Holding

A discrepancy in the rate of interest does not rebut the presumption of liability under Section 138, and the trial court’s conviction stands with a modified fine.

Summary

The appellant, a chit‑fund company, advanced loans totalling Rs 21,09,000 to the respondent over several years. To partly discharge the debt, the respondent issued a cheque for Rs 19,00,000 which was returned marked ‘Account Closed’, leading to a complaint under Section 138 of the Negotiable Instruments Act. The trial court convicted the respondent, but the appellate and high courts acquitted him, holding that a dispute over the rate of interest (1.8%, 2.4% or 3% per month) undermined the claim of a legally enforceable liability. The Supreme Court held that the interest‑rate discrepancy does not defeat the presumption of liability under Section 138 and that the trial court’s findings were correct, noting the respondent’s failure to retract the cheque or prevent its honouring. It also observed that any excess interest beyond the ceiling under the Tamil Nadu Act was a matter for the respondent to contest, not a defence under the NI Act. Consequently, the Court restored the trial court’s conviction with a modified fine and waived imprisonment on humanitarian grounds.

Issues considered

Whether a discrepancy in the agreed rate of interest defeats the presumption of a legally enforceable debt under Section 138 of the Negotiable Instruments Act.
Whether the cheque was issued for the discharge of a lawful liability despite the interest‑rate dispute.
Whether the applicability of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 affects liability under Section 138.
Whether the appellate and high courts erred in acquitting the accused by focusing on the interest‑rate issue.

Legislation cited

Code of Criminal Procedure, 1973s. 391, s. 3912
Negotiable Instruments Act, 1881s. 118(a), s. 138, s. 139
Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003

Subjects

Section 138 of Negotiable Instruments Act, 1881Partly discharge of loan amountIssuance of chequeReturn of cheque with endorsement ‘Account Closed’Discrepancy apropos the rate of interestMarked receipts showing the re‑payment of loanDischarge of the loan amountAgreement between the partiesAppropriate forum

Judgment

[2024] 8 S.C.R. 322 : 2024 INSC 602

Sri Sujies Benefit Funds Limited
v.
M. Jaganathuan
(Criminal Appeal No. 3369 of 2024)
13 August 2024
[Hima Kohli and Ahsanuddin Amanullah,* JJ.]

Issue for Consideration
In order to partly discharge the loan amount, a cheque was issued
by the respondent-accused for a sum of Rs.19,00,000/-. However,
the cheque was returned with the endorsement ‘Account Closed’.
Whether a discrepancy apropos the rate of interest, whether it be
1.8%, 2.4% or 3% per month was sufficient to disbelieve the claim
of the appellant-chitfund company.

Headnotes†
Negotiable Instruments Act, 1881 – s. 138 – The respondent-
accused, being a subscriber of the appellant-chitfund
company, borrowed loan amounts on several dates from
appellant totaling Rs. 21,09,000/- – In order to partly discharge
the aforesaid loan amounts, a cheque was issued by the
accused for a sum of Rs.19,00,000/- – However, the cheque was
returned with the endorsement ‘Account Closed’ – The Trial
Court convicted the accused for the offence u/s. 138, N.I. Act
and sentenced him to undergo one year simple imprisonment
and to pay a fine of Rs. 38,00,000/- as compensation to
the complainant – However, the Appellate Court acquitted
the respondent and same was upheld by the High Court –
Correctness:
Held: It is settled that an offence u/s. 138 of the Negotiable
Instruments Act, 1881 is committed no sooner a cheque drawn
by the accused on an account being maintained by him in a bank
for discharge of debt/liability is returned unpaid for insufficiency of
funds or for the reason that the amount exceeds the arrangement
made with the bank – 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 – However, in the present case, a discrepancy

