In a significant ruling, the Supreme Court has overturned the acquittal of a man convicted under Section 138 of the Negotiable Instruments (NI) Act, 1881, for cheque dishonour. The Court stated that once a person admits to handing over a signed cheque with an amount written on it, they cannot later dispute the interest rate as a defence against prosecution.
The case involved a respondent who had issued a cheque worth Rs. 19 lakhs to a chit fund company as payment for outstanding dues. When the cheque was presented, it was returned with the remark “Account Closed.” Although the trial court convicted the respondent under Section 138 NI Act, both the appellate court and the High Court later acquitted him, leading the chit fund company to appeal to the Supreme Court.
The appellate court had acquitted the accused by determining that the interest was incorrectly calculated at 3% per month instead of 1.8% per month. However, the chit fund company contended before the Supreme Court that the correct interest rate, according to their Statement of Accounts, was 3% per annum.
The Supreme Court held that the interest rate dispute was not crucial since the respondent had admitted to executing the cheque. The Court also found the respondent’s action of closing the bank account immediately after issuing the cheque to be suspicious.
“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, referencing the precedent set in Dashrath Rupsingh Rathod v State of Maharashtra (2014), which ruled that the offence under Section 138 NI Act occurs upon cheque dishonour.
The bench, comprising Justices Hima Kohli and Ahsanuddin Amanullah, stated that even though the interest was calculated at 3% instead of 1.8% per month, it did not change the fact that the cheque was meant for repaying the principal amount. The Court pointed out that neither the promissory notes nor the Statement of Accounts disputed the principal amount, and the cheque amount, whether calculated with 1.8% or 3% interest per month, was intended for loan repayment.
The Supreme Court criticised the lower courts for focusing too much on the interest rate rather than the total amount owed, as reflected in the cheque. The judgement, authored by Justice Ahsanuddin Amanullah, emphasised that when the respondent admitted to handing over and signing the cheques, it was his responsibility to retrieve them or instruct the bank not to honour them if he had repaid the amount.
Additionally, the Court dismissed the respondent’s argument that the 3% monthly interest (36% annually) breached the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003. The Court ruled that the respondent could not raise this issue during proceedings under the NI Act after having agreed to the terms in the promissory notes.
Ultimately, the Supreme Court ordered the respondent to pay a fine amounting to one and a half times the cheque’s value, totaling Rs. 28.5 lakh. Considering the respondent’s age 86 years and his personal circumstances, the Court waived the imprisonment sentence, provided the fine is paid within eight months. If the respondent fails to pay, a one-year simple imprisonment sentence will be enforced.
