CHEQUE MATE: SUPREME COURT RESTORES CONVICTION IN FINANCIAL DISPUTE

Case Name: Sri Sujies Benefit Funds Limited vs. M. Jaganathuan

Case No.: Criminal Appeal No. 3369 of 2024 (Special Leave Petition (Crl.) No. 4022 of 2022)

Dated On: August 13, 2024

Quorum: Justice Ahsanuddin Amanullah

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FACTS OF THE CASE

The appellant is Sri Sujit Benefit Funds Limited, a chit-fund company. The chit fund company had provided loans to the respondent, M. Jaganathuan, for two years of an aggregate of Rs. 21,09,000 including interest thereon. The cheques were given to the appellant between 1995 and 1997. To partially discharge this liability, the respondent issued cheque No. 000461 dated 3.2.2003 for Rs. 19,00,000. When the cheque was presented for encashment, it was dishonored with an endorsement of "insufficient funds". The appellant then filed a complaint under Section 138 of the Negotiable Instruments Act, 1881.

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The trial court convicted the respondent and sentenced him to one year of simple imprisonment and a fine of Rs. 38,00,000. The respondent appealed the order of conviction before the Appellate Court, which set aside the order of conviction on the ground that the cheque in question was not issued for any legally recoverable debt. The High Court confirmed this order of acquittal. Thus, this appellant went to the Supreme Court.

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ISSUES

1. Whether the cheque issued by the respondent against legally recoverable debt?

2. Whether the respondent succeeds in rebutting the presumption under Sections 138, 139, and 118(a) of the Negotiable Instruments Act?

3. What is the impact of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003, on interest rates charged?

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LEGAL ISSUES

?1.Negotiable Instruments Act, 1881: Section 138 Dishonor of cheque for insufficiency, etc., of funds in the accounts.

2. Code of Criminal Procedure, 1973: Section 391. The Appellate Court may take further evidence.

3. Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003: Interest on unsecured loans at a maximum of 12% per annum.

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CONTENTIONS OF THE APPELLANT?

The appellant submitted that:

1. By issuance of the cheque, a presumption under the Negotiable Instrument Act had been raised, which was not rebutted by the respondent.

2. The Appellate Court had no cogent reasons to agitate the interest rate and also the validity of the cheque amount.

3. The pleas put forth by the respondent about the repayments were without any substance to exculpate him from the liability.

4. Principles of acquittal were built on the flimsiest grounds which not only thwarted the very purpose and object of the Negotiable Instrument Act.

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CONTENTIONS OF THE RESPONDENT

The respondent argued that:

1.There were no substantial questions of law involved in this appeal and thus the Supreme Court should not entertain it.

2. Both the trial and the lower appellate courts held that the appellant had failed to prove the cheque amount was legally due to him.

3. The differences in the interest rates meant that his claims were not believable.

4. The summary nature of the proceedings under the Negotiable Instruments Act warranted strict scrutiny of the evidence which the courts below have appropriately applied.

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JUDGEMENT

While assessing the appeal, the Supreme Court held that the acquittal by the Appellate Court was erroneous. The Court has observed that the cheque issued for a loan, and the discrepancies regarding interest rates cannot wash off the legal debt. The Court restored the trial court conviction but reduced the fine to one and a half times the cheque amount.

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CONCLUSION

The decision of the Supreme Court thus acted to reaffirm the need to protect the provisions under the Negotiable Instruments Act, mainly on the presumption of debt incurred by the issuance of a cheque. The judgment brought out the fact that differences in interest rates do not nullify debt, more so where the principal amount remains uncontested. This case once again emphasizes the fact that the borrowers must maintain proper records of their repayments and issuance of cheques in any financial transaction. This judgment reminds one of the legal obligations implicit in financial agreements and the safeguards under the law for the creditors.

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WRITTEN BY: PAYAL DEVNANI