* Author
[2024] 8 S.C.R. 323

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

apropos the rate of interest, whether it be 1.8%, 2.4% or 3% per
month was not sufficient to disbelieve the claim of the appellant –
Though the respondent before the Trial Court had contended
that there was no loan transaction between the parties, but still,
before the Appellate Court, by way of additional evidence, he
marked receipts to show the re-payment of loan – Even there, the
respondent did not produce all the receipts showing total discharge
of the loan amount, as was noted by the Appellate Court, and
only the difference in the rates of interest as well as the finding
that substantial amount has been repaid led to the acquittal of
the respondent – Neither in the pronotes nor in the Statement of
Accounts, the principal amount has been disputed – 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
honour the concerned cheques – However, closure of the bank
accounts within a few weeks of issuance of the cheque raises
serious questions about the conduct and intent of the respondent –
The Trial Court has meticulously gone into each and every issue
while holding in favour of the appellant – 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 is erroneous and cannot
be sustained – Thus, the order of the Trial Court is restored with
certain modifications. [Paras 15, 16]
Negotiable Instruments Act, 1881 – s. 138 – Tamil Nadu
Prohibition of Charging Exorbitant Interest Act, 2003 –
Proceedings under N.I. Act – Interest rates not in conformity
with the 2003 Act – Appropriate forum:
Held: 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 – Thus, if the parties amongst themselves, agreed to a rate
which is not in conformity with the Tamil Nadu Act, it was for the
respondent to raise an objection or move the appropriate forum
324 [2024] 8 S.C.R.

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for getting the same corrected/taken care of, so that the interest
rate did not exceed 1% per month but having agreed to a rate
of 1.8% per month, the subsequent amount of interest calculated
@ 3% per month does not have much force for it was upon the
respondent to challenge the rate of interest – The respondent
also cannot be said to be a layman, and being a subscriber to
a chitfund company, he is expected to be aware of the laws and
also of what is beneficial for him – 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. [Para 17]

Case Law Cited
Dashrath Rupsingh Rathod v State of Maharashtra [2014] 11
SCR 921 : (2014) 9 SCC 129 – relied on.

List of Acts
Negotiable Instruments Act, 1881; Tamil Nadu Prohibition of
Charging Exorbitant Interest Act, 2003; Code of Criminal Procedure,
1973.

List of Keywords
Section 138 of Negotiable Instruments Act, 1881; Partly discharge
of loan amount; Issuance of cheque; Return of cheque with
endorsement ‘Account Closed’; Discrepancy apropos the rate
of interest; Marked receipts showing the re-payment of loan;
Discharge of the loan amount; Agreement between the parties;
Appropriate forum.

Case Arising From

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 3369
of 2024
From the Judgment and Order dated 29.01.2020 of the High Court
of Judicature at Madras in CRLA No. 582 of 2012

Appearances for Parties
B. Ragunath, Mrs. N.C. Kavitha, Vijay Kumar, Advs. for the Appellant.
S Nagamuthu, Sr. Adv., S Ravishankar, Mrs. S. Yamunah Nachiar,
Ms. Ruhini Dey, Advs. for the Respondent.
[2024] 8 S.C.R. 325

