Cheque Issued By Vendor To Buyer Of Property As Security Towards Pending Litigation On Property Is Not ‘Legally Enforceable Debt’: Karnataka HC

The Karnataka High Court has observed that a cheque issued by a vendor to a buyer of the property as security towards pending litigation on the property is not a legally enforceable debt and therefore does not fall under the ambit of Section 138 of the Negotiable Instrument Act, 1981 (Act). 

Justice Rajesh Rai K noted, "In the present case, the accused has put forward such probable defence. As such, it creates doubt about the existence of legally enforceable debt or liability...In the case on hand, by perusal of the evidence and material on record, it is clear that the cheque was issued in respect of uncertain future liabilities as a security cheque. Hence, the same does not attract the provision under Section 138 of the Act".

Advocate M.A. Sebastian appeared for the Appellant and Advocate Chandrashekar appeared for the Respondent. 

The Respondent/Accused sold a piece of land (disputed property) to the Appellant/Complainant claiming to be the owner, but later another person, A. Sadhana, claimed to be an absolute owner of the property. Sadhana alleged that the Respondent had misrepresented the facts and sold the property without disclosing that it had a defective title. The Appellant eventually discovered the fraud and requested a refund, but the Respondent's check bounced. A legal notice was then issued, and the Respondent denied any liability. A Criminal Appeal was, therefore, filed challenging the impugned judgement of the Trial Court, wherein the Court acquitted the Respondent under Section 138 of the Act. 

The Court observed that the Appellant has purchased a disputed property from the Respondent, who later issued a cheque to the Appellant. The Court noted that the Appellant failed to prove how she suffered loss or that the cheque by the Respondent was a legally enforceable debt. The Court placed reliance on Supreme Court Judgement in the case of Rangappa vs. Mohan [(2010) 11 SCC 441] and held that presumption under the Section 138 can be rebutted by way of probable defence and therefore, the Respondent was able to prove that the cheque was issued in respect of uncertain future liabilities as a security cheque. 

In this context, the Court noted, "Though the learned counsel for the complainant, vehemently, contended that the complainant has fulfilled all the requirements under Section 138 (A to C) of the Act and the accused has admitted the cheque as well as the signature on it, the legal presumption exists in favour of the complainant in respect of enforceable debt is concerned, the same does not holds much water, for the reason that such initial presumption is rebuttal in nature at any stage of the proceedings in view of the law laid down by the Hon'ble Apex Court in catena of judgments including Rangappa vs. Mohan reported in (2010) 11 SCC 441. The accused can rebut such presumption by way of probable defence".

The Court asserted, "It is well settled law that to rebut the presumption, standard of proof is that only on touchstone of preponderance of probabilities and not on touchstone of proof beyond all reasonable doubt. In the present case, the accused has put forward such probable defence. As such, it creates doubt about the existence of legally enforceable debt or liability".

Accordingly, the Court dismissed the appeal and affirmed the impugned judgment. 

Cause Title: F. Chandra v. Anitha

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