Wednesday, 18 March 2015

Whether accused can be acquitted in cheque dishonour case on ground that complainant has no money lending license?

Under Section 139 of the N.I. Act, there is presumption in favour of holder that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole in part of any debt or other liability. The explanation to Section 138 makes it clear that "debt or other liability" means legally enforceable debt or other liability. Under Section 118 of the N.I. Act it can legally be inferred that the cheque was made or drawn for consideration on the date which the cheque bears.
8. Thus, bearing in mind the relevant provisions of the N.I. Act, it must be emphasized that only legally enforceable debt or liability can be enforced in the proceedings under Section 138 of the said Act, because the explanation to the penal provision is abundantly clear that the dishonoured cheque must have been received by the complainant against a legally enforceable debt or liability.
9. The complainant in the present case, is a money lender who had advanced loan to the accused on the basis of the two promissory notes dated 3.2.2006 and 8.4.2006 respectively for loan of Rs. 18,000/- and Rs. 19,000/- respectively, at interest at the rate of 21 per cent per annum. It is thus case of the complainant that the accused had issued cheque No. 767789 drawn upon Canara Bank, Sadar Bazar, Nagpur for Rs. 40,000/- towards repayment of loan amount and interest. Thus, it was incumbent upon the complainant to establish the fact that she held valid money lending license in accordance with the provisions of Bombay Money Lenders Act, 1946 for the relevant period of the transaction. The complainant money lender did not produce such a valid money lending license at the time when complaint was instituted nor till it is decided although required. Furthermore, no such valid money lender's license is produced even during pendency of this Appeal. Section 10 of the Bombay Money Lenders Act, 1946 runs thus:
10(1) No Court shall pass decree in favour of money lender in any suit to which this Act applies including such suit pending in the Court before the commencement of the Bombay Money Lenders (Amendment) Act, 1975 unless the Court is satisfied that at the time when loan or any part thereof to which the suit relates was advanced the money lender held a valid license and if the Court is satisfied, the money lender did not hold a valid license, it shall dismiss the suit. The words "No court" and "in any suit" used in the Section are wider in scope to embrace any suit or proceeding initiated by a money lender who is required to hold and prove valid license for money lending for the relevant period of the loan transaction or transactions. The trial Court was, therefore, entitled to insist upon the complainant for production of valid license for money lending and also to infer in view of Section 114(g) of the Evidence Act that the document withheld was unfavourable to the complainant who withheld it. Thus, the legal position cannot be disputed that Courts are bound to dismiss the suit by money lender for recovery of loans when such money lender was found carrying on business of money lending on the date or dates of the transaction without having valid money lending license. The Court, in view of Section 10(1) of the Bombay Money Lenders Act, 1946 is bound to dismiss the suit instituted without production of valid money lending license operative at the time of suit loan transactions. In other words, a money lender can not enforce such loan transaction lawfully without production of valid money lending license operative at the time of transaction of loan to be recovered. Thus, no fault can be found with the trial Court as it was duty bound to dismiss the complaint by the complainant a money lender who was engaged in business of money lending without a valid money lending license at the time of transaction in view of clear provisions of Section 10 of the Bombay Lenders Act, 1946 as the learned Court could not have assisted the complainant to facilitate or further the illegal claim or claim prohibited by law in the complaint. Since explanation to Section 138 of the N.I. Act clearly stipulated that the debt or liability means legally enforceable debt or other liability the claim by money lender against her borrower without production of valid and operative money lending license covering period of transaction was unenforceable claim under Section 138 of the N.I. Act was bound to be dismissed. The complainant moneylender despite availing of sufficient opportunity in the trial Court could not produce valid and operative money lending license at the time of transaction of loan, hence dismissal of complaint can not be faulted as the complainant failed to establish legally enforceable debt or liability of the accused. Section 5 of the Bombay Money Lenders Act prohibits business of money lending except in accordance with terms and conditions of money lending license. In the present case, it was claimed that the loans were advanced at interest on the basis of two promissory notes executed in front of a guarantor. Thus, when transaction of money lending without valid license was prohibited by law, no court can help or assist a party money lender to enforce or recover a claim, except in accordance with law i.e. the Bombay Money Lenders Act, 1946 in this case. The complainant withheld important document without any explanation; hence presumption arose against the complainant in view of Section 114(g) of the Evidence Act for non-production of license. Learned Advocate for the appellant made a reference to ruling in Rajesh Varma v. Aminexs Holdings and Investments and Ors. 2008 (3) Mah.L.J. 460 to submit that every loan is not covered by the provisions of the Act inasmuch as Section 2(g) expressly excluded advance of any sum exceeding Rs. 3000/- made on the basis of negotiable instrument other than a promissory note. In the case in hand, the money lender had advanced loans at interest on the basis of two promissory notes hence the ruling cited can not be come to the rescue of the complainant in the facts and circumstances of the present case as the complainant could not establish legally enforceable debt or liability from the accused towards complainant. Since the complainant has failed to establish salutary or basic ingredients of offence punishable under Section 138 of the said Act or observed in Kusum Ingots 's case (supra), the complaint was rightly dismissed and the finding as to acquittal was correct and logical by the trial Court. No ground is made out so as to interfere in this Appeal. The acquittal of the accused is justified, as the cheque in question was, in fact, had not been issued for any legally enforceable debt or liability in view of the provisions of the Bombay Money Lenders Act, 1946.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 BENCH AT NAGPUR, NAGPUR.

