What precautions the court should take while granting leave to defend in a summary suit based dishonoured cheque?

 A Summary Suit based on dishonoured cheques stands on a higher pedestal. In addition to the proof of underlying consideration, evidenced by the documents and material on record, in a given case, the plaintiff can bank upon the presumptions contained in Section 118 of the Negotiable Instruments Act, 1881 and Section 114 illustration (c) of the Indian Evidence Act, 1872.

32. A slightly distinct position of a Summary Suit based on a dishonoured cheque has been expounded by a Division Bench of this Court in the case of Rajesh Laxmichand Udeshi @ Bhatia v. Pravin Hiralal Shah8 wherein the Court adverted to the effect of the statutory presumptions under the Negotiable Instruments Act, 1881, while considering the prayer for leave to defend the suit based on a negotiable instrument.

33. The observations of the Division Bench in paragraph 14 and 15 of the said judgment are material and, hence, extracted below.-

14] When a summary suit instituted is based on a cheque which is dishonoured, effect of Sections 138 and 139 of Negotiable Instruments Act raising statutory presumption that the cheque was issued in discharge of a liability, is a relevant consideration to be kept in mind. The said Sections cast a burden upon the defendant to rebut the presumption. Summary suits instituted on cheques which are dishonoured will, therefore, stand on a higher footing than summary suits instituted on the basis of other documents. In such cases, the Court will have to take into consideration the statutory presumption which is raised when the cheques are dishonoured. The object behind providing a statutory presumption under the N egotiable Instruments Act has to be kept in mind while judging the credibility of a defence raised by the defendant in summary suit. Thus, the test of more than “shadowy” and less than “probable” as adverted to by the Apex Court cannot apply in cases where the law requires a person to explain certain state of affairs. The judgments which are relied upon by the learned counsel do not consider the effect of the statutory presumptions raised under the Negotiable Instruments Act when a cheque is dishonoured. In our opinion, when a cheque is dishonoured, the Court is enjoined with the duty to scrutinize the defence put up by the defendant with a much higher degree of care and circumspection. Such summary suits cannot be treated as on par with the cases instituted on contracts or invoices etc. where such statutory presumptions do not operate.

15] The legislative intent behind enactment of Sections 138 and 139 of the Negotiable Instruments Act is to prevent abuse of the banking system. Thus, one who issues a cheque extends a solemn promise to pay. Based on this promise and action, the recipients arrange their affairs and quite often enter into further transactions. Unless extra ordinary circumstances are made out, one who issues cheque is deemed to have undertaken to pay. Negotiable Instruments Act enforces the promise strictly by raising statutory presumption and treating it as an offence. This provision elevates a cheque to a higher status than the other instruments, such as written contract etc. to which no such statutory presumption is attached. What needs to be emphasized is that presumption in respect of a dishonoured cheque places a higher burden on the defendant to elucidate the defence than the burden which is cast on a defendant where the suit is filed on the basis of ordinary instruments. In the cases based on dishonour of cheques, the defendant must satisfy the conscience of the Court and cannot take shelter behind the rules formulated primarily in respect of suits based on ordinary instruments. The Court while exercising the discretion to grant leave or otherwise to the defendant in such cases cannot be oblivious of the legislative intent to place the promise made through a cheque on a higher pedestal than the promise made through an ordinary instrument. This is not to state that moment a Summary Suit is lodged based on a dishonoured cheque, it must be decreed without anything more. What needs to be emphasised is that the fact that there is a statutory presumption attached to the dishonoured cheque will constitute an important ingredient while considering the question whether leave to defend should be granted in cases of dishonoured cheques and the Court must scrutinise the defence strictly. The object of the summary procedure is ultimately to see that the defendant does not needlessly prolong the litigation by creating untenable, frivolous and casual defences so as to deprive the plaintiff of the monies due to him.

 In the High Court of Bombay

(Before N.J. Jamadar, J.)

Shailesh Bhagoobhai Bhoolabhai Vs  Deepak Raheja.

Summons for Judgment No. 36 of 2021,

Decided on December 15, 2022, 

Citation: 2022 SCCONLINE Bom 11643.

Read full Judgment here: Click here.

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Whether court can provide assistance for recovery of unaccounted money?

We have heard the learned Counsel for the parties. In our view the trial Court was absolutely right. The 1st Respondent is a money lender. He has admitted that he earned Rs. 30,000/- from money lending business. As a money lender he is statutorily bound, by virtue of Section 9 of the Kerala Money Lenders Act, 1958, to maintain books of accounts. His statement that he has not maintained the records which could be produced in Court is very significant. That statement coupled with the further statement that both the parties had agreed that these were to be unaccounted transactions required the Court to draw an adverse inference against him. of course under Section 118 of the Negotiable Instruments Act the Court is to presume that a negotiable instrument has been executed for consideration. However, in this case it has been established that there were chit fund transactions between the parties. It is also established that in respect of those chit fund transactions a sum of approximately Rs. 25,000/- was due and payable. It is established that that amount was not paid. It is an admitted position that No. suit was filed for recovery of that amount. Further having seen the suit promissory notes, as well as the other promissory notes, we are in agreement with the trial Court that all of them appear to have been got executed on the same day. All of them are in same hand writing and in the same ink. It is impossible to believe that over a period of two years the same pen could have been continued to be used. It is thus clear that these documents were got executed at the time that the chit fund transactions were being entered into by the parties. This rebuts the presumption that any consideration had flown under these transactions. In these circumstances it was absolutely necessary for the 1st Respondent to produce his books of accounts particularly as he has admitted that he was doing money lending business.

13. There is any reason also why the impugned judgment cannot be upheld. According to the 1st Respondent these transactions were to be unaccounted transactions. According to the 1st Respondent, all these amounts are paid in cash. If these are unaccounted transactions then they are illegal transactions. No. court can come to the aid of the party in an illegal transaction. It is settled law that in such cases the loss must be allowed to lie where it falls. In this case as these are unaccounted transactions, the Court could not have lent its hands and passed a decree. For these reasons also the suit was required to be dismissed.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 4101-4102 of 1998

Decided On: 31.03.2004

 G. Pankajakshi Amma and Ors.
Vs.
 Mathai Mathew (D) thr. L.Rs. and Anr.

Coram:
S.N. Variava and H.K. Sema, JJ.

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