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

Judgment / Order of the Supreme Court

Judgment
Ahsanuddin Amanullah, J.
Heard Mr B. Ragunath, learned counsel for the appellant and Mr. S.
Nagamuthu, learned senioar counsel for the respondent.
2. Leave granted.
3. The present appeal arises out of the Final Judgment dated 29.01.2020
(hereinafter referred to as the “impugned judgment”), passed by
the learned Single Judge of the High Court of Judicature at Madras
(hereinafter referred to as the “High Court”) in Criminal Appeal No.582/
2012, whereby the appeal filed by the appellant was dismissed and
the judgment dated 20.06.2012 of the Vth Additional District and
Sessions Judge, Coimbatore (hereinafter referred to as the “Appellate
Court”) in Criminal Appeal No.186/2010, was upheld.
BRIEF FACTS:
4. The sole Respondent (hereinafter also referred to as the “accused”),
being a subscriber of the Appellant-chitfund company (hereinafter
also referred to as the “complainant”), borrowed loan amounts on
several dates from the Appellant over a period of 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. The loans
were advanced in the following manner: Rs.1,50,000/- (Rupees One
Lakh and Fifty Thousand) was given on 09.03.1995; Rs.6,00,000/-
(Rupees Six Lakhs) on 29.12.1995; Rs.1,00,000/- (Rupees One Lakh)
on 22.03.1995; Rs.3,00,000/- (Rupees Three Lakhs) on 11.03.1996;
Rs.1,00,000/- (Rupees One Lakh) on 09.04.1997; and finally,
Rs.2,00,000/- (Rupees Two Lakhs) on 24.04.1997. In order to partly
discharge the aforesaid loan amounts, Cheque No.0150573 dated
03.02.2003 was issued by the accused for a sum of Rs.19,00,000/-
(Rupees Nineteen Lakhs) in favour of the complainant drawn on Indian
Overseas Bank, District Court Extension Counter, Coimbatore. The
complainant, on 04.02.2003, presented the cheque in Bank of India,
Kurichi Industrial Estate Branch, Coimbatore which came to be returned
on 05.02.2003 with the endorsement ‘Account Closed’. Thereafter, a
statutory notice was issued by the complainant on 20.02.2003, reply
to which was issued by the accused on 27.02.2003 repudiating the
326 [2024] 8 S.C.R.

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debt. Aggrieved, the complainant filed C.C.No.379/2003 before the
Judicial Magistrate Court No.VII, Coimbatore (hereinafter referred to as
the “Trial Court”) for the offence under Section 1381 of the Negotiable
Instruments Act, 1881 (hereinafter referred to as the “N.I. Act”).
5. Before the learned Trial Court, on behalf of the complainant, the
manager of the chit-fund company was examined as PW1 and
nineteen exhibits were marked. On behalf of the accused, no witness
was examined, however, five exhibits were marked. The learned
Trial Court, after perusing the evidence on record and hearing the
parties, passed judgment dated 16.08.2010 whereby it convicted the
accused for the offence under Section 138, N.I. Act and sentenced
him to undergo one year simple imprisonment and to pay a fine of
Rs.38,00,000/- (Rupees Thirty Eight Lakhs) as compensation to the
complainant.
6. The accused filed Criminal Appeal No.186/2010 in the Appellate Court,
challenging the conviction and sentence, along with a petition under
Section 3912 of the Code of Criminal Procedure (hereinafter referred

1 ‘138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn
by a person on an account maintained by him with a banker for payment of any amount of money to
another person from out of that account for the discharge, in whole or in part, of any debt or other liability,
is returned by the bank unpaid, either because of the amount of money standing to the credit of that
account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that
account by an agreement made with that bank, such person shall be deemed to have committed an
offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for
a term which may extend to two years, or with fine which may extend to twice the amount of the cheque,
or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the date on
which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand
for the payment of the said amount of money by giving a notice in writing, to the drawer of the
cheque, 69[within thirty days] of the receipt of information by him from the bank regarding the
return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the
payee or as the case may be, to the holder in due course of the cheque within fifteen days of
the receipt of the said notice.
Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable
debt or other liability.’
2 ‘391. Appellate Court may take further evidence or direct it to be taken.—(1) In dealing with any appeal
under this Chapter, the Appellate Court, if it thinks additional evidence to be necessary, shall record its
reasons and may either take such evidence itself, or direct it to be taken by a Magistrate, or when the
Appellate Court is a High Court, by a Court of Session or a Magistrate.
(2) When the additional evidence is taken by the Court of Session or the Magistrate, it or he shall certify
such evidence to the Appellate Court, and such Court shall thereupon proceed to dispose of the appeal.
(3) The accused or his pleader shall have the right to be present when the additional evidence is taken.
(4) The taking of evidence under this section shall be subject to the provisions of Chapter XXIII, as if it
were an inquiry.’
[2024] 8 S.C.R. 327