CRIMINAL APPEAL NO:  467  /2009


Smt.Nanda w/o Dharam Nandanwar

Vs
Nandkishor s/o Talakram  Thaokar

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CORAM:  A.P.BHANGALE, J.
DATED:12th January, 2010

Citation: 2010(1)Crimes708, 2010(3)MhLj268


This Appeal   at the instance of  original complainant,  is directed 
against the  judgment  and order dated 26th March, 2009   passed by  learned 
Judicial   Magistrate   First   Class,   Nagpur         in   Criminal   Complaint   Case 
No.9037/2007, whereby the  respondent­accused was acquitted of the charge under section   138   of   the   Negotiable   Instruments   Act,   1881 (hereinafter referred to  as “ the N. I.  Act”).
The  facts in nutshell   which gave rise to this appeal are :   The 
complainant  claimed that she is carrying on the business in lending money to needy  persons.   It is  her case  that the accused had approached her on 3.2.2006  and 8.4.2006 with a  request  for loan in the sum of Rs. 18,000/­ and Rs. 19,000/­  respectively for a period  of two months and agreed to pay interest   at   the   rate   of   Rs.   21%    per   annum,  under   two   promissory   notes 
executed before a Guarantor and accepted the cash.     Further, according to the complainant,     the accused had on 17.11.2006   issued   a cheque in the 
sum of Rs. 40,000/­   towards repayment of loan amount and  part of interest. 
The cheque       bearing No.       767789       was     drawn   upon Canara Bank, 
Sadar Bazar   Nagpur.     The cheque   was presented by the complainant on 
4.5.2007  to the State Bank of Indore,  Gandhibagh, Nagpur, which came to 
be dishonoured with remarks  “funds insufficient”   as informed by the Bank, 
on   5.5.2007.       The complainant   by notice dated 21.5.2007     demanded a 
sum of Rs. 40,000/­   and  interest at the rate of  21 per cent within 15 days 
of the receipt of notice.   The accused  received the notice on 22.5.2007;   but 
did   not   repay   the   amount.   Hence   the   complainant   filed   complaint   on 
26.6.2007  in the Court of learned  Judicial Magistrate, First Class­2, Nagpur 
seeking   trial and punishment of the   accused for offence punishable under 
section 138 of the   N.I.  Act.
3.
The     accused   did   not   dispute   the   fact   that     he   had   issued   the 

cheque   under   his   signature   and     had     received   notice  (Exh.22)    from   the 
complainant;  but outrightly  denied the complaint  and  any liability  on the 
ground that the complainant was doing business of money lending   without 
any requisite  licence for money lending and that the complainant has failed 
to prove legally  enforceable  or recoverable debt  or legal liability  as against 
accused,   in view of the  provisions of  the Bombay Money Lenders Act, 1946. 
The   accused   opposed   the   complaint     stoutly   on   the   ground   that        under 

