under Section 138 of the Act. The trial court is not vested with inherent power either to review or recall the order of issuance of process. It was also observed by the Delhi High Court in Court on its Own Motion V State, Neutral Citation No: 2022/DHC/001932 has held that the court of a magistrate does not have the power to discharge the accused upon his appearance in court in a summons trial case based upon a complaint including complaints under section 138 of the Act once cognizance has already been taken and process is ordered to be issued under section 204 Cr.P.C. Accordingly, trial court has adopted a wrong procedure alien to chapter XX of the Code of Criminal Procedure Code, 1973 in dismissing complaints merely on basis of examination of the petitioner under section 165 of the Indian Evidence Act, 1872 and reply to show cause notice and without resorting to trial as per the law.

The revision petitions were held to be maintainable as the orders dated 15.07.2015 and 20.08.2015 as the trial court has dismissed the complaints abruptly without concluding the trial which does not amount to acquittal. This court in revisional jurisdiction can exercise its power in cases where there is palpable error, non-compliance with the provisions of law, the decision is completely erroneous or where the judicial discretion is exercised arbitrarily. The legality, propriety or correctness of an order passed by the Metropolitan Magistrate is the very foundation of exercise of revisional jurisdiction. As the trial court has not dismissed the complaints and acquitted the respondent no 2 after conclusion of trial and on basis of evidence to be led by the contesting parties but on wrong assumption of legal principles and without resorting to settled legal principles which resulted into miscarriage of justice to the petitioner, hence, the revisions are held to be maintainable without resorting to filing appeals.

Moreover, it is held in CBI V State of Gujarat, (2007) 6 SCC 156 that the revision petition against an order passed by Magistrate can be filed directly before the High Court. Section 397 of the Code of Criminal Procedure, 1973 gives concurrent jurisdiction to both High Court and Sessions Court and such present revision petitions can be filed directly to the High Court over the Sessions Court. The present petitions are as such maintainable before this court.

The revision petitions were thus allowed.

 

From the discussion as afore stated, what clearly emanates is that the respective Money Lenders Act, such as Punjab Registration of Money Lenders Act, 1938 (PROMLA), Bengal Money-Lender’s Act, 1940, Karnataka Money Lenders Act 1961, Gujarat Money lenders Act 2011 and Bombay Money Lenders Act, 1946  after having been deliberated and consequently, it appears on the basis of above that there is no bar in maintaining criminal complaint u/s 138 of Negotiable Instruments Act, even if the complainant is found to be money lender. All that the complainant is required to meet is the legal stipulations as included in section 138 of NI Act and the pre-requisites therein and once cause of action is complete under the said Act, the PROMLA or such similar act shall not come in the way of maintaining a criminal complaint u/s 138 of Negotiable Instruments Act. Even otherwise, it is also reflected that the bar as per PROMLA is to a civil suit and prima facie if it is found that the plaintiff is a money lender without license, the suit could be dismissed, but that analogy cannot be applied in the case u/s 138 of NI Act and criminal complaint u/s 138 of Negotiable Instruments Act shall be maintainable even if the complainant is found to be money lender and was not registered and had no license under such Money lending Act, since, then pre-requisites of criminal complaint u/s 138 of NI Act does not envisage meeting the stipulation of Money lending Act, but the specification of Negotiable Instruments Act shall have to be met for maintaining a complaint.

