NI Act | ₹2,000 Notes Not In Circulation When Loan Advanced Not Enough To Rebut Claim Of Debt: Karnataka HC

The Karnataka High Court has dismissed a criminal revision petition challenging a conviction under Section 138 of the Negotiable Instruments Act, 1881. The court observed that the complainant's statement about advancing a loan in ₹2,000 denomination notes in October 2016 was not enough, by itself, to rebut the statutory presumption in his favour.

A single-judge bench of Justice Geetha K.B. was hearing a petition filed by K. Venkataswamy challenging his conviction. The trial court had convicted him under Section 138 of the NI Act, and the appellate court had upheld the decision.

On the discrepancy concerning the ₹2,000 notes, the court observed:

“In the cross-examination of the complainant, it is only elicited that the complainant has paid the amount in Rs.500/- and Rs.2,000/- denomination notes during October-2016. However, during October, 2016 there were no notes of Rs.2000 denomination. Only because of this reason, the presumption in favour of the complainant cannot be rebutted.”

The complainant, Chikka Hanumanthappa, alleged that Venkataswamy had borrowed ₹2.50 lakh on October 10, 2016, to meet his family and legal necessities. He claimed to have advanced the amount in cash.

Towards repayment, Venkataswamy issued a cheque dated November 4, 2016. It was returned unpaid with the endorsement 'funds insufficient'.

Hanumanthappa subsequently issued a legal notice on December 8, 2016. Although the notice was served, Venkataswamy neither repaid the amount nor sent a reply. The complainant then initiated proceedings under Section 138 of the NI Act.

The trial court convicted Venkataswamy and imposed a fine of ₹3.50 lakh. It directed him to undergo simple imprisonment for one year in default of payment. The appellate court dismissed his appeal and upheld the conviction.

Before the High Court, Venkataswamy questioned Hanumanthappa's financial capacity to advance ₹2.50 lakh. He argued that the complainant had not produced evidence to establish that he had the money at the relevant time.

He also questioned the claim that the loan was advanced in ₹500 and ₹2,000 denomination notes in October 2016. The accused further pointed out that the complainant had sold 10 guntas of land to construct his house.

The court examined his alternative defence that the cheque had been handed over to one Devaraju as security for a loan that had already been repaid. According to the accused, Devaraju had failed to return the cheque.

However, the documents produced in support of this claim did not convince the court. It noted that Devaraju had told the police that the cheque had been accidentally misplaced at his house and that he would return it if he found it.

When examined as a defence witness before the trial court, Devaraju took a different stand. He denied having made the statement recorded by the police about the cheque being misplaced.

The court also considered Hanumanthappa's evidence about his sources of income. He earned money through agriculture and by rearing cows, sheep and hens. His son was also working as an engineer.

“Thus, nothing was elicited in his cross-examination to disbelieve the financial capacity of the complainant.”

The court further noted that Venkataswamy had not raised the issue of Hanumanthappa's financial capacity in his own evidence. He had also failed to reply to the legal notice.

Referring to the limits of its revisional jurisdiction, the court observed that it could interfere with concurrent findings of the trial court and appellate court only on grounds such as perversity, gross error, unreasonableness or failure to consider relevant material.

Finding that Venkataswamy had failed to rebut the presumptions under Sections 118 and 139 of the NI Act, the court found no reason to interfere with the concurrent findings of the lower courts.

The revision petition was accordingly dismissed.

For Petitioner: Advocates Prajwala S.N and Ajith Kumar A.S