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

Raashi Saxena ,
  01 December 2022       Share Bookmark

Court :
Hon’ble High Court of Bombay
Brief :

Citation :
CRIMINAL REVISION APPLICATION NO. 394 OF 2015

Case title:
Monic Sunit Ujjain Vs. Sanchu M. Menon and Ors.

Date of Order:
2nd August 2022

Bench:
Justice Prakash Naik

Parties:
Petitioner- Mrs. Monica Sunit Ujjain
Respondent- Sanchu M. Menon, Sushil Yeshwant Raut and The State of Maharashtra

SUBJECT

In a complaint filed under the Negotiable Instruments Act, the Bombay High Court recently dismissed a criminal revision request, noting that section 138 cannot be invoked if the cheque is used as security for a loan from an unregistered money lender.

IMPORTANT PROVISIONS

Section 138 of the Negotiable Instruments Act, 1881

  • Section 138 of the NI Act is punitive in nature and deals with the penalties for dishonouring a cheque.
  • Dishonoring a cheque is not a crime in and of itself, but it must also have the following elements in order to constitute a crime:
  • The cheque should be drawn from a drawer.
  • The cheque that was drawn ought to be used to pay off some debt.
  • the cheque's presentation to the drawee bank.
  • The bank returned the cheque as unpaid due to inadequate cash.
  • The cheque must be presented no later than six months after the day it was drawn, or within the cheque's validity term, whichever comes first.
  • A notice should be served to seek the payment of the aforementioned money within thirty days after obtaining a memo of return from the bank.
  • After receiving the notification, the drawer has 15 days to pay the money, but fails to do so.
  • It should be underlined that there would be no offence if the drawer paid the obligation within the allotted 15 days. Only when the debt is not paid within 15 days is it considered a violation of Section 138 of the NI Act, and the offender faces a maximum sentence of two years in prison, a maximum fine of twice the amount of the check, or a combination of both.

BRIEF FACTS

  • The petitioner loaned the accused individuals Rs 12 lakhs in February 2014.
  • The defendant signed a Memorandum of Understanding acknowledging receipt of the funds and promising to pay back the loan by August 30, 2014, at the latest.
  • The accused gave the applicant five cheques, but they were returned to him because of "alteration."
  • The defendant then wrote a new cheque for Rs. 11.5 lakhs.
  • On March 2, 2015, the accused sent a notice acknowledging a loan and obligations totaling Rs 5.5 lakhs.
  • The accused, however, asserted in the notification that the cheques were given out as collateral for the loan.
  • Before the Joint Judicial Magistrate First Class (JJMFC), the applicant brought a claim under Section 138 of the Negotiable Instruments Act.
  • The process that the JJMFC issued in the case. In a revision motion submitted to the sessions court, the defendants contested the order of the legal proceedings.
  • The revision application was approved by the sessions court. As a result, the applicant went to the High Court.

ISSUES RAISED

The main issue here was the validity of the Criminal Revision Application.

ARGUMENTS ADVANCED BY THE APPELLANT

  • According to applicant's attorney Suresh Shetye, once the JJMFC verified the statement and took into account the records, a case was prima facie made out against the accused.
  • Before submitting the complaint, the applicant complied with all formal requirements, including the issuance of the demand notice.
  • Under the authority of revision, an order of procedure could not be invalidated.
  • The assumption under section 139 of the NI Act, which must be refuted in court, was not taken into account by the sessions court.
  • Additionally, the complainant should be given the chance to support their claims with evidence.

ARGUMENTS ADVANCED BY THE RESPONDENT

  • The respondents' attorney, Vinod Gangwal, contended that it would be illegal to continue the case against the respondent because the sessions court had the authority to consider the revision application and invalidate the order-issuing procedure.
  • He claimed that the Sessions judge had properly taken the uncontested material into account. He based his argument on the sessions court's finding that the post-dated cheques were provided as collateral for the loan.
  • The sessions judge properly concluded that cases of unlicensed money lending businesses precluded the continuation of proceedings. He said that because the loan arrangement had an illegal purpose, it cannot be enforced.

ANALYSIS BY THE COURT

  • The court reviewed the sessions judge's ruling and declared that instances of unlicensed money lending businesses are not covered by section 138 of the NI Act.
  • The court inferred from the parties' Memorandum of Understanding that the transaction was unlicensed and that the post-dated checks were presented as security.

CONCLUSION

  • After a thorough examination of the MOU and the other documents on record and understanding all the facts of the case, the bench was of the opinion that there was no reason to interfere with the current order in question.
  • The court dismissed the criminal revision application as it could not see any justification for changing the order.

Click here to download the original copy of the judgement

 
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