Renuka vs State Of Maharashtra And Another

Atul S. Chandurkar, J

Leave granted.

On a complaint filed under Section 138 of the Negotiable  Instruments  Act,  1881 ‘N.I. Act’, learned  Metropolitan Magistrate on  being satisfied  that  there  was prima-facie material to proceed against the second respondent issued process on 17th June 2022. The second respondent invoked  the  revisional  jurisdiction  of  the  Sessions  Court for challenging the said order. The Sessions Court was of the view that on the date of issuance of the cheque in question, there was no legally enforceable debt to be satisfied by the drawer. By the order dated 30th December 2022, it set aside the order passed by the learned Metropolitan Magistrate issuing process. The complainant approached the High Court of Bombay by filing a writ petition under Article 227 of the Constitution of India and  challenged  the  order  passed  by  the  Sessions  Court. The learned Single Judge, however, dismissed the writ petition observing that no error of jurisdiction was found in  the  impugned  order.  Being  aggrieved,  the  complainant has challenged the aforesaid orders in this Criminal Appeal.

Shorn of necessary details, the facts relevant for considering the challenge as raised are that it is the case of the appellant that she had some disputes with her husband, Mr. Ashwin Natwarlal Sheth in the matter of alleged illegal and fraudulent transfer of shares pertaining to Sheth Developers and Realtors (India) Limited and Sheth Developers Private Limited. She had filed various complaints after which her husband commenced negotiations for amicable settlement of the disputes.  On  12th January  2022,  a  final  draft  settlement agreement was finalised and drawn up between the parties.  One  of  the  terms  of  the  settlement  was  that  the appellant’s  husband  would  gift  to  the  appellant  the  fifth, sixth and seventh floor premises of Natwar Bungalow along with interest in a plot located in a Co-operative Housing  Society. He  also  agreed  to  pay  the  appellant  a sum of ₹50 crores on executing a Declaration-cum- Indemnity document so as to withdraw the complaints filed by her against her husband. With a view to safeguard the interest of the appellant, the second respondent, who was a close friend of the appellant’s husband, agreed to act as a mediator and to keep the amount of₹50 crores in an escrow account till the actual payment was made by the appellant’s husband. Accordingly, on 12th January 2022, the second respondent issued Cheque No.080261 for an amount of₹50 crores in favour of the appellant. The appellant claims to have signed the document titled as Declaration-cum-Indemnity on 13th January 2022. It is the further case of the appellant that the sale of shares of the concerned entity was completed contrary to the settlement agreement and the appellant’s husband received the sale consideration. The appellant accordingly deposited the cheque that had been issued by the second respondent for  encashment. However, on 06th April 2022, the  said  cheque  was  dishonoured  and  returned  with  the remark ‘payment stopped by drawer’. The appellant, on 20th April 2022, issued a notice under Section 138 of the N.I. Act to the second respondent. The said notice was replied by the second respondent on 04th May 2022, denying any liability to make such payment. The appellant gave her further reply to the second respondent and again called upon him to make the necessary payment. Since no further steps were taken by the second respondent, the appellant on 16th June 2022 filed a complaint against the second respondent under Section 138 of the N.I. Act.

Mr. Mukul Rohatgi, learned Senior Advocate for the appellant submitted that the Sessions Court erred in setting aside the order passed by the learned Metropolitan Magistrate issuing process on the premise that  the  dishonoured  cheque  had  been  issued  for  a  debt that  was  not  legally  enforceable.  According  to  him,  on  a plain reading of the complaint filed by the appellant under Section 138 of the N.I. Act coupled with the undisputed position as regards the issuance of the cheque  by  the  second  respondent,  its  valid  presentation, its subsequent dishonour, issuance of the statutory notice and failure on the part of the second respondent to comply with the statutory notice were the only relevant considerations  at  the  stage  of  issuance  of  process  in  the complaint. In other words, it was urged that the presumption under Section 139 of the N.I. Act that operated in favour of the payee could be dislodged by the drawer  of  the  cheque  only  during  the  course  of  trial  and not  at  the  pre-trial  stage.  When  the  basic  ingredients  for making  out  an  offence  under  Section  138  of  the  N.I.  Act had  been  made  out  and  process  had  been  issued  by  the learned Metropolitan Magistrate, scuttling the proceedings at this stage was unjustified. To substantiate this contention, reliance was placed on the decision in Sunil Todi and others Vs. State of Gujarat and another 2021 INSC 823 by  urging  that  the  Sessions Court  had  misread the said judgment. It was, thus, submitted that the Sessions Court was not justified in coming to the conclusion that the cheque in question had not been issued  for  discharge  of  any  legal  liability. Such  a finding could be rendered only at the trial and not on the basis of the statements made during the course of proceedings challenging the issuance of process. He, therefore, submitted that the impugned orders be set aside and the complaint be restored for its adjudication on merits.