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

to as the “Code”), for letting in additional evidence. The Appellate
Court allowed the petition filed under Section 391 of the Code. This
order was challenged by the complainant before the High Court,
which negatived such challenge and confirmed the order passed by
the Appellate Court to let in additional evidence. Before the Appellate
Court, the accused examined himself as DW1 and marked thirteen
exhibits in order to show that substantial amounts were repaid by
him to the complainant.
7. The Appellate Court, by judgment dated 20.06.2012, allowed the
accused’s appeal and acquitted the respondent holding that the
cheque was not issued towards a legally enforceable liability. The
appellant filed Criminal Appeal No.582/2012 in the High Court
impugning the judgment passed by the Appellate Court. The High
Court dismissed such appeal vide the impugned judgment.
SUBMISSIONS BY THE APPELLANT-COMPANY:
8. Learned counsel for the appellant submitted that the basic folly
committed by the Appellate Court as well as the High Court was that
they failed to appreciate that once issuance of cheque is admitted/
established, there is a presumption under Sections 138, 139 and
118(a) of the N.I. Act, which is a rebuttable presumption but the
respondent has not discharged this burden. It is contended that the
burden on the respondent to rebut the presumption by introducing
evidence was initially not done for no justifiable/valid reason before the
learned Trial Court and, even upon the plea for adducing additional
evidence under Section 391 of the Code, the presumption has not
been dislodged as required under law, and still the accused has
been acquitted.
9. Learned counsel submitted that the Appellate Court has given benefit
of doubt to the respondent by raising question about the figure in the
cheque not fully tallying as per the Statement of Accounts inasmuch
as in Exhibit D4 for Loan No.175, the total amount borrowed was
shown as Rs.6,00,000/- (Rupees Six Lakhs) and the rate of interest
is mentioned as Rs.1.80 paise per Rs.100 per month, whereas in
the Statement of Accounts, the balance amount is calculated at the
rate of 3% per month.
10. It was submitted that the issue of interest was not a matter to be
decided and even the learned Trial Court has not disputed the principal
328 [2024] 8 S.C.R.

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amount. Further, learned counsel submitted that the learned Trial
Court has also not accepted that the respondent was able to show
that substantial amounts were returned. Thus, according to him, the
dues still remained to be repaid against the respondent to be made
good and so it cannot be said that the amount mentioned in the
cheque which was returned was not a legally-due amount. Learned
counsel submitted that on such flimsy and tenuous grounds, the
amount which in law was due to the appellant from the respondent, for
which the N.I. Act has been brought into existence by the Parliament
so that such dues which the accused denies but for which cheques
have been issued by him are not honoured, a quick procedure has
been prescribed to ensure that financial disputes reach finality, has
been totally frustrated by the Appellate Court and erroneously upheld
by the High Court. For some receipts shown by the respondent as
part re-payment of the loan amount, the contention of the appellant
is that one relates to a transaction by one Shri Laxmi Finance and
the rest are not genuine due to there being omissions of signature
of the cashier, Manager, etc. This aspect, it is submitted, has been
brushed aside.
11. He summed up his arguments by submitting that when the respondent
also could not show any proof with regard to what was the rate of
interest decided inter-se the parties, such an issue unilaterally could
not be decided against the appellant and further that the logic of the
Appellate Court that the Tamil Nadu Prohibition of Charging Exorbitant
Interest Act, 2003 (hereinafter referred to as the “Tamil Nadu Act”)
prohibits charging of interest on any unsecured loan beyond a
maximum of 12% per annum, in itself, was unsound as even if it
is accepted that the rate of interest was only 1.8% per month, the
amount over and above the maximum rate of interest would stand
excluded. It was urged that this was no ground to disbelieve that
the amount was legally due to the appellant from the respondent.
SUBMISSIONS BY THE SOLE RESPONDENT-ACCUSED:
12. Per contra, the learned senior counsel for the respondent raised
a preliminary objection that the present appeal is devoid of any
question of law, much less a substantial question of law of public
importance, and does not warrant interference of this Court in
exercise of discretionary jurisdiction vested under Article 136 of the
Constitution of India.
[2024] 8 S.C.R. 329

