Friendly Loan Not Legally Enforceable Debt U/S 138 NI Act If There Is No Consideration To Form Contract: Jharkhand High Court
The Jharkhand High Court has upheld the acquittal of two accused persons in a cheque dishonour case, holding that a “friendly transaction” between parties does not automatically constitute a legally enforceable debt under Section 138 of the Negotiable Instruments Act. A Single Judge Bench of Justice Rajesh Kumar was hearing an acquittal appeal filed by the complainant challenging the...
The Jharkhand High Court has upheld the acquittal of two accused persons in a cheque dishonour case, holding that a “friendly transaction” between parties does not automatically constitute a legally enforceable debt under Section 138 of the Negotiable Instruments Act.
A Single Judge Bench of Justice Rajesh Kumar was hearing an acquittal appeal filed by the complainant challenging the judgment dated 28.07.2008 passed by the Judicial Magistrate, 1st Class, Jamshedpur in Complaint C-1 Case No. 807 of 2007.
According to the complainant, he had advanced a friendly loan of Rs. 2 lakhs to the accused on 03.01.2007 (Rs. 1 lakh through cheque and another Rs. 1 lakh in cash) to help the accused in business. It was alleged that in return, the accused handed over two post-dated cheques of Rs. 1.5 lakhs and Rs. 50,000 respectively as security.
The complainant alleged that when the cheques were presented, they were dishonoured due to insufficient funds. A legal notice was thereafter issued demanding payment, following which the complaint under Section 138 NI Act was instituted.
After trial, the Magistrate acquitted the accused persons, following which the complainant approached the High Court.
During trial, the complainant examined himself as CW-1 and stated that the amount had been given as a friendly loan and that the cheques were issued in his favour by the accused in their own handwriting.
After hearing the parties, the High Court observed that Section 138 of the NI Act was enacted to govern commercial transactions and that while a statutory presumption exists in favour of the holder of the cheque, such presumption can be rebutted where materials on record indicate absence of a legally enforceable debt.The Court observed:
“The friendship cannot be a consideration to form a contract.”
The Bench further held:
“Thus, if no contract has been formed, then the transaction cannot be legally enforced and it does not come under the definition of legally enforceable debt and the jurisdiction of Section 138 of N.I Act is not applicable.”
The Court noted that the transaction in question was described by the complainant himself as a friendly loan and held that the materials on record did not warrant interference with the acquittal judgment passed by the trial court.
Accordingly, the acquittal appeal was dismissed.
Case Title: Md. Masudul Haque Ansari v. State of Jharkhand and Ors.
Case No.: Acquittal Appeal No. 10 of 2012.
Appearance: Mr. P.C. Sinha for the Appellant. Mr. Vishwanath Roy for the State.