                                    ------

                            Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

Tuesday, July 1, 2025

Insolvency and Bankruptcy Code 2016-Reply to section 8 notice not necessary

 

Insolvency and Bankruptcy Code 2016-Reply to section 8 notice not necessary

The Insolvency & Bankruptcy Code (IBC) 2016 is a comprehensive code for resolution, rehabilitation and dissolution of the assets of corporate debtors in the face of liability of such corporate debtor, a company incorporate dunder the provisions of Companies Act 2013. The Financial Creditors (FCs) or Operational Creditors (OCs) as the case may be, may prefer petition for seeking initiation of Corporate Insolvency resolution Process (CIRP) against the corporate debtor/s, who, despite the admitted liability, refused or omitted to repay the debt owed to such operational creditors.  We know that the threshold of maintaining the petitions is different in respect of Financial Creditor (FC) and Operational Creditors (OCs). We are presently concerned about Operational Creditor. Section 9 of IBC entails the process of preferring petition by Operational Creditors (OCs) under the code. In case, the liability owed by the corporate debtors are evident and admitted, then, the National Company Law Tribunals (NCLTs) upon admitting such petition, sets in motion, Corporate Insolvency Resolution Process (CIRP). As per the procedure laid down under the code, before initiating section 9 proceedings, operational creditor is mandated to issue a notice u/s 8 of IBC 2016 calling upon the corporate debtor to pay the debt within stipulated period. This is a sine qua non for preferring and maintaining a petition u/s 9 of IBC. After service of notice as indicated above, if a corporate debtors under section 9, sends reply and in the reply the corporate debtors raises dispute, and claims that that the alleged liability is under dispute,  being not payable and the disputes existed or subsisted before receiving the notice u/s 9 of IBC 2016, then, in that event, prima facie, the petition u/s 9 of IBC 2016 may not be maintainable. It is so, since, the liability itself is in dispute and not admitted and hence, admission of the petition in this backdrop shall be unlikely. However, a situation may arise to the effect, that, the reply to the notice raising dispute is not sent by a proposed corporate debtor, though, on the basis of petition and documents filed by the Operational Creditor (OCs), the dispute as regards debts owed allegedly by corporate debtor had suggested existence of dispute. Still, the question arises, whether for want of raising dispute by replying to the notice u/s 8 of IBC 2016 received by corporate debtor, shall inevitably go against the corporate debtor and the petition u/s 9 shall have to be admitted is a moot point. In other words, not sending reply to the section 8 notice shall inevitably lead to acceptance of insolvency petition filed by corporate debtor and initiation of Corporate Insolvency Resolution Process (CIRP). The answer is thus craved for, in this perspective and that is further deliberated hereinafter.

The National Company Law Appellate Tribunal (NCLAT), New Delhi (Principal Bench) had occasion to deal with the issue raised above in a recent judgment captioned as Anil Kumar Seth vs Valplast Technologies Private Limited   Comp. App. (AT) (Ins) No. 1105 of 2024 & I.A. No. 6587 of 2024.

The above appeal was directed by the suspended Directors of corporate debtor company, against the order dated 14.05.2024 by which the National Company Law Tribunal, Allahabad Bench, Prayagraj ('Tribunal') had admitted an application filed by M/s Valplast Technologies Pvt. Ltd. on 02.06.2023, under Section 9 of the Insolvency & Bankruptcy Code, 2016 ('Code'), against M/s Supercast Technologies Pvt. Ltd. ('Corporate Debtor') for the resolution of an amount of Rs. 2,29,48,069.19/- and also appointed an Insolvency Resolution Professional (IRP).

In this appeal, it was alleged by the Suspended Director of the Corporate Debtor, that the issue of pre-existing dispute, raised by the Appellant, had not been decided by the Tribunal in accordance with law and it was alleged that the Tribunal has not looked into various emails/ letters exchanged between the parties which were attached with the reply affidavit only on the ground that the Appellant did not file reply to the demand notice issued under section 8 of the Code. Reliance was placed on M/s Brand Realty Services Ltd. vs. M/s Sir John Bakeries India Pvt. Ltd. in Company Appeal (AT) (Ins.) No. 958 of 2020 decided on 10.03.2022 and para 12 of the said judgment are reproduced as under:

"12. ***Section 8(2) of the Code provides that the corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub- section (1) bring to the notice of the operational creditor- (a) existence of a dispute. Section 9(1) of the Code provides that After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. Section 8(2) when read with Section 9(1), it is clear that Section 9(1) enables the Operational Creditor to file Section 9 application if no payment has been received by the Operational Creditor form Corporate Debtor or no notice of the dispute under sub-section (2) of section 8 has been received. The statutory scheme under Section 8 and 9 does not indicate that in an event Reply to Notice is not filed within 10 days by Corporate Debtor or no Reply to Notice under Section 8(1) have been given, the Corporate Debtor is precluded from raising the question of dispute."

