S.138 NI Act- Improbable For A Moneylender To Grant Second Loan While First Loan Still Oustanding: Kerala High Court Acquits Accused

The Kerala High Court observed that it was highly improbable that a cheque leaf from a cheque book that was exhausted in 1996 would be used by a drawer to discharge his liability that arose in the year 2000. 

Justice Gopinath P further noted that it was highly unlikely for a money lender to initiate a second loan transaction when the first loan transaction was yet to be paid, which further weakened the case of the appellant.

Accordingly, it was held that the complaint had failed to prove the existence of a legally enforceable debt, thereby implying that the accused under Section 138 of the Negotiable Instruments Act had successfully rebutted the statutory presumption.

This appeal was filed against the order of a Judicial First Class Magistrate Court acquitting the 2nd respondent herein from an offence under Section 138 of the Negotiable Instruments Act.

Factual Background:

A complaint was filed alleging that the 2nd respondent herein had issued a cheque bearing No.327388 dated 30.12.2000 (subject cheque) drawn for a sum of Rs.1,70,000/- in the discharge of a debt and that on presentation, the said cheque was returned unpaid citing insufficiency of funds in the account.

The Magistrate found that the subject cheque was issued before June 1995 at the time when the complainant had advanced a loan of Rs.40,000/- to the 2nd respondent. It also observed that a new loan would not have been granted when the old loan was outstanding and that the amount of loan of Rs.1,70,000/- would not have been given in cash when the earlier loan of Rs.40,000/- was given by way of cheque.

Since the complainant had failed to prove his case, the 2nd respondent was acquitted. Aggrieved by such acquittal, the complainant approached the Court.  

The case of the complainant was that the loan of Rs.1,70,000/- was given in a personal capacity. According to him, the presumption under Section 139 of the Act, though rebuttable, should have operated in his favour in the total absence of any acceptable evidence to rebut that presumption from the side of the defence.

The 2nd respondent relied on a couple of decisions to contend that where an accused in a prosecution under Section 138 of the NI Act has fairly and reasonably established that the case put up by the complainant is highly improbable, the complainant cannot rely on the statutory presumption any longer.

He added that for the proposition that where the accused has succeeded in rebutting the presumption under the Negotiable Instruments Act, the burden shifts to the complainant to prove consideration and on failure to do so, the accused is entitled to be acquitted.

Observations:

• Improbable That Cheque Leaf From Cheque Book Exhausted in 1996 Used To Discharge Liability In 2000

The first circumstance taken into account by the Magistrate to hold that the 2nd respondent was entitled to an acquittal is the fact that the subject cheque could not have been one which was issued close to the time at which it was stated to have been issued. According to the appellant/complainant, the loan of Rs.1,70,000/- was given on 26.12.2000 and in the discharge of this debt, the subject cheque was issued on 30.12.2000.

However, based on the evidence tendered by the 2nd respondent, the immediately previous cheque was presented for encashment on 23.05.1995. The one following the subject cheque was presented for encashment on 10.06.1995.

The Magistrate took note of the fact that the entire cheque book which contained the subject cheque was exhausted on 07.02.1996 and a new cheque book was issued on 29.03.1996. Further, it was seen that the 2nd respondent had presented the cheque from the new cheque book on 29.03.1996.

The Court noted that the aforesaid findings of the Magistrate based on the passbook of the accused cannot be faulted.

However, it emphasised that the mere fact the immediately preceding cheque bearing No.327387 was presented for encashment only on 23.05.1995 and the fact that the earlier loan admittedly availed by the accused from the complainant is 18.04.1995 does not, in any manner, suggest that the subject cheque was not issued as a security for the loan availed on 18.4.1995. There may have been many reasons for the earlier cheque having been presented later.

However, the Bench noted thus:

"Considering the totality of the evidence, I think that the case put forth by the 2nd respondent cannot be disbelieved, as it is the admitted case that there was a transaction between the parties in the year 1995 as is evident from the fact that an amount of Rs.40,000/- was credited to the account of the 2nd respondent/accused through cheques issued by the complainant on 18.04.1995 and 29.04.1995".

The Court also took note of the fact that the loan of Rs.1,70,000/- was reportedly given on 26.12.2000.

"It is highly improbable that a cheque leaf from a cheque book that got exhausted on 07.02.1996 would have been used on 30.12.2000 in the discharge of a liability for a loan taken on 26.12.2000."

• Unconvincing That Second Loan Transaction Transpired When First Loan Was Unpaid 

As rightly held by the Magistrate, there was no admission of repayment of the loan amount of Rs.40,000/- on 26.12.2000.

The statement that another loan of Rs.1,70,000/- was given in cash by the appellant, who was admittedly a money lender at the time when the earlier loan of Rs.40,000/- remained unpaid was clearly a circumstance that could be taken note of in concluding that the 2nd transaction was quite improbable.

The case of the appellant that the second transaction with the 2nd respondent was in his personal capacity was only to get over the defence of the 2nd respondent that he had discharged the earlier liability and that there was no further liability subsisting to be paid off to the appellant.

"Therefore, I am in complete agreement with the view taken by the learned Magistrate that there is evidence to show that the cheque in question was not issued in discharge of the alleged liability of Rs.1,70,000/-."

The Court also found that the 2nd respondent had succeeded in showing that the statutory presumption under Section 139 should not be applied. I

"In other words, the 2nd respondent/accused has been able to rebut the statutory presumption. The appellant/complainant has not thereafter been able to bring in any evidence suggesting the existence of a transaction resulting in a legally enforcible debt payable by 2nd respondent/accused."

Therefore, the Bench observed that the prosecution of the 2nd respondent under Section 138 of the Negotiable Instruments Act must necessarily fail.

Accordingly, the appeal failed and was dismissed.

Advocate Peeyus A. Kottam appeared for the appellant, Government Pleader Ranjith George represented the State and the respondent appeared through Advocate P.V. Elias.

Case Title: V.P Zacharia v. State of Kerala & Anr.

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