Summary
The Supreme Court restored the conviction of a chit-fund subscriber under Section 138 of the Negotiable Instruments Act, holding that the first appellate court and the High Court erred in acquitting him on the basis of a discrepancy in the rate of interest and some claimed repayments, when the principal loans were undisputed and he had closed his account soon after issuing the cheque; the fine was fixed at one and a half times the cheque amount and, given his age, imprisonment was waived subject to payment.
Issues
- Whether a discrepancy between the interest rate in the pronotes and that applied in the complainant's statement of accounts showed that the cheque was not issued for a legally enforceable debt.
- Whether partial repayment receipts produced as additional evidence justified acquittal.
- Whether the accused could invoke the interest cap under the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 in proceedings under Section 138.
Provisions considered
- Section 138, Negotiable Instruments Act, 1881The cheque for Rs.19,00,000 issued in part discharge of loans was returned with the endorsement 'Account Closed'. Citing Dashrath Rupsingh Rathod, the Court held that issue of the cheque for unpaid loans with interest added largely settled the matter, and that the variation in the interest rate did not show the cheque was not for a legally enforceable debt. (¶¶ 4, 15, 16)
- Cap on interest on unsecured loans (12% per annum, as noted by the Court), Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003The appellate court had relied on this cap. The Supreme Court noted that even the 1.8% per month agreed in the pronotes exceeded the cap, so it was for the accused to object or approach the appropriate forum; having executed the pronotes, he could not raise the point in collateral proceedings under the N.I. Act. (¶¶ 11, 17)
- Section 391, Code of Criminal Procedure, 1973The appellate court allowed the accused to lead additional evidence of repayment under this provision; the Supreme Court noted that even then he did not produce receipts showing full discharge of the loan. (¶¶ 6, 15)
Held
- A discrepancy as to whether interest was charged at 1.8%, 2.4% or 3% per month was not enough to disbelieve the complainant's claim, since neither the pronotes nor the statement of accounts disputed the principal of Rs.14,50,000 and the pronotes did not specify the added rate payable on default. (¶¶ 15, 16)
- The accused, who denied any loan transaction before the trial court, later produced receipts of part repayment that did not show full discharge. Having admitted issuing and signing the cheque, if he claimed repayment he should have taken it back or told the bank not to honour it; closing the account within weeks of issuing it reflected adversely on his conduct and intent. (¶¶ 15, 16)
- The trial court had examined every issue in detail, whereas the appellate court and the High Court went only on the interest computation and the evidence of some repayments, which was erroneous. (¶ 16)
- A borrower who agreed to an interest rate above the statutory cap must challenge it in the appropriate forum. A chit-fund subscriber who is not a layman and executed the pronotes cannot plead the cap in collateral proceedings under the N.I. Act to defeat the cheque. (¶ 17)
- Restoring the conviction, the Court modified the sentence: fine of one and a half times the cheque amount (Rs.28,50,000), with the sentence of imprisonment waived because the respondent is 86 years old, subject to payment within eight months, failing which the one-year simple imprisonment revives. (¶ 18)
Result
Appeal allowed; appellate court's judgment and High Court's judgment set aside; trial court's conviction restored with modification: fine of Rs.28,50,000 payable within eight months, imprisonment waived subject to payment, failing which one year's simple imprisonment revives; parties to bear own costs.