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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Under which circumstances defendant is not entitled to get leave to defend the Summary suit qua the interest component?

  Even the endeavor of Mr. Momaya to seek leave to defend by canvassing a submission that plaintiff has charged interest at an exorbitant and unconscionable rate does not advance the cause of the defendant. The plaintiff is seeking pre-suit, pendent lite, and future interest at the agreed rate of 12% per annum. In a business transaction in a commercial city like Mumbai, interest at the rate of 12% per annum can not be said to be exorbitant and unreasonable. Moreover, in the case at hand, there is an unequivocal undertaking to pay interest. In any event the award of interest on the amount covered by dishonoured cheques would be governed by the provisions contained in Section 80 of the Negotiable Instruments Act, 1881, which stipulates rate of 18 % per annum. Therefore, I am not persuaded to accede to the submission on behalf of the defendant to grant leave to defend the suit qua the interest component. {Para 35}

 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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Questions and answers on law Part 8

Q1)Who is holder in due course of negotiable instruments?

Ans :-Central Government Act

Section 9 in The Negotiable Instruments Act, 1881

9. “Holder in due course”.—“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if 1[payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

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Procedure to be followed by Court in Complaint U/S 25 of Payment and Settlement Systems Act 2007

Section 25 of The Payment and Settlement Systems Act, 2007

25 Dishonour of Electronic Funds Transfer for insufficiency, etc., of funds in the account. 

(1) Where an electronic funds transfer initiated by a person from an account maintained by him cannot be executed on the ground that the amount of money standing to the credit of that account is insufficient to honour the transfer instruction or that it exceeds the amount arranged to be paid from that account by an agreement made with a bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the electronic funds transfer, or with both: Provided that nothing contained in this section shall apply unless

(a) the electronic funds transfer was initiated for payment of any amount of money to another person for the discharge, in whole or in part, of any debt on other liability;

(b) the electronic funds transfer was initiated in accordance with the relevant procedural guidelines issued by the system provider;

(c) the beneficiary makes a demand for the payment of the said amount of money by giving a notice in writing to the person initiating the electronic funds transfer within thirty days of the receipt of information by him from the bank concerned regarding the dishonour of the electronic funds transfer; and

(d) the person initiating the electronic funds transfer fails to make the payment of the said money to the beneficiary within fifteen days of the receipt of the said notice.

(2) It shall be presumed, unless the contrary is proved, that the electronic funds transfer was initiated for the discharge, in whole or in part, of any debt or other liability.

(3) It shall not be a defence in a prosecution for an offence under sub-section (1) that the person, who initiated the electronic funds transfer through an instruction, authorization, order or agreement, did not have reason to believe at the time of such instruction, authorization, order or agreement that the credit of his account is insufficient to effect the electronic funds transfer.

(4) The Court shall, in respect of every proceeding under this section, on production of a communication from the bank denoting the dishonour of electronic funds transfer, presume the fact of dishonour of such electronic funds transfer, unless and until such fact is disproved.

(5) The provisions of Chapter XVII of the Negotiable Instruments Act, 1881 (26 of 1881) shall apply to the dishonour of electronic funds transfer to the extent the circumstances admit. Explanation. For the purpose of this section, debt or other liability means a legally enforceable debt or other liability, as the case may be.

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Good legal article on Negotiable Instruments (Amendment) Act, 2018’

With the latest ‘The Negotiable Instruments (Amendment) Act, 2018’ being notified on 02-08-2018.

The following amendments have been made —

With respect to the Section 143 — now introduces a new proviso 143A, giving power to a Court to try an offence under S. 138 to order the drawer of cheque to pay interim compensation to the complainant in summary trials/summons case where he pleads not guilty to the accusations in the complaint. Furthermore, the interim compensation shall not exceed 20 % of amount of the cheque and shall be payable within 60 days from date of the order.

Recovery of fine shall be same as under Section 421 of the Code of Criminal Procedure, 1973.

In cases of acquittal, the Court is now empowered to direct the complainant to repay to the appellant the amount so released, at interest rates as prescribed by RBI.

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How to appreciate evidence in suit for recovery of money based on Bahi Khata?

The case of plaintiff is that the defendant in token of
acknowledgment made bahi entry of the plaintiff. The alleged entry
has been stamped and even signatures are obtained on revenue

stamp. Plaintiff has not produced the bahi itself. He has produced
only a folio i.e. one page of the bahi.
[11]. The fact shows that plaintiff maintains a bahi. The
production of one page i.e. folio from the original bahi has to be
proved by the plaintiff himself with regard to continuity of pages. It is
not the case of plaintiff that it was the only entry appearing in the
bahi which is subject matter of the present suit. In the absence of
such averment, bahi pre-supposes maintenance of account book of
monetary advances made by plaintiff in the capacity of professional
money lender.
 Since onus of issue No.1 was on the plaintiff and he has
failed to discharge the same, therefore, he is not entitled to any
decree for recovery of the amount. The defendant has specifically
pleaded in the written statement that he has not signed any bahi
entry, rather his signatures have been obtained when he was in the
state of intoxication. Since the plaint does not contain any name of

the person who scribed the bahi entry, therefore, evidence of Satbir
Singh has to be treated out of context being beyond pleadings.
[14]. The signature appearing on the alleged bahi entry in Hindi
and his signatures on affidavit and statement in the Court in English
further aggravates the plea of the plaintiff and creates suspicion
whether Satbir Singh is the same person who allegedly signed the
bahi entry and has also appeared in the witness box. Father's name
of Satbir Singh further adds to the mystery as to whether he is son of
Bharat Singh-plaintiff or somebody else? Since the plaintiff has not
removed the cloud in his evidence, rather much of the evidence of
plaintiff is beyond the pleadings.
In respect of questions of law it is relevant to highlight that
mere exhibition of document does not dispense with proof of
execution. The name of the scribe as shown in the document has not
been pleaded by plaintiff in the plaint. Moreover the scribe who
allegedly prepared the bahi entry has signed the same in Hindi
whereas while appearing as witness his signatures are appearing in
English on affidavit as well as on the statement. There is no mention
about the scribe that he used to sign in both languages i.e. in Hindi
as well as in English. The pleadings in bahi entry as well as in the
plaint are at variance inasmuch that in the bahi entry, recital has
been made that amount would be repaid in the month of Jeth,
whereas there is no such averment mentioned in the plaint.
[17]. In view of aforesaid, bahi entry Ex.P1 is surrounded by
mysterious circumstances, hence cannot be read in evidence.

IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
RSA No.1454 of 2011
Date of Decision: 28.08.2015

Bharat Singh  Vs  Ram Chander 

CORAM:  MR. JUSTICE RAJ MOHAN SINGH
Citation:AIR 2016 (NOC) 654 P&H

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