The case of the appellant therefore was that the communication between the parties was filed with the memo of appeal and if these communications are taken note of, the indication of pre-existing dispute shall be evident and such a petition is liable to be dismissed at the threshold. Though, the respondent had vociferously submitted that reply to section 8 notice by way of notice of dispute shall have to be sent by corporate debtor, as per the mandate of section 8 of IBC and if that is not done, the issue of dispute raised thereafter and more so after filing of petition u/s 9 of IBC shall be misconceived.

The nclat New Delhi in Anil Kumar Seth (Supra) has thus held as under:

9. We are of the considered opinion that finding of the Learned Tribunal is not acceptable as it is contrary to the well settled law that even if no reply is filed to the notice issued under Section 8 of the Code, the court is obliged to look into the material produced before it by the Corporate Debtor for proving that there was a pre-existing dispute between the parties before the issuance of notice under Section 8 of the Code.

The order passed by NCLAT we therefore, set aside and appeal was allowed and the main petition bearing CP No. 36/ALD/ 2023 was thus restored and remanded back to the NCLT for rendering decision in accordance with law, since, after taking into consideration the emails/ letters exchanged between the parties before 08.05.2023 when the notice under Section 8 was issued, there is no doubt that prima facie dispute existed and sending no reply and notice of dispute to the notice u/s 8 of IBC 2016 shall not, in itself, preclude the corporate debtor from raising pleas of dispute in the course of hearing before NCLT and the same shall have to be decided in accordance with law. It was thus left on the tribunal to decide, afresh, the issue of pre-existing dispute after going through the material on record. It was held that as the matter was decided in the backdrop, that, reply to section 8 IBC notice was not filed, and decision based on that premise itself, is not correct. The NCLAT had accorded liberty to the parties to file additional documents, if necessary.

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Anil K Khaware

Founder & Senior Associate

Sociertylawandjustice.com

bounced cheque: Can a money lender maintain complaint u/s 138 of NI Act

 

bounced cheque: Can a money lender maintain complaint u/s 138 of NI Act

In the ordinary course of business, it often entails credit and payment in due course and therefore, repayment of amounts, whether towards supplies made or repayment of loan amount, by the debtor in due course is made through cheques, payable on a given date. Therefore, uses of cheque as a convenient mode of payment, in a later date is adopted in business, in particular and even in personal discourse. The cheque, if dishonoured may inter alia invite prosecution u/s 138 of Negotiable Instruments Act 1881 (as amended and up to date). It needs no reiteration that in 1988 section 138 of Negotiable Instruments Act (In short “NI Act”) is brought out in the NI Act, and by virtue of successive amendments, thereafter, various sections are added and amendments are carried out in existing sections as well. The underlying object of enacting the provision u/s 138 of Negotiable Instruments Act has been to reinforce the faith in transactions, by cheques and penal provisions are prescribed, in the event of dishonour of cheque, with a view to infuse confidence in transactions by way of cheque. In the event of dishonour of cheque, a comprehensive mechanism is set out in the NI Act in order to present and prosecute the case against the prospective accused. The procedure, if not well illustrated in the Act, the same is to be proceeded with as per the procedure laid down in criminal procedure Code (Cr.PC) and now under Bhartiya Nyaya Suraksha Sanhita (BNSS) 2023, w.e.f 01.07.2024, when the same is notified.

