Proceedings U/S 138 N.I. Act Justified In Cases Arising From Commercial Transactions Regardless Of Their Civil Nature: J&K High Court

A bench of Justice Sanjay Dhar explained that since cheque bounce cases stem from commercial transactions between parties. Chapter XVII of the Negotiable Instruments Act, which outlines penalties for cheque dishonour due to insufficient funds would apply to bolster the reliability of cheques in commerce and safeguard honest chequeholders from undue harassment.

The case originated when the respondent filed a complaint under Section 138 of the N.I. Act against petitioner Abdul Rashid Yatoo, alleging that Yatoo had issued two cheques in connection with a land sale transaction. When presented for encashment, both cheques were returned due to insufficient funds, prompting Malik to serve a notice of demand. Despite this, Yatoo failed to clear the cheque amounts, leading Malik to file the complaint.

The trial Magistrate after recording satisfaction that, prima facie, offence under Section 138 of N. I. Act was made out against the petitioner, issued process against him.

Aggrieved of the same Yatoo, contended that the complaint was baseless as the transaction was purely civil in nature. Yatoo argued that the cheques were issued in good faith as security pending the execution and registration of sale documents.

He further claimed that the respondents' failure to adhere to the terms of the agreement led to the cheques bouncing, asserting that there was no enforceable debt and accusing the respondent of misusing the security cheques.

After a thorough examination of the case, the Court reiterated the essential elements required for an offence under Section 138 of the N.I. Act, including the issuance of a cheque, its presentation within three months, its dishonour due to insufficient funds, the service of a demand notice, and the failure to pay the cheque amount within fifteen days of receiving the notice.

The Court noted that Section 139 of the N.I. act raises a rebuttable presumption in favour of the payee and observed,

“There is no denial to the fact that the cheques in question were dishonoured due to insufficiency of funds. According to the impugned complaint, the notice of demand was served upon the petitioner but he failed to pay the amount of the cheques. Thus, presumption under Section 139 of the N. I. Act arises in favour of the respondent and against the petitioner”

Addressing the petitioner's contention of commercial transaction basis the Court emphasized that every cheque bounce case emanates from a commercial transaction and the provisions of Chapter XVII of the N.I. Act are designed to enhance the acceptability of cheques in commercial dealings and to prevent harassment of honest chequebearers. Thus, the Court dismissed the argument that the proceedings under Section 138 would not lie due to the civil nature of the transaction.

Dealing with the contention of the validity of the trial magistrate's order of being cryptic in nature the Court found that the trial Magistrate had indeed applied his mind to the material on record.

Although the order was brief, it clearly reflected the Magistrate's satisfaction that a prima facie offence under Section 138 was made out the court said and held that it is not a legal requirement for the Magistrate to elaborate on all allegations in the order for issuing process, as long as the application of mind is evident.

In alignment with these observations, the court dismissed the petition.

Case Title: Abdul Rashid Yatoo Vs Abdul Gani Malik

Citation: 2024 LiveLaw (JKL) 218

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