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
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