The case

Radhakrishnan v. Kerala Agro Industries Corporation Ltd 2025 (Crl.Rev.Pet No. 1340 of 2019)    ( KLT OnLine 2063) Decided on 29th May 2025 , Hon’ble Mr. Justice M.B. Snehalatha , High Court of Kerala.

Facts of the case

Kerala Agro Industries Corporation Ltd ( complainant )filed the complaint stating that N.Radhakrishnan, a Rubber Dealer and Exporter  ( accused) who had business transaction with the complainant company, purchased goods from the complainant company on credit and in discharge of the said liability, accused issued cheques dated 20.5.2008 drawn on Canara Bank, Panampilly Nagar Branch, Ernakulam. Upon presentation of the  cheques, the said cheques were dishonoured on 18.11.2008 due to insufficient funds in the account of the accused. In spite of receipt of Ext.P7 notice dated 5.12.2008, accused failed to make the payment as per the  cheques issued . Accused thereby committed the offence punishable under Section 138 of N.I.Act.

Accused entered appearance and denied his liability to pay any amount. He contended that he issued cheques by way of security. According to him, no amounts are due to the complainant as he had already effected payment of the goods supplied to him, and no amounts were due to the complainant.

After trial, the learned Chief Judicial Magistrate found the accused guilty for the offence under Section 138 of N.I.Act and the accused was convicted and sentenced to undergo simple imprisonment for a period of three months and to pay ₹30 lakhs as compensation to the complainant under Section 357(3) Cr.P.C. In default of payment of compensation, to undergo simple imprisonment for a further period of three months. The judgment dated 31.05.2018 in ST No.244 of 2009 of Chief Judicial Magistrate Court, Ernakulam.

Challenging the conviction and sentence, though the accused preferred appeal as Crl.A No.260/2018 before the Sessions Court, Ernakulam, the appeal was dismissed confirming the conviction and sentence.

Criminal Revision Petition before the High Court

Assailing the judgment of conviction and sentence, accused has preferred this revision petition contending that the trial court and the appellate court went wrong in appreciating the evidence in its correct perspective. It was contended by the accused/revision petitioner that the  cheques were issued by way of security during the course of business transaction; that the complainant failed to discharge his initial burden to prove the  cheques were issued in discharge of any debt or liability.

Therefore, according to the learned counsel for the accused, it has to be construed that cheques were not supported by any consideration.

Per contra, the learned counsel for the complainant supported the findings of the trial court and the appellate court and submitted that the trial court and the appellate court have analysed the evidence in its correct perspective and there are absolutely no grounds to interfere with the impugned judgment.

The point for consideration is whether the judgment of conviction and order of sentence against the accused for the offence under Section 138 of N.I. Act warrants any interference by this Court.

Observations of the Hon’ble High Court

The presumption under Section 139 N.I Act entails an obligation on the court to presume that the cheque in question was issued by the drawer or accused in discharge of a debt or liability. It is a rebuttable presumption. Accused failed to rebut the presumption under Section 139 of the NI Act. Per contra, the complainant has succeeded in establishing that Exts.P3 to P5 cheques were issued in discharge of his liability to pay the amount due to the complainant.

In Rangappa v. Sri.Mohan reported in AIR 2010 SC 1898, the Apex Court held that the presumption mandated by Section 139 includes a presumption that there exists a legally enforceable debt or liability. This is of course a rebuttable presumption and it is open to the accused to raise a defence wherein the existence of a legally enforceable debt or liability can be contested. The Apex Court further held that the standard of proof for doing so is that of preponderance of probabilities. It was also held that in view of Section 139 of N.I Act there is an initial presumption, which favours the complainant.

Provisions contained in Sections 138 to 142 of the N.I Act are intended to discourage people from not honouring their commitments by way of payment through cheques. The criminal provisions in N.I.Act are inserted to give credibility to commercial transactions and to discourage people from dishonouring their financial commitments and obligations.

In Vinay Devanna Nayak v. Ryot Seva Sahakari Bank Ltd. (AIR 2008 SC 716) the Apex Court observed as under : “16. Section 138 of the Act was inserted by the Banking, Public Financial Institutions and Negotiable Instrument Law (Amendment) Act, 1988 (ACT 66 of 1988) to regulate financial promises in growing business, trade, commerce and industrial activities of the country and the strict liability to promote greater vigilance in financial matters. The incorporation of the provision is designed to safeguard the faith of the creditor in the drawer of the cheque, which is essential to the economic life of a developing country like India. The provision has been introduced with a view to curb cases of issuing cheques indiscriminately by making stringent provisions and safeguarding interest of creditors.

