Failed To Establish That Entire Amount Under Post-Dated Cheques Was A Legally Enforceable Debt: Supreme Court Sets Aside Order Enhancing Fine In Cheque Bounce Case

The challenge in the appeals before the Apex Court was laid to the judgment of the Karnataka High Court, whereby the criminal revision petitions filed by the appellant were dismissed.

The Division Bench comprising Justice Vikram Nath and Justice Sandeep Mehta held, “In this background, the appellant-accused was definitely not liable to refund the entire security deposit amount of Rs.9,00,000/- covered by the post-dated cheques, to the respondent-complainant because he was entitled to deduct the amount of due rent and maintenance from the said amount. Hence, the respondent-complainant failed to lead evidence to conclusively establish that the entire amount under the post-dated cheques was a legally enforceable debt against the appellant accused.”

Advocate Ashwin V. Kotemath represented the Appellant while Advocate Aravindh S. represented the Respondent.

Factual Background

The appellant-accused and respondent entered into a lease-cum-rent agreement for a flat owned by the appellant-accused. The respondent-complainant deposited a sum of Rs.9,00,000 with the appellant-accused by way of a ‘security deposit’. The rent for the subject flat was settled at Rs.2,500 per month as per the rent agreement which was valid for 11 months and was to terminate on April 11, 2015, whereupon the appellant-accused would be required to refund the security deposit of Rs.9,00,000 and collect the keys and receive vacant possession of the said flat from the respondent-complainant. Upon completion of 11 months, the respondent-complainant issued a notice to the appellant-accused, imploring him to refund the security deposit amount. However, the appellant-accused could not arrange the said amount, and thus, he issued four post-dated cheques to the respondent-complainant.

The Trial Court convicted the appellant-accused under Section 138 of the NI Act for the dishonour of four post-dated cheques totalling an amount of Rs.9,00,000, which were issued by him in favour of the respondent-complainant and, on presentation, had been dishonoured with an endorsement ‘funds insufficient’. The High Court rejected all the Revision Petitions filed by the appellant, upheld his conviction under Section 138 of the NI Act and also directed the accused to pay a fine amount of Rs 9,00,000 to the respondent-complainant. Aggrieved thereby, the appellant approached the Apex Court.

Arguments

One of the arguments raised by the Appellant was that the respondent-complainant admittedly continued to occupy the flat owned by the appellant-accused without paying any rent for nearly 5 years. Hence, the conviction of the appellant-accused for failing to refund the cheques given for covering the security deposit amount was absolutely unjustified because the case set up by the respondent-complainant did not satisfy the parameters of a legally enforceable debt against the appellant-accused so as to make him liable for the offence punishable under Section 138 of the NI Act.

Reasoning

On a perusal of the facts of the case, the Bench noticed that upon completion of the tenure of the lease, the appellant-accused issued a legal notice calling upon the respondent-complainant to vacate and hand over the vacant possession of the subject flat, but the respondent-complainant did not vacate the same. As a consequence, the appellant-accused filed a suit seeking ejectment of the respondent-complainant from the subject flat and for damages.

Despite the decree passed in favour of the appellant-accused, the respondent-complainant failed to vacate the subject flat on which the appellant-accused, being the decree-holder, was compelled to institute execution proceedings. In compliance with an order of the Small Causes Court, the locks were broken, and possession of the subject flat was handed over to the appellant accused(decree holder).

The Bench further noticed that the respondent-complainant in his cross-examination before the Trial Court had admitted that he had not vacated the subject flat till the date of his examination. “Hence, it is as clear as daylight that the respondent-complainant continued to occupy the subject flat, for a period of nearly 5 years beyond the last date of the rent agreement without paying any rent or maintenance amount”, it said.

The Bench thus noted that the appellant-accused was not liable to refund the entire security deposit amount of Rs 9,00,000 covered by the post-dated cheques as he could deduct the amount of due rent and maintenance from the said amount. As per the Bench, the respondent-complainant failed to establish that the entire amount under the post-dated cheques was a legally enforceable debt against the accused appellant.

Thus, partly allowing the appeals, the Bench set aside the judgment of the High Court and restored that of the Trial Court. The Apex Court directed that the sum of Rs. 3,00,000 by way of compensation shall be paid to the respondent-complainant. The remaining amount over and above the sum of Rs.3,00,000 awarded to the respondent-complainant by way of compensation shall be reimbursed to the appellant-accused.

Cause Title: M.S. Nagabhushan v. D.S.Nagaraja (Neutral Citation: 2025 INSC 316)

Appearance:

Appellant: Advocate Ashwin V. Kotemath, AOR Harisha S.R.

Respondents: Advocate Aravindh, S, AOR A. Lakshminarayanan, Advocates M. Munusamy, U Kathiravan

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