Offence U/S138 NI Act Not Attracted If The Cheque Is Given As Security for a Loan From Unlicensed Money Lender: Bombay High Court

"In cases of money lending business without license, the provisions under Section 138 of Negotiable Instruments Act are not attracted", Justice Prakash Naik observed in his order.

It was the applicant's case that in February 2014, she gave a loan of Rs 12 lakhs to the accused persons. The accused executed a Memorandum of Understanding admitting receipt of the money and undertook to repay the loan on or before August 30, 2014. The accused issued five cheques to the applicant which were dishonoured for the reason of "alteration". The accused then issued a fresh cheque for Rs 11.5 lakhs. The accused issued a notice on March 2, 2015 admitting loan and liabilities of Rs 5.5 lakhs. However, the accused claimed in the notice that the cheques were issued as security for the loan.

The applicant filed a complaint before the Joint Judicial Magistrate First Class (JJMFC) under section 138 of Negotiable Instruments Act. The JJMFC issued process in the case. The accused persons challenged the order of process in a revision application before the sessions court. The sessions court allowed the revision application. Hence, the applicant approached the High Court.

Advocate Suresh Shetye for the applicant submitted that the prima facie, a case was made out against accused and the JJMFC issued process after verification of the statement and considering documents on record. The applicant fulfilled all procedural requirements such as issue of demand notice before filing the complaint. Order of process could not be set aside under revisional jurisdiction. The sessions court did not consider the presumption under section 139 of the NI Act which is required to be rebutted during trial. Further, the complainant should have the opportunity to prove the case by adducing evidence.

Advocate Vinod Gangwal for the respondents argued that continuation of proceedings against the respondent would be abuse of law as the sessions court was empowered to entertain the revision application and set aside the order issuing process. He said that the Sessions judge rightly considered the undisputed document on record. He relied on sessions court's observation that the post-dated cheques were given as security for the loan. It was correctly held by the sessions judge that proceedings were not maintainable in cases of money lending business without licence. Therefore, the loan agreement cannot be enforced as it has an unlawful object, he argued.

The court perused the order of the sessions judge and stated that section 138 of NI Act is not attracted in cases of money lending business without licence. The court, from the MoU between the parties, gathered that the transaction was without licence and the post-dated cheques were given as security. Therefore, the court did not find any reason to interfere with the order and rejected the criminal revision application.

Case no. – Criminal Revision Application No. 394 of 2015

Case title –Monic Sunit Ujjain v. Sanchu M. Menon and Ors.

Citation: 2022 LiveLaw (Bom) 464