SUPREME COURT SET ASIDE CONVICTION OF APPELLANT UNDER THE NEGOTIABLE INSTRUMENTS ACT, AS THE CHEQUE SERVED SOLELY FOR SECURITY PURPOSE

A Two Judge Bench of the Supreme Court comprising of Justice Sanjay Karol and Justice Aravind Kumar passed a Judgment dated 02-04-2024 in the matter of Prem Raj vs. Poonamma Menon & Anr., Special Leave Petition (SLP) Criminal No. 9778 / 2018 and observed that when a dispute involves the same substance in both civil and criminal proceedings, the outcome of the civil proceedings will be binding on the outcome of the criminal proceedings. Further, the Bench stated that since the Civil Court had declared the subject matter of dispute i.e. the Cheque was only for the purpose of security, therefore any punishments or damages awarded under the Negotiable Instruments Act, 1881 (N.I. Act) would be considered unsustainable under the law.

FACTS:

i) That the Appeal above filed before the Supreme Court by one, Prem Raj (Appellant) against one, Poonamma Menon and the State of Kerala (Respondents), challenged the Order dated 23.01.2028 passed by the Hon’ble High Court of Kerala (High Court) which has partially allowed a Revision Petition ( R.P. No.1111 of 2011) against the Judgment and Order dated 11.01.2011 passed by the Additional Sessions Judge, Thrissur (Lower Appellate Court) in Criminal Appeal No.673 of 2007. The Lower Appellate Court upheld his conviction under Section 138 of the Negotiable Instruments Act, 1881 (N.I. Act) (Dishonour of Cheque for insufficiency, etc., of funds in the Account).

ii) The Appellant borrowed Rs.2,00,000/- (Rupees Two Lakhs only) from one, K.P.B. Menon “Shreyas” (the Complainant) and promised to repay it on demand. When the Complainant demanded repayment, the Appellant issued a Cheque for the same amount from South Indian Bank, with the condition that it could only be encashed through Canara Bank. The Appellant sent the Cheque along with a cover letter through the post. However, the Cheque was dishonoured due to insufficient funds and the reason given was ‘payments stopped by drawer’.

iii) Further, when the Complainant discovered that the Cheque had been dishonoured, the Complainant issued a demand notice to the Appellant. However, the Appellant did not take any action, which led to the filing of the Complaint under Section 138 of N.I. Act. On the other hand, the Appellant (Accused) filed an Original Suit (O.S) No. 1338 of 2002 before the Ld. Additional District Munsif, Irinjalakuda, Tamil Nadu (Civil Court) and, listed five parties as Defendants: K.P. Bhaskara Menon, K.P. Vipinendra Kumar, Praveen Menon, The Manager South Indian Bank Limited Kathikudam, Via Koratty, Trichur, and N.T. Raghunandanan.

iv) Consequently, the Prayer made was to declare the Cheque of the South Indian Bank Limited, Kathikudam, as a Security Cheque. Additionally, the Prayer sought a Mandatory Injunction directing the First Defendant to return the said Cheque and issue a Permanent Prohibitory Injunction restraining Defendants 1 to 4 (named hereinabove) from taking any steps to encash the said Cheque.

v) The Civil Court passed an Order dated 11.04.2003 and partly allowed the Suit in favour of the Appellant (Accused) and dismissed the Suit against the Manager of South Indian Bank. The Suit was wholly decreed against the remaining Defendants.

vi) Aggrieved by the Order dated 11.04.2003, the Complainant filed an Appeal in M.A.No.6/2006 before the Ld. Additional Subordinate Judge, Tamil Nadu (Civil Appellate Court), but it was rejected by the Civil Appellate Court. Additionally, it was noted that the same Cheque was at issue in both the Civil Court and the Court that handled the Section 138 N.I. Act Complaint.

vii) The Trial Court convicted the Appellant, vide Order dated 14.08.2007, and sentenced him to undergo simple imprisonment for 1 year as well as pay compensation of Rs. 2,00,000/- in default and further simple imprisonment for six months. The First Appellate Court confirmed the conviction handed down by the Trial Court.

viii) The Kerala High Court, in Revision, passed an Order dated 23.01.2018 and observed that no perversity could be indicated in the concurrent findings of the Trial Court and First Appellate Court, and the same was dismissed. The Appellant, therefore, approached the Supreme Court.

TRIAL COURT:

The Trial Court convicted the Appellant, sentencing him to undergo one year of simple imprisonment and imposed a compensation of Rs. 2 Lakhs. Additionally, it mandated an additional six months of imprisonment in case of default in paying the compensation. A significant issue revolved around whether the Decree passed by the Civil Court bound the Trial Court. The Trial Court observed that the Criminal Court does not operate under the authority of the Civil Court and the Criminal Court’s discretion cannot be constrained. Furthermore, the Trial Court held that the Civil Court lacked jurisdiction to issue an Injunction against the encashment of the Cheque by the Complainant.

