Section 138 NI Act: Disputes about Interest Rates cannot be raised as Defence once the Execution of Cheque is Admitted, Supreme Court
While hearing the Sri Sujies Benefit Funds Limited vs. M. Jaganathuan on August 13, 2024, the Supreme Court (SC) of India held that a person cannot raise disputes about the interest rates as a defence in a prosecution for the offence of the dishonor of cheque under Section 138 of the Negotiable Instruments Act (NI Act), 1881, once they have acknowledged the handing over of a signed check with an amount written on it. The matter was heard by a two-judge of the SC constituting Justice Hima Kohli and Justice Ahsanuddin Amanullah.
In this case, the sole Respondent being a subscriber of the Appellant-chit fund company (complainant), borrowed loan amounts on several dates from the Appellant over about two years which swelled to a sum of Rs. 21,09,000/- (Rupees Twenty One Lakhs and Nine Thousand) including interest, after eight years. To partly discharge the loan amount, the respondent-accused executed a cheque for a sum of Rs. 19 Lakhs in favor of the complainant towards the outstanding dues. The complainant presented the cheque in the Bank which came to be returned with the endorsement ‘Account Closed’.
Thereafter, the respondent was convicted for the offence under Section 138 NI Act by the trial court. He was further acquitted by the appellate court which was further affirmed by the High Court. In this context, the chit company appealed to the Supreme Court. While hearing the matter, the SC observed, “The fact that the cheque was issued as a consequence of failure to repay the loan taken by the respondent from the appellant to which the interest was added would more or less settle the issue.” The bench referred to the 2014 judgment which held that the offence under Section 138 NI Act is committed as soon as the cheque is dishonored.
After hearing the matter, the SC said, “On this issue, we would like to indicate that neither in the pro-notes nor in the Statement of Accounts, the principal amount has been disputed and the amount arrived at, as reflected in the cheque whether it is in respect of 1.8% interest or 3% interest per month cannot be given undue importance for the reason that the pronotes indicated that under normal circumstances, when there would be repayment by the respondent, the rate would be 1.8% per month but in the event of non-repayment, how much interest by way of an added burden would lie on the respondent has not been specified.”
The top court added, “Thus if the rate of interest of 3% instead of 1.8% per month has been added on the principal amount and the amount in the cheques reflects the same, it cannot be said that the cheques were not for repayment of the principal amount, totaling Rs.14,50,000/- (Rupees Fourteen Lakhs and Fifty Thousand).” Further, the bench said, “The learned Trial Court, in our view, has meticulously gone into each and every issue while holding in favor of the appellant and the Appellate Court as also the High Court have only gone by scrutiny of the interest amount mentioned on the pronote and effected in the Statement of Accounts of the appellant and the evidence produced before the Appellate Court by the respondent to indicate that some repayment(s) was/were made. This, according to us, is erroneous and cannot be sustained.”
The SC added, “When the respondent does not dispute that he has handed over the cheques or signed on them, it was incumbent upon him, the moment he claims the amount(s) were repaid to the appellant to have either taken back the cheques or instructed the bank concerned to not honor the concerned cheques.” While hearing the matter, the bench also said that the reasoning given by the Appellate Court, having taken note of the Tamil Nadu Act, fails to appreciate that even going by what has been written on the pronote i.e., 1.8% per month would lead to the interest being 21.6% per annum, which also is above the cap of 12% per annum prescribed in the Tamil Nadu Act. It added, “Having issued the pronotes, he cannot now take a plea in these collateral proceedings under the N.I. Act to contend that the rate of interest was more than what was permissible under the Tamil Nadu Act.”
The SC set aside the impugned order of the Appellate Court and said that “the order of the learned Trial Court stands restored albeit with certain modifications. It is considered appropriate to direct the respondent to pay fine amounting to one and a half (1½) times the amount mentioned in the cheque.”