LOAN, FRIENDLY LOAN, and dishonour of cheque towards repayment of loan

In the present deliberation, the aspect of loan taken, whether a personal or friendly loan or loan availed through a money lender that is liable to be paid back with due rate of interest is dealt with. The loan repayment by way of cheque and if the cheques stand dishonoured, the legal recourse inter alia shall be available to a payee by way of instituting a complaint u/s 138 of Negotiable Instruments Act in the court of Chief Judicial Magistrate. The law enunciated in this regard shall be factored and analysed to find out the hassles or impediments in preferring a complaint or whether during trial defence, a plausible one at that, shall be available to the accused or not?  We know that in order to maintain a complaint u/s 138 of NI Act, besides, compliance of the steps before instituting a complaint, the element of consideration has to be proved, because, issuance of cheque without liability may not be in sync with the element of consideration. No doubt, mere issuance of cheque in the name of payee shall give rise to a presumption in favour of the payee, but, once, the element of consideration or lack of it is brought out during trial by the accused, the onus again shifts on the complainant to dispel the defence relating to alleged “no consideration”. It is at this point in time that the complainant has to discharge the onus shifted back on him with cogent evidence and the fate of the complaint could hinge on the discharge of that onus. There is yet another dimension in the context of the present discussion- what, if loan is rendered by a money lender for interest and no license is obtained by such money lender. Whether repayment of loan obtained from such a money lender shall render the complaint so lodged, as not maintainable is a moot point and needs deliberation. For instance, Punjab Registration of Money Lenders Act 1938 (In short “PROMLA”) is applicable to Delhi and Punjab and obtaining license as a money lender is a must before lending money as per PROMLA. What if, the license is not obtained by money lender, yet money is lent and cheque issued by the debtor towards repayment stands dishonoured? Whether a complaint u/s 138 of Negotiable Instruments Act shall be liable to fail, despite existence of loan and repayment of it and dishonour of such cheques, only because, the license as aforesaid is not obtained by money lender is worth debating and crave for comprehensive analysis.

If a complainant claims that he is not a money lender and hence no licence could be contemplated and the loan was advanced due to friendly relationship. No doubt, if loan is a friendly loan, the money lending license may not be necessary. However, the terms of Promla shall be meticulously analysed in this context, here-in-after. The friendly loan, for instance, even if exempted under PROMLA, may be set out only, just as a camouflage. In other words, whether advancing loan for interest shall inevitably attract provision of Punjab Registration of Money Lenders Act 1938 or has there been any exception carved out in this regard shall have to be pondered over. Moreover, if money is lent towards loan by a money lender, without obtaining license and if the cheque issued by the debtors towards repayment, in the event of its dishonour shall attract the provision of section 138 of NI Act craves for deeper analysis.

To probe the issue further, it is imperative to ascertain as to who shall be the money lender for the purpose of Punjab Registration of Money Lenders Act 1938 (PROMLA) and such similar enactment. It may be noted that there are several enactments like PROMLA in several other states in India and that though PROMLA applies to Punjab & Delhi only, but the similar enactments as stated above are also in existence and applicable in other states. In this backdrop, the issue of money lending and necessity of registration of it cannot be brushed aside, even in the area outside Punjab & Delhi. Thus, the applicability of the PROMLA has to be analysed in the perspective as set out above, the terms of Punjab Registration of Money Lenders Act 1938 (PROMLA) need exploration.   

                             LOAN

As per PROMLA “Loan” is defined in Section 2(8) of the Act:

2 (8) Loan: means an advance whether secured or unsecured money io in kind at interest and shall include any transactions which the court finds to be in substance a loan…”

2(9) “Money lender” means a person or firm carrying on the business of advancing loan as defined in the Act, and shall include the legal representatives and the successors-in-interest whether by inheritance, assignment or otherwise, of such person or firm;

Section 3.

