S. 138 NI Act |Once Execution Of Cheque Is Admitted, Dispute Regarding Interest Rate Of Loan No Defence: Supreme Court

The Supreme Court held that once a person admits the handing over of a signed cheque with an amount written on it, then he cannot raise disputes regarding the interest rate as a defence in a prosecution for the offence of the dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.In this case, the respondent had executed a cheque for a sum of Rs.19 Lakhs in favour of a chit fund company towards the outstanding dues. When the cheque was presented, it got returned with the endorsement "Account Closed". The respondent was convicted for the offence under Section 138 NI Act by the trial court. However, the appellate court acquitted him, which was affirmed by the High Court as well. Therefore, the chit company appealed to the Supreme Court.The appellate court, while acquitting the accused, held that the amount was wrongly reckoned by calculating interest at the rate of 3% per month instead of interest at the rate of 1.8% per month. The company argued before the Supreme Court that as per the Statement of Accounts, the interest was to be 3% per annum.The Supreme Court held that the dispute regarding the rate of interest was not that relevant since the accused had admitted the execution of the cheque. Also, his conduct of closing the account as soon as it was issued was a suspicious circumstance."The fact that the cheque was issued as a consequence of failure to repay the loan taken by the respondent from the appellant to which the interest was added would more or less settle the issue," the Court observed. Reference was made to the judgment in Dashrath Rupsingh Rathod v State of Maha- rashtra, (2014) which held that the offence under Section 138 NI Act is committed as soon as the cheque is dishonoured. Rejecting the respondent's contention, the bench comprising Justices Hima Kohli and Ahsanuddin Amanullah observed that the moment the rate of interest of 3% instead of 1.8% per month had been added to the principal amount and the amount in the cheques reflects the same, it cannot be said that the cheques were not for repayment of the principal amount. “On this issue, we would like to indicate that neither in the pronotes nor in the Statement of Accounts, the principal amount has been disputed and the amount arrived at, as reflected in the cheque whether it is in respect of 1.8% interest or 3% interest per month cannot be given undue importance for the reason that the pronotes indicated that under normal circumstances, when there would be repayment by the respondent, the rate would be 1.8% per month but in the event of non-repayment, how much interest by way of an added burden would lie on the respondent has not been specified. Thus, if the rate of interest of 3% instead of 1.8% per month has been added on the principal amount and the amount in the cheques reflects the same, it cannot be said that the cheques were not for repayment of the principal amount, totalling Rs.14,50,000/- (Rupees Fourteen Lakhs and Fifty Thousand).”, the court said."The learned Trial Court, in our view, has meticulously gone into each and every issue while holding in favour of the appellant and the Appellate Court as also the High Court have only gone by scrutiny of the interest amount mentioned on the pronote and effected in the Statement of Accounts of the appellant and the evidence produced before the Appellate Court by the respondent to indicate that some repayment(s) was/were made. This, according to us, is erroneous and cannot be sustained.", the judgment authored by Justice Ahsanuddin Amanullah said."When the respondent does not dispute that he has handed over the cheques or signed on them, it was incumbent upon him, the moment he claims the amount(s) were repaid to the appellant to have either taken back the cheques or instructed the bank concerned to not honour the concerned cheques", the Court added.The Court also rejected the respondent's argument that the interest @3% per month amounting to 36% per annum would breach the limit imposed under the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003. The Court said that the respondent cannot take a plea in these collateral proceedings under the N.I. Act to contend that the rate of interest was more than what was permissible under the Tamil Nadu Act when he agreed to the same."Having issued the pronotes, he cannot now take a plea in these collateral proceedings under the N.I. Act to contend that the rate of interest was more than what was permissible under the Tamil Nadu Act", the court said.The Supreme Court reversed the acquittal and directed the respondent to pay fine amounting to one and a half (1½) times the amount mentioned in the cheque. Accordingly, the respondent was held liable to pay an amount of Rs.28,50,000/- (Rupees Twenty Eight Lakhs and Fifty Thousand).However, considering that the respondent was aged 86 years old and was living with his wife who was also advanced in age and without issue, the sentence of imprisonment was waived,...

S. 138 NI Act |Once Execution Of Cheque Is Admitted, Dispute Regarding Interest Rate Of Loan No Defence: Supreme Court

Yash Mittal

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