A) ABSTRACT / HEADNOTE

This case revolves around a dispute under Section 138 of the Negotiable Instruments Act, 1881. The respondent, a subscriber of the appellant chit fund company, issued a cheque for ₹19,00,000 to partly discharge a loan of ₹21,09,000. However, the cheque was dishonored with the endorsement “Account Closed.” The trial court convicted the respondent, sentencing him to imprisonment and compensation payment, but the appellate court and the High Court acquitted him. The Supreme Court reinstated the trial court’s findings, holding that discrepancies in interest rates do not undermine the claim of liability. The respondent’s closure of the bank account shortly after issuing the cheque was deemed suspect, warranting restoration of the trial court’s decision with modifications.

Keywords: Negotiable Instruments Act, cheque dishonor, rate of interest discrepancy, liability discharge, Tamil Nadu Prohibition Act.

B) CASE DETAILS

i) Judgment Cause Title: Sri Sujies Benefit Funds Limited v. M. Jaganathuan

ii) Case Number: Criminal Appeal No. 3369 of 2024

iii) Judgment Date: 13 August 2024

iv) Court: Supreme Court of India

v) Quorum: Hon’ble Justice Hima Kohli and Hon’ble Justice Ahsanuddin Amanullah

vi) Author: Justice Ahsanuddin Amanullah

vii) Citation: [2024] 8 S.C.R. 322

viii) Legal Provisions Involved:

• Negotiable Instruments Act, 1881 – Section 138
• Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003
• Code of Criminal Procedure, 1973 – Section 391

ix) Judgments Overruled by the Case (if any): None explicitly overruled.

x) Case is Related to which Law Subjects: Criminal Law, Negotiable Instruments Act, Commercial Law, Contract Law.

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

This case examines the scope and application of Section 138 of the Negotiable Instruments Act, 1881 concerning cheque dishonor. The respondent, engaged in a financial transaction with the appellant chit fund, issued a cheque, which was dishonored due to the closure of the bank account. The trial court’s conviction was reversed by the appellate and High Courts, leading to the Supreme Court’s intervention.

D) FACTS OF THE CASE

1. The respondent borrowed various sums amounting to ₹21,09,000 from the appellant chit fund company over two years.
2. The loans were documented through promissory notes and carried interest rates ranging between 1.8% and 3% per month.
3. On February 3, 2003, the respondent issued a cheque for ₹19,00,000, which was dishonored on February 5, 2003, with the endorsement “Account Closed.”
4. The appellant initiated proceedings under Section 138 of the Negotiable Instruments Act, 1881.
5. The trial court convicted the respondent, sentencing him to one year of simple imprisonment and imposing a compensation of ₹38,00,000.
6. The appellate court, followed by the High Court, acquitted the respondent, emphasizing discrepancies in interest rates and partial repayments.
7. The Supreme Court analyzed the facts, evidence, and applicable laws to restore the trial court’s judgment with modifications.

E) LEGAL ISSUES RAISED

i) Primary Issue: Whether discrepancies in interest rates (1.8%, 2.4%, or 3% per month) invalidate the appellant’s claim under Section 138.

ii) Secondary Issue: Whether the respondent could be acquitted based on partial repayments and alleged non-conformity with the Tamil Nadu Act.

F) PETITIONER/APPELLANT’S ARGUMENTS

1. The appellant argued that issuance of the cheque establishes a presumption of debt under Sections 138, 139, and 118(a) of the Negotiable Instruments Act, 1881.
2. The discrepancies in interest rates were irrelevant to the liability under the cheque, which was a legally enforceable debt.
3. The appellate court and High Court erred in focusing on secondary issues rather than the respondent’s obligation to honor the cheque.
4. The closure of the respondent’s account shortly after issuing the cheque demonstrated a deliberate attempt to evade liability.
5. The appellant further challenged the interpretation of the Tamil Nadu Act, arguing that the respondent’s consent to higher interest rates undermined his claims.

G) RESPONDENT’S ARGUMENTS

1. The respondent contended that there was no legally enforceable debt due to discrepancies in the stated interest rates.
2. The respondent presented additional evidence of partial repayments, which the appellate court accepted as sufficient to question the debt’s enforceability.
3. It was argued that the Tamil Nadu Act prohibited the exorbitant interest rates charged by the appellant, rendering the loan agreements voidable.
4. The respondent emphasized that proceedings under Section 138 are summary in nature and require strict scrutiny of evidence to prevent injustice.

H) RELATED LEGAL PROVISIONS

i) Negotiable Instruments Act, 1881:

• Section 138: Defines dishonor of cheque for insufficiency of funds or account closure.
• Section 139: Presumption in favor of the holder of the cheque.
• Section 118(a): Presumption regarding consideration.

ii) Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003: Limits permissible interest rates to 12% per annum.

iii) Code of Criminal Procedure, 1973 – Section 391: Allows appellate courts to accept additional evidence.

I) JUDGMENT

a. Ratio Decidendi

1. Issuance of a cheque raises a presumption of liability under Section 138 of the N.I. Act.
2. Discrepancies in interest rates do not absolve the respondent of liability if the principal debt remains undisputed.
3. Closure of the respondent’s bank account immediately after issuing the cheque demonstrated mala fide intent.

b. Obiter Dicta

1. Parties agreeing to higher interest rates must seek remedies under civil or regulatory proceedings, not through Section 138.
2. The Tamil Nadu Act’s applicability to the transaction was immaterial in the context of criminal liability under the N.I. Act.

c. Guidelines

1. Trial courts must focus on primary issues of liability under Section 138 rather than collateral civil disputes.
2. Respondents claiming repayments must provide conclusive evidence to rebut statutory presumptions.

J) REFERENCES

Important Cases Referred:

1. Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129
2. Kumar Exports v. Sharma Carpets (2009) 2 SCC 513

Important Statutes Referred:

1. Negotiable Instruments Act, 1881
2. Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003
3. Code of Criminal Procedure, 1973