Suit and applications by a money -lender barred, unless money lender is registered and licensed-  

Notwithstanding anything contained in any other enactment for the time being in force, a suit by a money lender for the recovery of a loan , or an application by a money lender for the execution of  a decree relating to a loan, shall, after the commencement of this Act, be dismissed, unless the money lender-

(a)  At the time of the institution of the suit or presentation of the application for execution; or

(b) At the time of decreeing the suit or deciding the application for execution-

(i)   Is registered; and

(ii) holds a valid license, in such form and manner as may be prescribed; or

(iii) holds a certificate from a Commissioner granted under Section 11, specifying the loan in respect of which the suit is instituted, of the decree in respect of which the application for execution is presented; or

(iv) if he is already a registered and licensed money-lender, he satisfied the Court that he has applied to the Collector to be registered and licensed and that such application is pending, provided that in such a case, the suit or application shall not be finally disposed of until the application of the money lender for registration and grant of license pending before the Collector is finally disposed of

Before appreciating the judgments/judicial precedents, it may be apt to ascertain the requisites of cheque as per the provision of NI Act.

What is a cheque?

Section 6 of the N.I. Act defines a Cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand and it includes the electronic image of a truncated cheque and a cheque in electronic form.

Explanation I :- For the purpose of this section the expressions - (a) a cheque in the electronic form “ means a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature (with or without biometrics signature) and 3 asymmetric crypto system or with electronic signature , as the case may be; (b) a truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing

Explanation II: For the purposes of this section, the expression clearing house means the clearing house managed by the Reserve Bank of India or a clearing house recognized as such by the Reserve Bank of India.

Explanation III: For the purposes of this section, the expression “asymmetric crypto system”, computer resource”, “digital signature”, “electronic form” and electronic signature “ shall have the same meanings respectively assigned to them in the Information Technology Act,2000’.

 

particulars IN the cheque is not filled by the accused: Its validity

Before going further on the aspect of PROMLA, it may be worthwhile to deal with a concern or defence often raised in trial of NI Act complaints that particulars of the cheque allegedly issued by the accused is not filled up by the accused and therefore, the same shall not be a negotiable Instruments. Though, conventionally, the issues are raked up, still, it is no longer res integra that once signature on the cheque is not in dispute, any such incidental claims like not filling up the cheque by the accused and that the complainant may have filled it up himself shall not aid the case of the accused.    

Section 20 of the NI Act provides that if a person signs and delivers a paper stamped in accordance with the loan and either wholly blank or have written thereon an incomplete negotiable instrument, such person thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, a negotiable instrument for any amount specified therein and not exceeding the amount covered by the stamp.

In Oriental Bank of Commerce V. Prabodh Kumar Tewari Crl. Appeal no.1260 of 2022 it has been held by Hon’ble Supreme Court of India that if the accused claims that he did not fill the particulars on the cheque in question the same shall be of no significance. It is held that:

“For such a determination, the fact that the details of the Cheque have been filled up not by the drawer, but by some other person would be immaterial. The presumption which arises on the signing of the Cheque cannot be rebutted merely by the report of a hand-writing expert. Even if the details in the Cheque have not been filled by drawer but by another person, this is not relevant to the defence whether Cheque was issued towards payment of a debt or in discharge of a liability”.

The Hon'ble High Court of Delhi in Suresh Chandra Goyal v. Amit Singhal Crl. L.P, 706/2014 has succinctly observed that:

"Section 138 of NI 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, in my view, the same would attract Section 138 of NI Act in case of its dishonour."

Civil Suit filed by a money lender : its maintainability

The law is well settled that a criminal and civil cases can go together and there is no embargo cast on this regard. The issue is whether the parameter of maintaining a criminal complaint u/s 138 of Negotiable Instruments Act and a civil suit shall be one and same or shall it be any manner different, particularly, in the light of PROMLA. To put it differently, whether a criminal complaint u/s 138 of Negotiable Instruments Act by a money lender and /or a civil suit, relating to dishonour of cheque issued by the debtor, both categories of the cases shall meet with the same fate, if license is not obtained by the money lender or has there been any distinction carved out in this regard? Law enunciated, contextually shall accord answer to that. The endeavour herein to ascertain the law settled in this regard.