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

13. On merits, it was his stand that when two Courts have taken the view
that the appellant was not able to show that the cheque amounts were
legally due to him from the respondent, this Court may not reverse
such finding. It was submitted that upon further evidence being
produced before the Appellate Court, it was noticed that as there is
difference in the rates of interest mentioned in the pronotes issued
and the Statement of Accounts of the appellant, it has rightly been
concluded that the claim of the appellant that the amount mentioned
in the cheque was legally due to him was not sustainable and thus,
the same was not relied upon and the respondent was acquitted. It
was contended by the learned Senior counsel that the proceeding
under the N.I. Act being more or less summary in nature, the Court
has rightfully discharged its duty of being strict in scrutiny of evidence
so as not to disadvantage the accused leading to miscarriage of
justice. He submitted that the present appeal does not merit any
consideration and sought its dismissal.
ANALYSIS, REASONING AND CONCLUSION:
14. Having considered the rival contentions, we find that the impugned
judgment upholding the order of the Appellate Court requires
interference.
15. This Court in Dashrath Rupsingh Rathod v State of Maharashtra,
(2014) 9 SCC 129 held that “An offence under Section 138 of the
Negotiable Instruments Act, 1881 is committed no sooner a cheque
drawn by the accused on an account being maintained by him in a
bank for discharge of debt/liability is returned unpaid for insufficiency
of funds or for the reason that the amount exceeds the arrangement
made with the bank.” 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. However, in the present case, a discrepancy apropos
the rate of interest, whether it be 1.8%, 2.4% or 3% per month was
not sufficient to disbelieve the claim of the appellant. Though the
respondent before the learned Trial Court had contended that there
was no loan transaction between the parties, but still, before the
Appellate Court, by way of additional evidence, he marked receipts
to show the re-payment of loan. Even there, the respondent did not
produce all the receipts showing total discharge of the loan amount,
as was noted by the Appellate Court, and only the difference in the
330 [2024] 8 S.C.R.

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rates of interest as well as the finding that substantial amount has
been repaid led to the acquittal of the respondent.
16. On this issue, we would like to indicate that neither in the pronotes
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. 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, totalling Rs.14,50,000/- (Rupees Fourteen Lakhs
and Fifty Thousand). 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 honour the concerned cheques. However,
closure of the bank accounts within a few weeks of issuance of the
cheque raises serious questions about the conduct and intent of the
respondent. The learned Trial Court, in our view, has meticulously
gone into each and every issue while holding in favour 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.
17. Furthermore, 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. Thus,
if the parties amongst themselves, agreed to a rate which is not in
conformity with the Tamil Nadu Act, it was for the respondent to raise
an objection or move the appropriate forum for getting the same
corrected/taken care of, so that the interest rate did not exceed
[2024] 8 S.C.R. 331

Sri Sujies Benefit Funds Limited v. M. Jaganathuan

1% per month but having agreed to a rate of 1.8% per month, the
subsequent amount of interest calculated @ 3% per month does not
have much force for it was upon the respondent to challenge the
rate of interest. The respondent also cannot be said to be a layman,
and being a subscriber to a chitfund company, he is expected to
be aware of the laws and also of what is beneficial for him. 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.
18. For reasons aforesaid, the Appellate Court’s order as also the
impugned judgment are set aside. 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. Accordingly,
the respondent is held liable to pay an amount of Rs.28,50,000/-
(Rupees Twenty Eight Lakhs and Fifty Thousand). Further, as has
been averred by the respondent in his compliance affidavit that
he is 86 years old and living with his wife who is also advanced
in age and without issue, the sentence of imprisonment is waived,
however, subject to payment, in terms of the present judgment within
eight months from today, failing which such sentence of simple
imprisonment for one year shall stand revived.
19. The appeal, accordingly, stands allowed in the aforesaid terms.
20. Parties are left to bear their own costs.

Result of the case: Appeal allowed.

†
Headnotes prepared by: Ankit Gyan