On the other hand, Dr. A. M. Singhvi, learned Senior Advocate for the second respondent supported the impugned  orders  and  opposed  the  contentions  raised  on behalf of the appellant. He submitted that both the Courts were justified in coming to the conclusion that the cheque in question had not been shown to have been issued towards the discharge of any legally enforceable debt. The document dated 12th January 2022, which was in the form of a settlement agreement, was admittedly not signed by the second respondent. There was no concluded  agreement  as  such  and,  therefore,  the  second respondent  could  not  be  bound  by  the  statements  made in  that  agreement.  The  liability  under  the  cheque  issued by the second respondent would arise only after the agreement between the parties was complete. The Courts were  justified  in  relying upon  the decision  in Sunil Todi (supra) wherein it was held that where the payment of debt  was  dependent  on  the  happening  of  an  event  which never occurred, there would be no legally recoverable liability to be satisfied. In view of this position on record, no useful purpose would be served by continuing the proceedings under Section 138 of the N.I. Act as it would amount  to  an  abuse  of  the  process  of  law.  It  was,  thus, submitted that the complaint having been rightly dismissed by the learned Sessions Judge, which order was upheld by the High Court, no interference therein was called for. He, therefore, urged that the appeal ought to be dismissed.

We have heard the learned Senior Advocates appearing for the parties at length and we have also perused the relevant documentary material on record. Having  given  due  consideration  to  the  rival  submissions, we are of the view that the Sessions Court as well as the High Court were not justified in coming to the conclusion that the complaint as filed by the appellant under Section 138  of  the  N.I.  Act  was  liable  to  be  dismissed  at  the  pre- trial  stage  on  the  ground  that  the  cheque  issued  by  the second respondent was not towards any legally enforceable debt.

Perusal of the complaint filed by the appellant under Section 138 of the N.I. Act indicates reference to an amicable settlement of various disputes between the appellant and her husband, pursuant to which the appellant’s husband executed a registered irrevocable Power  of  Attorney  dated  10th December  2022  in  favour  of the appellant. It was agreed under the settlement agreement that the appellant’s husband would transfer by way of gift three properties and also pay an amount of₹50 crores on the execution of a Declaration-cum-Indemnity document. In  reciprocation, complaints made by the appellant as regards fraudulent transfer of her shares in two companies were to be withdrawn. To ensure execution of the Declaration-cum-Indemnity document, the  second  respondent  acted  as  a guarantor  and  issued the  cheque  in  question  drawn  in  favour  of  the  appellant. The appellant accordingly signed the Declaration-cum Indemnity document on 13th January 2022. On getting knowledge of the sale of certain shares contrary to the settlement agreement, the appellant presented the cheque issued by the second respondent for being honoured. It has been further stated that said cheque was dishonoured with the remark ‘payment stopped by drawer’. A reference is thereafter made to  the issuance of a statutory notice under Section 138 of the N.I. Act dated 20th April 2022, its service on the second respondent and his reply dated 04th May 2022 denying any liability. Accordingly, the said complaint came to be filed by the appellant.  The  appellant’s  statement  was  duly  verified  by the  learned  Metropolitan  Magistrate  and  on  being  prima facie satisfied  that  the  ingredients  of  Section  138  of  the N.I. Act were present, process came to be issued to the second respondent.

It is to be borne in mind that at the stage of issuance of process by the learned Metropolitan Magistrate,  what  is  prima  facie  required to  be seen is  the issuance of cheque by the drawer in favour of the complainant, its dishonour on presentation by the payee, issuance of statutory notice under Section 138 of the N.I. Act and filing of the complaint within the prescribed statutory  period.  If  the  drawer  does  not  dispute  issuance of  such  a  cheque  nor  does  he  deny  his  signature  on  the dishonoured cheque, the statutory presumption as contemplated under Section 139 of the N.I. Act comes into play. As a result, the burden would shift on the drawer of the cheque to prove that the cheque was not issued for any legally enforceable debt or liability. This exercise  has  to  be  undertaken  during  the  trial  either  by relying upon the material brought on record by the complainant or by the drawer leading evidence in rebuttal. At the stage of issuance of process, the statutory presumption  under  Section  139 of  the N.I. Act  cannot  be dislodged in a summary manner merely by contending that the cheque issued was not for any legally enforceable debt or liability.

We may in this regard refer to two decisions of this Court that have reiterated the view that once the basic ingredients of Section 138 of the N.I. Act are duly satisfied by the complainant, the rebuttal of statutory presumption  by  the  drawer  can  only  be  made  during  the course of trial.

In Rangappa Vs. Sri Mohan 2010 INSC 289, it has been explicitly reiterated that the presumption mandated by Section 139 of the N.I. Act includes the presumption as regards existence of a legally  enforceable debt  or liability. It  has been held that Section 139 is an example of a reverse onus clause that has been included in furtherance of the legislative object of improving the credibility of negotiable instruments. The presumption is rebuttable and the accused can raise a defence wherein the existence of a legally enforceable debt or liability can be contested.