As observed by this Court in Electronic Trade & Technology Development Corporation Ltd. v. Indian Technologists & Engineers MANU/SC/0591/1996: 1996 CriLJ1692 , the object of bringing Section 138 in the statute book is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. The provision is intended to prevent dishonesty on the part of the drawer of negotiable instruments in issuing cheques without sufficient funds or with a view to inducing the payee or holder in due course to act upon it. It thus seeks to promote the efficacy of bank operations and ensures credibility in transacting business through cheques.”

In Sripati Singh (since deceased) through his Son Gaurav Singh Vs. The State of Jharkhand and Ors. (AIR 2021 SC 5732), the Hon’ble Apex Court held as under: “16. A cheque issued as security pursuant to a financial transaction cannot be considered as a worthless piece of paper under every circumstance. ‘Security’ in its true sense is the state of being safe and the security given for a loan is something given as a pledge of payment. It is given, deposited or pledged to make certain the fulfilment of an obligation to which the parties to the transaction are bound. If in a transaction, a loan is advanced and the borrower agrees to repay the amount in a specified timeframe and issues a cheque as security to secure such repayment; if the loan amount is not repaid in any other form before the due date or if there is no other understanding or agreement between the parties to defer the payment of amount, the cheque which is issued as security would mature for presentation and the drawee of the cheque would be entitled to present the same. On such presentation, if the same is dishonoured, the consequences contemplated Under Section 138 and the other provisions of N.I. Act would flow.

When a cheque is issued and is treated as ‘security’ towards repayment of an amount with a time period being stipulated for repayment, all that it ensures is that such cheque which is issued as ‘security’ cannot be presented prior to the loan or the instalment maturing for repayment towards which such cheque is issued as security. Further, the borrower would have the option of repaying the loan amount or such financial liability in any other form and in that manner if the amount of loan due and payable has been discharged within the agreed period, the cheque issued as security cannot thereafter be presented. Therefore, the prior discharge of the loan or there being an altered situation due to which there would be understanding between the parties is a sine qua non to not present the cheque which was issued as security. These are only the defences that would be available to the drawer of the cheque in a proceedings initiated Under Section 138 of the N.I. Act. Therefore, there cannot be a hard and fast Rule that a cheque which is issued as security can never be presented by the drawee of the cheque. If such is the understanding a cheque would also be reduced to an ‘on demand promissory note’ and in all circumstances, it would only be a civil litigation to recover the amount, which is not the intention of the statute. When a cheque is issued even though as ‘security’ the consequence flowing therefrom is also known to the drawer of the cheque and in the circumstance stated above if the cheque is presented and dishonoured, the holder of the cheque/drawee would have the option of initiating the civil proceedings for recovery or the criminal proceedings for punishment in the fact situation, but in any event, it is not for the drawer of the cheque to dictate terms with regard to the nature of litigation.”

In Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Limited (2016) 10 SCC 458), the Apex Court held as follows: “10.We have given due consideration to the submission advanced on behalf of the Appellant as well as the observations of this Court in Indus Airways (supra) with reference to the explanation to Section 138 of the Act and the expression “for discharge of any debt or other liability” occurring in Section 138 of the Act. We are of the view that the question whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise.”

If a cheque is issued to secure repayment of debt or liability and if the debt is not discharged and if on the date of presentation of the cheque, the liability to pay the amount exists and if the said cheque dishonours upon presentation, the consequences contemplated under Section 138 of N.I.Act would follow. Even if the case of the accused that the cheques were issued as a security, he failed to establish that he paid the amount due to the complainant, as contended by him.

The learned Magistrate and the learned Sessions Judge have appreciated the evidence in its correct perspective and reached at the right finding that the accused has committed the offence under Section 138 of N.I Act. Therefore, this Court finds no reason to interfere with the finding of conviction of the accused for the offence under Section 138 of N.I.Act.

On Fine

The complainant company has put to much hardship due to the bouncing of cheques and non payment of the amount covered by the cheques. Awarding of fine double the cheque amount aims to make up for the commercial hardship, loss of opportunity and liquidity crunch faced by the complainant and in order to deter dishonest commercial practices.

In Damodar S.Prabhu v. Sayed Babalal .H reported (2010(2) KLT 587 (SC) and also in Kaushalya Devi Massand v.Roopkishore Khore reported in AIR 2011 SC 2566 the Apex Court held that offence u/s 138 of N.I.Act is basically of Civil nature, but criminal colour has been given by incorporating the same in the Negotiable Instruments Act. It is the compensatory aspect of remedy which should be given priority over the punishment aspect with regard to the offence of dishonour of cheque.

Bearing in mind the principles laid down in the decisions cited supra, the simple imprisonment for three months is reduced to imprisonment till the rising of the court and the accused can be directed to pay fine of ₹30 lakhs and in default of payment of fine to undergo simple imprisonment for a period of 6 months. If the amount is realised, it shall be given to the complainant u/s 357(1)(b) Cr.P.C.