High Court Upholds Conviction under Section 138 of NI Act: Cheque Dishonor Presumption Prevails, Defense of Stolen Cheque and Limitation Rejected

The High Court of Karnataka, in a significant ruling, reaffirmed the conviction under Section 138 of the Negotiable Instruments Act, 1881. The Court meticulously examined the statutory presumptions under Sections 118 and 139 of the N.I. Act and scrutinized various defenses presented by the accused, ultimately upholding the lower courts' judgment.

The case involved Krishna Automation & Software Solution Pvt. Ltd. and its directors, accused of issuing a dishonored cheque of Rs. 5 lakhs. The complainant, a civil contractor, alleged financial assistance was sought by the accused, who subsequently issued a cheque that was dishonored with the endorsement "payment stopped by drawer." The primary issues revolved around the applicability of Section 138 of the N.I. Act, the validity of the cheque, the statutory presumptions, and the various defenses raised by the accused.

Statutory Presumption: The Court reaffirmed the presumption that a cheque is issued for lawful discharge of debt, placing the onus on the drawer to prove otherwise. Citing the Apex Court's precedents, the Court emphasized that once the issuance of the cheque and the drawer's signature are established, the presumption is in favor of the complainant.

Defenses Against Cheque Dishonour: The Court examined and negated each defense, including non-compliance with Section 138(b), alleged theft and misuse of cheques, inconsistency in evidence, material alteration of the cheque, and the limitation claim. The claim of stolen cheques was not sufficiently established, and the limitation argument was dismissed based on the legal enforceability of a time-barred debt under Section 25(3) of the Indian Contract Act.

Limitation and Time-Barred Debt: The Court held that a cheque issued for a time-barred debt falls within the purview of Section 25(3) of the Indian Contract Act, thereby creating an enforceable contract and satisfying the criteria of a legally enforceable debt under Section 138 of the N.I. Act.

The High Court dismissed the revision petition and upheld the conviction under Section 138 of the Negotiable Instruments Act. The accused's defenses were found inadequate to overturn the statutory presumptions favoring the complainant.

Date of Decision: March 7, 2024.

Krishna Automation & Software Solution Pvt. Ltd. vs. Balaachandra S. Mule