section 139   of the N.I. Act, there can not be   presumption   of pre­existing 
liability  and complainant  had  failed  to prove that the   cheque was issued 
towards legally enforceable  debt  or liability.
4. The     trial   Court,   after   considering   the   evidence   led   and 
submissions  at the Bar,   recorded finding of  “not guilty”  and  acquitted the 
accused of the offence punishable under section 138 of the N.I.  Act.
5. Learned   Advocate for the appellant,   in support of the appeal, 
submitted that the accused ought to have been convicted by the trial Court for 
offence punishable under section 138 of the N.I.  Act, since the accused had 
admitted   issuance   of   cheque   under   his   signature,       which   was   returned 
dishonoured     and     remained   unpaid.       It   is     further   contended   that     the 
complainant  was not bound   to produce money lending  license in operation. 
Learned Advocate for the appellant submitted that  the accused ought to have 
been held guilty.    According to  learned Advocate for the  appellant,  mere 
non­production of money  lending license in the trial Court,  was  cited   as 
the  prime  reason for  acquitting    the accused and, therefore, judgment and None appeared for the respondent  at the time of hearing of this 

6.order impugned,    be set aside.
Appeal.
7.
In  Krishna  Janardhan Bhat    vs. Dattatraya G. Hegde :   AIR  
2008   SC  1325,      the Apex Court in Para No.20 observed that sec.138 of 
the N.I.  Act has three  ingredients, viz:
ig
(iii)
that  there is  a legally enforceable debt;
that the cheque was drawn from the account of 
bank  for discharge in whole  or in part of any  
debt or other liability which presupposes  
legally enforceable  debt ; and,
that the cheque   so issued had been  returned 
due to insufficiency of funds.
(I)
(ii)
It is  further observed in Para  No. 21  while  considering presumption u/s 139 
of the N.I.  Act;
“Existence of legally recoverable   debt is not a matter of 
presumption in favour   of the holder of the cheque   that 
the   same   has   been   issued   for   discharge   of   any   debt   or 
other  liability”
In order to prove offence punishable under sec. 138 of the said 
Act, five ingredients are   required   to be proved as laid down by the Apex 
Court in   Paragraph No. 10    in   Kusum Ignotes and Alloys Ltd.  vs. Pennar  
Peterson Securities Ltd.:  (2002 ) 2 SCC   745.    They are  as follows :­
“(i)
A   person   must   have   drawn     a   cheque   on   an 
account  maintained     by him in a  Bank  for   payment     of 
certain amount of money to another person from   out of 
that account for the discharge   of any legally   enforceable 

(ii)
debt   or other liability.
that  cheque   has been presented to the  Bank 
within a period of six months   from the date on which it is 
drawn   or   within   the   period     of   its   validity,   whichever   is 
earlier;
(iii)
that   cheque   is   returned   by   the   Bank   unpaid, 
either because the amount of money standing to the credit 
of the account is insufficient to honour the cheque or that it 
exceeds     the     amount     arranged   to   be   paid     from   that 
(iv)

account by an agreement made with the Bank;
the payee or the holder in due     course of the 
cheque makes a   demand   for the payment   of   the said 
amount   of   money   by   giving     a   notice   in   writing   to   the 
drawer of the cheque within    15 days  of the receipt of the 
information by him  from the Bank regarding return of the 
cheque  as unpaid.
(v)
the   drawer     of     such   cheque   fails     to   make 
payment of the  said amount of money to the payee or the 
holder in due course of the cheque within 30 days   of the 
receipt of such  notice.”
Under  section  139 of the N.I.  Act,  there is presumption  in favour of holder 
that the holder  of a cheque  received the cheque   of the nature referred to in 
section 138  for the discharge,  in whole in  part of any debt or other liability. 
The explanation to section 138   makes it clear that “debt or other liability” 
means legally enforceable  debt or other liability.   Under section 118  of the 
N.I.   Act it can legally be   inferred that the cheque was made or drawn for 