Section 3 of Punjab Registration of Money Lenders Act 1938 (PROMLA) in its abstract bars maintaining a civil suit by a money lender who has no requisite license under the Act and is not registered. Section 4 and 5 of the PROMLA stipulates mechanism of licensing and Section 5 of PROMLA further stipulates the aspect for obtaining license by a money lender under the PROMLA.        

                    Section 118 and 139 of Negotiable Instruments Act

The principles in conventional criminal jurisprudence presumes innocence of the accused, unless proved guilty. The initial burden, no doubt shall be upon the complainant/ prosecution to prove the guilt of the accused and the standard of proof should be such that it may be construed as proved beyond reasonable doubt. In the offences under Section 138 of NI Act, there is a reverse onus cast under Section 138 and section 139 of Negotiable Instruments Act. Though, already referred to above, still, issue of “presumption” as contained in Section 118 and Section 139 of the NI Act may have to be gainfully reproduced for ready reference: 

Section 118:

"Presumptions as to a Negotiable instruments: Until the contrary is proved, the following presumptions shall be made:

(a) of consideration - that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred was accepted, indorsed, negotiated or transferred for consideration;"

Section 139 of the N.I Act further provides as follows:

"Presumption in favour of holder - it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability".

Once it is proved that the cheque in question bears the signatures of the accused and the same has been drawn on account maintained by him are established, a factual base is established to invoke the presumption of cheque having being issued in discharge of a legally recoverable debt and drawn for good consideration by virtue of Section 118 (a) r/w Section 139 of NI Act. Though, the presumption is there, yet, the accused is entitled to rebut the presumption needs no reiteration.

                                      LAw

In case of Kumar Exports Vs Sharma carpets (2009) 2 SCC 513 , the Hon'ble Supreme Court has held as under:-

"The accused under Section 138 NI Act has two options. He can either show that the consideration and debt did not exist or that under the particular circumstances of the case, the non- existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed. To rebut the statutory presumption, an accused is not expected to prove his defence beyond reasonable doubt as it is expected of the complainant in a criminal trial. The accused may adduce direct evidence to prove that the note in question was not supported by Digitally signed consideration and that there was no debt or liability to be discharged by him. However, the court need not insist in every case that the accused should disprove the non- existence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated. At the same time, it is clear that bare denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the accused. Something which his probable has to be brought on record for getting the burden of proof shifted to the complainant. To disprove the presumptions, the accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or the non- existence was so probably that a prudent man under the circumstances of the case, act upon the plea that they did not exist. Apart from adducing direct evidence to prove that the note in question, was not supported by consideration or that he had not incurred any debt or liability, the accused may also rely upon the circumstantial evidence and if the circumstances so relied upon are so compelling, the burden may likewise shift again on the complainant. The accused may also rely upon presumptions of fact, for instance, those mentioned in Section 114 of the Evidence Act to rebut the presumptions arises under Section 118 and Section 139 of NI Act".

 

The Hon'ble Delhi High Court in the case of Virender Singh Vs Deepak Bhatia, 2013 CriLJ 2593, has held as follows:

"The loan as defined in Section 2 (8) of the Act of 1938 specifically excludes an advance made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act 1881,  other than a promissory note. The instant cases relate to an advance made by the Petitioner to the Respondent on the basis of the cheque which admittedly is a negotiable instrument. Thus, the bar of Section 3 of the Act of 1938 is not attracted to a loan given on the basis of a negotiable instrument, like a cheque. I am supported in this view by a judgment of the Supreme Court in Gajanan & Ors Vs Seth Brindaban, 1971(1) SCR 657. Thus, the learned MM fell into error in dismissing the complaints and acquitting the Respondent solely on the ground that the complaint was barred under the provisions of the Act of 1938."