FIRST APPELLATE COURT:

The primary consideration framed by the First Appellate Court revolved around whether the Cheque was issued against a legally enforceable debt, thus falling under the purview of the offence outlined in Section 138 of the N.I. Act. The Court, vide Order dated 11.01.2011, ruled against the Appellant on this point, leading to the affirmation of the conviction handed down by the lower Court.

HIGH COURT:

The High Court, in Revision, vide Order dated 23.01.2018, noted that there was no indication of perversity in the consistent findings of both the Trial Court and the First Appellate Court. Consequently, the Revision was dismissed.

SUPREME COURT:

Aggrieved by the Order dated 23.01.2018 of the High Court, the Appellant filed Special Leave Petition SLP(Crl) No. 9778 / 2018, thereby challenging the High Court Order that upheld the Trial Court and First Appellate Court decision.

ISSUE:

Whether a criminal proceeding can be commenced, and whether the Accused therein be found guilty with the subsequent natural consequences, regarding a transaction for which a Decree has already been issued by a competent Civil Court?

OBSERVATIONS:

1) The Supreme Court observed, that civil cases are decided based on preponderance of evidence, while in a criminal case, the entire burden lies on the prosecution, and proof beyond reasonable doubt has to be given. There is neither any statutory provision nor any legal principle that the findings recorded in one proceeding may be treated as final or binding in the other, as both cases have to be decided based on the evidence adduced therein.

2) Referring to M/s. Karam Chand Ganga Prasad & Anr. vs. Union of India & Ors., (1970) 3 SCC 694, the Apex Court noted that decisions of civil courts are binding on criminal courts, but the reverse is not true. Similarly, in K.G. Premshanker vs. Inspector of Police & Anr., (2002) 8 SCC 87, the Bench observed that conflicting decisions of civil and criminal courts are not a relevant consideration except for limited purposes such as sentence or damages.

3) The Supreme Court also referred to Vishnu Dutt Sharma vs. Daya Sapra (Smt.), (2009) 13 SCC 729, where it was noted that decisions of civil courts are binding on criminal courts, but this was overruled in subsequent cases. The Apex Court further considered precedents like Premshanker (supra) and opined that there is no embargo for a civil court to consider evidence led in criminal proceedings.

4) Further the Bench held that the issue was clarified by a Constitution Bench in Iqbal Singh Marwah vs. Meenakshi Marwah, (2005) 4 SCC 370, where it was stated that there is no statutory provision or legal principle that findings recorded in one proceeding are final or binding in the other. Each case must be decided based on the evidence presented therein.

5) Referring to S. Sheriff vs. State of Madras, AIR 1954 SC 397 the Apex Court emphasized that criminal matters should be given precedence over civil matters. It stated that while conflicting decisions between civil and criminal courts are possible, the only relevant consideration is the likelihood of embarrassment. Additionally, the Bench noted that criminal justice should be swift and sure, and delays should be avoided.

6) Based on the principles outlined in these cases, the Bench concluded that in the present case, the Criminal Proceedings were unsustainable in law since the Civil Court had declared the subject matter of dispute i.e the Cheque to be only for the purposes of security. Therefore, the Criminal Proceedings and the Damages imposed against the Appellant under N.I. Act were quashed and set aside, and the Damages were ordered to be returned to the Appellant.

7) The Bench further pointed out that no hard-and-fast rule can be laid down regarding the order passed by civil courts to be binding on the criminal courts, but the Apex Court did not consider that the possibility of conflicting decisions in the civil and criminal courts is a relevant consideration. The law envisages such an eventuality when it expressly refrains from making the decision of one court binding on the other, or even relevant, except for certain limited purposes, such as sentence or damages. After hearing the matter, the Supreme Court set aside and quashed the conviction of the Appellant upheld by the High Court.

CONCLUSION:

Based on the aforementioned facts, the Supreme Court set aside the Order of the High Court and held that the criminal proceedings were unsustainable, as the Civil Court had already determined that the subject matter of the dispute i.e. the Cheque was solely for security purposes and not meant to be encashed by the Complainant. Thus, the Bench quashed the criminal proceedings initiated by the Complainant against the Appellant and ordered the return of damages to the Appellant. The Judgment and Order of the lower Courts were overturned accordingly. It clarified that while civil court decisions bind criminal courts, the reverse is not necessarily true. Considering precedents, the Apex Court emphasized that conflicting decisions between civil and criminal courts are not determinative, except for specific purposes like sentences or damages. Stressing the importance of swift criminal justice, the Bench observed that criminal matters should be prioritized over civil ones.

 

Sakshi Raghuvanshi

Legal Associate

The Indian Lawyer