Thus, bearing in mind  the  relevant   provisions of the N.I.  Act, it 
8.
consideration on the date which the cheque  bears.
must be emphasized     that only legally enforceable  debt or liability can be 
enforced in the proceedings   under section 138 of the said Act, because the 
explanation to the penal provision is abundantly clear that the dishonoured 
cheque must have   been received by the complainant against       a   legally 
The  complainant in the present case,  is a money lender who had 

9.
enforceable  debt or liability.
advanced loan to the accused on the basis of the two promissory notes  dated 
3.2.2006         and 8.4.2006   respectively     for loan of Rs. 18,000/­ and Rs. 
19,000/­ respectively,    at interest at the rate of  21 per cent per annum. It is 
thus     case   of   the   complainant     that   the   accused   had   issued   cheque     No. 
767789     drawn upon Canara Bank,    Sadar  Bazar, Nagpur  for Rs. 40,000/­ 
towards repayment   of loan amount and interest. Thus,   it   was incumbent 
upon the complainant  to establish  the fact that she held valid money lending 
license in accordance with the provisions of Bombay Money Lenders Act, 1946 
for the relevant period   of the transaction.     The complainant­money lender 
did   not   produce     such   a   valid   money   lending   license   at   the   time   when 
complaint     was   instituted     nor     till   it   is   decided   although     required. 
Furthermore, no  such valid money lender's license  is produced even during 
pendency of this Appeal.     Section 10   of the Bombay Money Lenders Act, 
1946   runs thus:

No  Court shall pass decree in favour  of money 
10(1)
lender  in any suit   to  which this  Act  applies      including 
such suit pending in the Court before  the commencement 
of  the   Bombay   Money   Lenders  (Amendment  )  Act,  1975 
unless the Court is satisfied  that  at the time  when loan  or 
any part thereof   to which the suit relates   was advanced 
the money lender held  a valid license  and if the Court is 

satisfied,   the money lender did not hold   a valid license, 
it shall dismiss  the suit.
The words “No court”    and “in any suit”   used in the Section are 
wider in scope to embrace     any suit or proceeding initiated   by   a money 
lender who is  required to hold  and prove valid license  for money lending  for 
the  relevant  period of the loan transaction or   transactions.    The trial Court 
was, therefore, entitled to insist upon the complainant  for production  of valid 
license for money lending  and also  to infer   in  view of Section 114 (g) of the 
Evidence   Act   that   the   document     withheld     was   unfavourable     to   the 
complainant who withheld it.    Thus,  the legal position cannot be  disputed 
that Courts  are bound to dismiss the suit by money lender      for recovery of 
loans when such money lender was found carrying         on business of money 
lending on the  date or dates of the transaction  without having  valid money 
lending   license.       The   Court,   in   view   of   Sec.   10(1)   of   the   Bombay   Money 
Lenders Act, 1946  is  bound to dismiss the suit instituted without production 

of     valid     money   lending   license   operative   at   the     time   of   suit     loan 
transactions.   In   other   words,   a   money   lender   can   not   enforce     such   loan 
transaction   lawfully   without     production   of   valid   money   lending   license 
operative  at the time  of  transaction of loan to be recovered.    Thus, no fault 
can     be   found   with   the   trial   Court     as   it     was   duty   bound   to   dismiss   the 
complaint by the  complainant a money lender who was  engaged    in business 
of    money   lending     without  a   valid     money  lending  license   at  the   time   of 
transaction   in view of clear provisions of Sec. 10 of the  Bombay Lenders Act, 
1946       as   the   learned   Court   could   not   have   assisted   the   complainant   to 
facilitate or further the illegal   claim or   claim prohibited  by law in the 
complaint.   Since explanation  to Sec. 138 of the  N.I.  Act clearly stipulated 
that the debt or  liability  means legally enforceable    debt or other liability the 
claim by money lender against her borrower       without production of   valid 
and operative money lending       license   covering period of transaction   was 
unenforceable  claim under  section 138  of the    N.I.  Act      was  bound  to  be 
dismissed.       The   complainant     money­lender   despite   availing   of   sufficient 
opportunity  in the trial Court could not produce valid  and operative  money 
lending   license     at   the     time   of     transaction   of   loan,     hence     dismissal   of 
complaint can not   be faulted as the complainant failed to establish legally 
enforceable    debt or  liability of the accused.    Sec. 5 of the Bombay Money 
Lenders Act prohibits     business of money lending except in accordance with 
terms and conditions of money lending license.     In the present case, it   was 
claimed that the     loans   were advanced         at interest on the basis of   two 

