section 138 dishonour of cheque

By | August 19, 2015

Q Whether Cheque issued against supply of material can be stopped for payment  without proving that goods supplied were  of inferior quality ?

Negotiable Instruments Act : Where accused failed to prove that goods supplied by complainant were of inferior quality, accused was guilty of commission of offence under section 138 on dishonour of cheque issued by it in discharge of its liability towards goods supplied

HIGH COURT OF DELHI

Indian Micro Electronics (P.) Ltd.

v.

Chandra Industries

VIPIN SANGHI, J.

CRL.L.P. NO. 233 OF 2014

JUNE  30, 2015

FACTS

■  The complainant company was dealing in manufacture of different kinds of goods and allied products.

■ The respondent company/accused No. 1 placed orders between the period of September, 2007 to February, 2008 for supply of goods.

■ The accused No. 1 firm was supplied the goods/materials as per the purchase orders through one ‘P’ (accused no. 2) and ‘G’ (accused no. 3); the goods were lastly supplied on 25-2-2008; Form-C were issued by the accused on 26-2-2008; the partner of the accused signed the accounts statement; the accused made payment of part of sum leaving an outstanding balance.

■   To discharge the remaining liability, the accused issued two cheques.

■ The first cheque was cleared, but the second cheque dated 25-6-2008 drawn on State Bank of India, SSI Branch, Baddi, Solan, Himachal Pradesh was dishonoured for reason of ‘payment stopped by drawer’.

■         The cheque was issued by accused no. 2, disclosing himself to be a partner of the accused firm.

■    The complainant sent a legal notice dated 5-7-2008 through registered post to the accused. The accused firm replied to the legal notice and raised a dispute with regard to the quality of the goods supplied.

■     The accused firm failed to pay the amount of the cheque within the statutory period, and accordingly, the complaint under section 138 was preferred by the complainant/appellant.

■      The defence of the accused, firstly, was that the accused firm had issued two post dated cheques of Rs. 2 lakhs each, which were to be encashed on the condition that the quality and quantity of the material supplied by the complainant was confirmed/approved by the accused firm. Secondly, it was urged that since the quality of the material supplied by the complainant was not of the requisite standard, and was found to be defective after inspection; the goods were rejected by the accused firm. Consequently, the payment was stopped by the accused firm. Accused claimed that when cheque is dishonoured for the reason ‘payment stopped’ and the reason for stopping the payment was valid, it did not amount to dishonour of cheque under section 138.

■         The Trial Court accepted the defence of the accused. It held that the accused had managed to rebut the presumption raised under section 139.

■         The Trial Court observed that the accused managed to rebut the presumption by proving that there were sufficient funds in its bank account to discharge the said liability, and that the ‘stop payment’ was for a valid reason.

■         On appeal:

HELD

■         It is admitted by the accused firm that the aforesaid cheque dated 25-6-2008 had been issued by them, thus, raising the presumption under section 139. It is settled law that the burden to rebut the presumption under section 139 is on the accused. The defence of the accused, to rebut the presumption, has to be tested on the touchstone of ‘preponderance of possibilities’, whereas the complainant has to prove its case beyond reasonable doubt. It has also repeatedly been held that the accused can rely on the evidence brought on record by the complainant to rebut the presumption, and it is not always necessary that the accused has to lead its own evidence to substantiate its defence. [Para 20]

■         The first and primary issue that needs consideration is whether the accused were justified in giving stop payment instructions in relation to the cheque in question. For this, the justification offered by the accused needs examination. The accused had to establish – as probable, its defence that the materials supplied were of inferior quality. [Para 21]

■         It is not in dispute that the parties had business transactions, and that the complainant company had been supplying material/PCBs since 2007, nor had the accused firm claimed that the materials supplied earlier were ever found to be of inferior quality. It is only when the cheque dated 25-6-2008 was dishonoured, that the accused firm took the plea – for the first time, in its reply to the legal notice, that the goods supplied were of inferior quality and therefore, the payment was stopped. [Para 22]

■         From the testimony, it is evident that the AR of the accused firm has claimed that the materials supplied were of inferior quality. He, upon being cross-examined, stated that no documents to this effect had been placed on record by him, nor has he provided a date when the fault in the materials was detected by the accused firm. In order to prove that the materials were defective, and the accused was justified in stopping payment of the cheque in question, the accused was obliged to lead evidence in this regard. However, DW-2 himself admitted that no documents in this regard have been put on record. [Para 24]

■         The accused firm claimed that it suffered losses due the inferior quality of the materials supplied. However, the accused did not produce any statements of accounts or other evidence to show the losses allegedly incurred by the firm on account of supply of defective or inferior goods. The accused have neither preferred a counter-claim in the suit of the complainant, nor preferred any other civil suit to claim the alleged losses from the complainant. The defence of the accused firm, that it suffered losses due to the inferior quality of materials is its mere ipse dixit. In absence of any credible evidence to prove the same, it cannot be accepted. [Para 26]

■         Further, DW-2 in the testimony dated 6-4-2013 has stated that after repeated reminders, one S a technical expert of the complainant company visited the accused firm on 26-3-2008, and confirmed ‘the problem and faulty nature of the said PCB’S’. DW-2 has brought an extract from the visitor’s entry register (Mark DW2/A) to prove that the said S had visited the premises of the accused firm on 26-3-2008. While, the said document shows that S had visited the premises of the accused firm, there is nothing on record to establish that S visited the accused firm in relation to any issue of Inferior quality or defect in the goods, much less to establish that he agreed that the supplied goods were defective or inferior. Mere entry in the visitor’s register does not establish – even as a probable case, that the visit was for the aforesaid reason, or that the goods were found to be, or acknowledged to be defective/ inferior. Since the accused firm has brought no evidence on record to prove that S visited the accused firm to assess the quality of the material supplied, or that he acknowledged that the quality of the goods supplied was defective or inferior, the entry of visit of S relied upon is of no avail. [Para 27]

■         Further, the accused firm has claimed that it sent repeated reminders to the complainant company regarding the inferior quality of the materials supplied. The accused contended that after the visit of S an e-mail dated 7-6-2008 was sent to the complainant company informing them of the defective nature of the materials supplied. [Para 28]

■         The copy of the e-mail dated 7-6-2008 is a print-out copy of the e-mail allegedly sent by the accused. Being an electronic record which is printed out on paper, it is required to have a certificate under section 65B of the Evidence Act, which the e-mail (Mark DW2/B) does not have.