In  Rajesh  Jain  Vs.  Ajay  Singh 2023 INSC 888,  it  has  been  held as under:

“34. The NI Act provides for two presumptions: Section 118 and Section 139. Section 118 of the Act inter alia directs that it shall be  presumed,  until  the  contrary  is  proved,  that  every  negotiable instrument was made or drawn for consideration. Section 139 of the  Act  stipulates  that  'unless  the  contrary  is  proved,  it  shall  be presumed, that the holder of the cheque received the cheque, for the  discharge  of,  whole  or  part  of  any  debt  or  liability'.  It  will  be seen that the 'presumed fact' directly relates to one of the crucial ingredients necessary to sustain a conviction under Section 138.

Section  139 of the  NI  Act,  which  takes the  form of a ‘shall presume’ clause  is  illustrative of  a presumption of  law.  Because Section 139 requires that the Court ‘shall presume’ the fact stated therein, it is obligatory on the Court to raise this presumption in every case where the  factual basis for the raising of the presumption had been established. But this does not preclude the person against whom the presumption is drawn from rebutting it and proving the contrary as is clear from the use of the phrase ‘unless the contrary is proved’.

The  Court  will necessarily  presume that  the  cheque  had been issued towards discharge of a legally enforceable debt/liability in two circumstances. Firstly, when the drawer of the cheque admits issuance/execution of the cheque and secondly, in the event where the complainant proves that cheque was issued/executed in his favour by the drawer. The circumstances set out  above form  the fact(s) which  bring  about the activation of the presumptive clause. [Bharat Barrel Vs. Amin Chand] [(1999) 3 SCC 35]

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As soon as the complainant discharges the burden to prove that the instrument, say a cheque, was issued by the accused for discharge of debt, the presumptive device under Section 139 of the Act helps shifting the burden on the accused. The effect of the presumption, in that sense, is to transfer the evidential burden on the accused of proving that the cheque was not  received by  the Bank towards the discharge of any  liability. Until this evidential burden is discharged by the accused, the presumed fact will have to be taken to be true, without expecting the complainant to do anything further.”

A perusal of the revisional order passed by the learned Judge of the Sessions Court indicates that he has given much importance to the fact that the agreement dated 12th January 2022 was not signed by the second respondent and, hence, the issuance of the cheque in question was not for any enforceable debt. He also appears to have  given importance  to  the  dispute between the appellant  and her  husband  by  stating  that  it  was  a matrimonial  dispute  and  civil  litigation  between  the  said parties  was  pending  in  various  Courts.  In  our  view,  the learned  Judge  misdirected  himself  when  he  proceeded  to give  more  weightage  to  the  document  dated  12th January 2022  and  in  the  process,  ignored  the  fact  that  the  basic ingredients for attracting the provisions of Section 138 of the  N.I.  Act  had  been  duly  satisfied  by  the  appellant,  at least  for  issuance  of  process.  The  drawing  of  the  cheque by the second respondent, its presentation and subsequent  dishonour at  the instructions  of the second respondent is not in dispute. The second respondent does not  also  dispute  that  he  had  issued  the  said  cheque  and that it was duly signed by him. The issuance of statutory notice as well as filing of the complaint within the prescribed period are also not in dispute. In such a situation, when the basic ingredients of Section 138 stand duly satisfied and the statutory presumption under Section 139 gets triggered, coming to a conclusion that the  cheque  was  not  issued  for  a legally  enforceable  debt at the pre-trial stage itself without granting an opportunity  to  the  complainant  to  substantiate  her  case by leading evidence would amount to ignoring the statutory  presumption  that  the  cheque  had  been  issued for a legally enforceable debt or liability. As a consequence,  the  presumption  under  Section  139  of  the N.I. Act gets washed away even prior to commencement of the trial. We are of the view that in the facts of the present case, the dismissal of the complaint as a consequence  of  setting  aside  the  order  issuing  process  is totally unjustified in the absence of any material being brought on record by the second respondent to rebut the statutory  presumption  and  prove  his  contention  that  the cheque was issued not towards any enforceable debt or liability.

Since we are inclined to restore the complaint for being tried on merits, it is not necessary to deal with the decision  in  Sunil  Todi  and  others  (supra)  in  detail.  Suffice it  to  observe  that  even  in  the  said  decision,  it  has  been held that disputed questions as regards existence of outstanding  liability  are  questions  of  fact  that  have  to  be determined at the trial on the basis of evidence.

For  all  these  reasons,  we  are  of  the  view  that  the learned  Judge  of  the  Sessions  Court  committed  an  error in setting aside the order dated 17th June 2022 passed by the learned Metropolitan Magistrate issuing process under  Section  138  of  the  N.I.  Act. The  High  Court  also fell into error in upholding the order passed by the learned  Sessions  Judge. Accordingly,  both  the  aforesaid orders are set aside. The complaint filed by the appellant being CC1831/SC/2022 stands restored for its adjudication on merits.

We clarify that the complaint shall be decided on its own merits and in accordance with law after giving due opportunity to all parties concerned. Any observations made in this judgment shall not be construed as an expression of opinion on the merits of the said case.

The Criminal Appeal is allowed in aforesaid terms.