promissory  notes executed in front  of a  guarantor.   Thus, when transaction 
of money  lending without valid license was prohibited by law,  no court can 
help or assist  a party money lender to enforce or recover     a claim,  except in 
accordance with law i.e. the Bombay Money Lenders Act, 1946 in this case. 
The   complainant   withheld       important   document   without   any   explanation; 
hence presumption arose  against  the complainant in view of Section 114 (g) 
of the Evidence Act for non ­production of license.   Learned Advocate for the appellant   made     a   reference   to   ruling   in  Rajesh   Varma vs. Aminexs  
Holdings     and Investments  and others :  2008   (3) Mah.L.J.   460 to submit that  every loan is not covered by the provisions of the Act inasmuch as 
section 2 (g)  expressly excluded advance   of any sum    exceeding Rs. 3000/­ 
made on the basis of   negotiable instrument   other than a promissory note. 
In the  case in hand,   the money lender had advanced loans  at interest  on the 
basis of two promissory notes hence the ruling  cited can not be come to the 
rescue of the complainant in the facts and circumstances of the present case  as 
the complainant could   not establish legally enforceable debt  or liability  from 
the   accused   towards   complainant.         Since   the   complainant   has   failed   to 
establish    salutory  or basic ingredients  of offence punishable under sec. 138 
of the said Act   or observed in  Kusum Ingots 's case ( supra ), the   complaint 
was         rightly dismissed and the finding as   to acquittal   was correct and 
logical  by the trial Court.   No ground is made out so as to   interfere in this 
Appeal.  The acquittal of the  accused is  justified, as the  cheque in   question 
was, in fact,  had not been issued for any legally enforceable debt or liability 

in view of the  provisions of the Bombay Money Lenders Act, 1946. 
It would  be  pertinent to note that  business of money lending is 
10.
invalid     without   licence.       According   to   law   of     Contract,   it   would   not   be 
possible to enforce   any agreement or consideration,   the object of which is 
unlawful,   within the meaning of Section 23 of the Indian Contract Act, 1872, 
which is couched in the  following terms :­
What   considerations   and   objects   are 
“23.
unlawful, and   what not  ­     The consideration or object 
of an agreement is lawful,   unless ­
it is forbidden by law, or
is of such a nature that, if permitted, it would 
defeat   the   provisions   of   any   law;   or   is  
fraudulent; or
involves   or implies,   injury to the person or  
property  of another; or the Court  regards it as 
immoral, or opposed to public policy.
In each   of these cases, the consideration or  
object of an agreement is said to be unlawful, 
Every   agreement       of   which   the   object   or  
consideration is unlawful,is void.”
Thus,   pithily put,   the  transaction in question, is also hit by the 
provisions of Section 23 of the Indian Contract Act, 1872.
11.
Hence this   Court is of the considered view that   the complainant 
could not establish her case against the accused  so as  to bring home the  guilt 
on the part of the accused.  The cheque in question was not issued to discharge 
loan enforceable   according to law and, therefore, notwithstanding     that it 

was dishonoured by non­payment  of loan remaining unpaid despite demand 
notice in writing, it cannot  came within the purview of Section 138 of the N.I. 
Act.   As such, it would  not be possible for this Court  to reverse the acquittal 
and to fasten criminal liability upon the accused, under section 138 of the N.I. 

Act.    The Appeal is, therefore, dismissed.



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