■         Thus, for an electronic evidence to be admissible as evidence, it is required to have a certificate in accordance to the section 65B. The certificate under section 65B assures its authenticity. Since, the copy of the e-mail dated 7-6-2008 is not certified in terms of section 65B, it is not admissible evidence and cannot be relied upon by the accused. Consequently, as the only evidence provided by the accused to prove that it intimated the complainant company regarding the inferior quality of the supplied materials is inadmissible; its defence is not substantiated. [Para 29]

■         There is no explanation as to why, in respect of goods supplied lastly on 25-2-2008, no recorded or acknowledged communication was issued, recording the factum of the goods being defective/ inferior in quality. There is no explanation as to why the cheque in question was issued, if the goods were allegedly defective/inferior in quality. The accused have not established on record that the cheque in question was issued even prior to the delivery of the allegedly defective goods. [Para 30]

■         The presumption under section 139 arose in the facts of the present case. For the said presumption to be rebutted, the defence had to meet the standard of being probable upon preponderance of probabilities – as observed by the Supreme Court in various judgments. The accused has not managed to rebut the said presumption. The defence taken by the accused was that the materials supplied were of inferior quality. From the abovementioned discussion, it is established that the accused has not managed to show, even as probable, its defence that the complainant company supplied materials of inferior quality. Thus, the presumption under section 139 is also not rebutted. [Para 31]

■         The accused firm has not been able to establish that it had a ‘valid reason’ for stopping the payment of the cheque. The Trial Court’s conclusion with regard to the facts is palpably wrong and the impugned judgment is likely to result in grave miscarriage of justice. The entire approach of the Trial Court in dealing with the case is patently illegal and Trial Court judgment is manifestly unjust and unreasonable. The Trial Court has ignored the evidence and misread the material evidence while coming to its conclusion that the accused had raised a probable defence by offering good justification for stopping payment of cheque in question. The present is, therefore, a fit case for interference by the Court.

■         The finding of the MM that no offence under section 138 is made out in the facts of the present case is made out in the facts of the present case is, therefore, set aside. The appellant complainant has been able to establish the commission of the offence under section 138 beyond all reasonable doubt. [Para 32]

■         The accused have brought on record a copy of the Partnership Deed dated 22-11-2006 and a copy of supplementary Partnership Deed dated 23-10-2009. The complainant has claimed that accused no. 2 P was the signatory of the cheque. Whereas, the AR of the accused firm DW-2, in his cross-examination dated 24-10-2013 deposed that his father R has also signed the cheque in question at point A. On perusal of the aforesaid mentioned partnership deeds it is noted that accused no.2, namely P, does not appear to be a partner of the accused firm. The Partnership Deeds mention names of one R, party no. 1, and S, party no. 2, as partners of the accused firm. There is no mention of the accused no. 2 in the said partnership deeds as a partner or even a manager. Thus, it is concluded that he was not a partner of the accused firm. The appellant has not established on record that accused no. 2 is the signatory to the cheque. Since the complainant company has also not produced any evidence to establish that accused No.2 was in charge of, or responsible to the accused firm for the conduct of the business of the firm, as well as to the firm, accused no. 2 stands acquitted. [Para 33]

■         It is an admitted position that accused no. 3 placed the orders on behalf of the accused firm between September, 2007 and February, 2008. The cheque dated 25-6-2008 was dishonoured, and a legal notice dated 5-7-2008 regarding the same was sent to the accused no. 3, as well as the accused firm. He left the accused firm only in January, 2009. Therefore, the accused no. 3 was a part of the accused firm when the offence was committed, upon dishonour of the cheque. Since the accused no. 3 was purchase manager, who placed the orders on behalf of the accused and was working in accused firm when the cheque was dishonoured, he was responsible for conduct of business of the accused firm at the time of commission of the offence. Being the purchase manager, he would have been aware of the execution of the purchase transactions/ orders with the vendors of the accused firm. As a purchase manager, his responsibility would not be limited to just place orders for purchases, but to ensure fulfilment of all obligations qua the purchase orders by both – the seller and the purchaser. Accused No.3 cannot be heard to say that he was not concerned with the payment aspect, and was only concerned with placement of purchase orders. To an outsider, like the complainant, Accused No.3 was the face of the accused firm. Since he displayed his authority and responsibility to place binding purchase orders, he cannot avoid his liability of being held responsible for payment of the amount due by the firm, regarding the supplies made, as there is nothing to show that he had put the complainant to notice, that he is not responsible for the payment being released by the accused firm, on whose behalf he had placed the purchase orders. In the light of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 63 SCL 93 (SC), it is established that accused no. 3 would be vicariously liable as he was responsible for conduct of the business of the accused firm at the relevant time. [Para 36]

■         In view of the aforesaid discussion, the impugned judgment of acquittal qua the accused firm and accused No.3 is, accordingly, set aside. The accused no. 2 stands acquitted. The accused no. 1 and accused no. 3 are found guilty of commission of the offence under section 138. [Para 37]

■         The appeal is, accordingly, partially allowed. [Para 38]

 

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