The Hon'ble Punjab & Haryana High Court in the case of Ravinder Paul vs Ashwani Kumar, CRA-S-2319-SB-2012 (O&M), decided on 4 February, 2020 has made it clear that a complaint in a cheque bounce case cannot be dismissed, merely on the ground that the complainant was found to be a professional moneylender, carrying on the trade, without licence.

The Hon'ble High Court of Delhi in the case of Sheela Sharma Vs Mahendra Pal, 2016 SCC OnLine Del 4696 has observed as under:

"In cases, where the complainant claims to have advanced a friendly loan in cash, and where the transaction of loan is not evidenced by any other documentary or other reliable evidence, no doubt, the aspect whether the availability of funds in cash with the complainant/lender, and its advancement as loan to the accused have been reflected in the income tax returns of the complainant/lender, or not, become relevant. If, the availability of funds, and the loan transaction itself is not so reflected, that factor is taken note of by the Court as relevant to hold that the presumption under Section 138 and Section 139 of the NI Act stands rebutted. However, these considerations would not be relevant, where loan transaction itself is otherwise established, either through documentary evidence- such as, a receipt or a loan agreement, or acknowledgement executed by the accused, or by oral evidence of an independent witness who is found to be credible."

 

In Kajal v Vikas Marwah Crl A 870/2013 passed by Hon’ble High court of Delhi, wherein it was held that:

“In my view, even if the appellant/complainant was engaged in lending money, that would not debar her from filing a complaint under Section 138 of the Negotiable Instruments Act, if a cheque issued to her towards repayment of the loan advanced by her is dishonoured by the bank for want of funds and the drawer of the cheques fails to make payment within the prescribed time, after receipt of legal notice from the lender. Section 3 of the Punjab Registration of Money Lenders' Act, 1938, which applies to Delhi, to the extent it is relevant provides that notwithstanding anything contained in any other enactment for the time being in force, a suit by a money lender for the recovery of a loan shall, after the commencement of the Act, be dismissed unless 16 the money lender at the time of institution of the suit is registered and holds a valid license or holds a certificate from the Commissioner granted under Section 11 of the Act, specifying the loan in respect of which the suit is instituted or if he is not already a registered or licensed money lender, he satisfies the court that he has applied for such registration or license but the application is pending. The aforesaid provision does not debar a money lender from instituting a complaint under Section 138 of the Negotiable Instruments Act, 1881, which is a remedy enforceable before a criminal court, and totally independent of a civil suit. The criminal liability is incurred only in case a cheque is issued in discharge of a debt or other liability, the said cheque is dishonoured for want of funds and the borrower fails to make payment of the amount of the cheque even after receipt of a notice from the lender.”


The aforesaid discussion, if taken in its broad parameter clearly reflected that money lender, if not licensed or registered cannot maintain a suit for recovery of loan amount, being specifically barred as per law as is prescribed in PROMLA , however, the complaint under section 138 of Negotiable Instruments Act based on an instrument, which is a  bill of exchange and is dishonoured on presentation gives rise to offence and since, the cheque is issued and that is bounced or dishonoured gives rise to clear cause of action on the premise of a bounced instrument and thus offence stands committed. That being so, merely, because, a money lender as a money lender is not licensed and registered under the stipulated law, he cannot be precluded from maintaining a criminal complaint, if other pre-requisites are duly proved in the cheque bouncing case. Thus, whereas, a civil suit shall be barred ex facie if the money lender is unlicensed but the same does not hold correct from the offences under the NI Act.  Though, there are some judgments to the contrary, still, the broad aspect that emerges is to the effect that whereas a civil suit may be barred because of a non-obstante clause of Section 3 of Punjab Registration of Money Lenders Act 1938, but, the same may have no applicability in criminal cases, like cheque bouncing complaint.

                                                ---------

                                      Anil K Khaware

                                      Founder & Senior Associates

Societylawandjustice.com

 

  Bouncing of cheque complaint by money lender- maintainable?                         Part-2 Though, earlier, the money lending aspect, ...