Last Updated on June 20, 2024 by Satish Mishra
A legally enforceable debt means the debt which is contracted in accordance to law and which is not opposed to public policy, i.e., wagering contracts, debt obtained for running brothel or a gambling house, etc. When it is said it is illegal or unlawful consideration, it cannot be at any stretch of imagination be called a legally recoverable debt. Recently, in the case of R.Parimala Bai v. Bhaskar Narasimhiah, High court of Karnataka held that if on the basis of a void contract and particularly if the consideration is illegal, and consideration is for immoral or illegal purposes or which is against public policy, then the whole transaction becomes void, the consideration paid in such contract becomes an illegal consideration and when it is said it is illegal or unlawful consideration, it cannot be called a legally enforceable debt.
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This concept of legally enforceable debt mainly pertains to Section 138 of the Negotiable Instruments Act, 1881 which talks about the dishonour of cheque for insufficiency, etc., of funds in the account. The legislative object and purpose of Section 138 is to regulate financial promises in growing business, trade, commerce and industrial activities of the country and the strict liability under Section 138 promotes greater vigilance in the matters covered by it. The incorporation of this provision is mainly for the purpose to safeguard the trust and faith of the creditor in the drawer of the cheque, which is essential to the economic life of a developing country like India.
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Mere dishonour of a cheque stated in Section 138 of the Negotiable Instruments Act is sufficient for commission of crime. For an offence under Section 138, mens rea is not an essential element, which is clearly spelt out from reading this section. Section 138 of the Negotiable Instruments Act, 1881, reads as follows-“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 year], or with fine which may extend to twice the amount of the cheque, or with both.” The said provision clearly rules out ‘mens rea’ as a constituent part of crime.
Section 138 mainly has three ingredients, i.e.,
- There is a legally enforceable debt;
- The cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presupposes a legally enforceable debt; and
- the cheque so issued had been returned due to insufficiency of funds.
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However, the presence of the third ingredient is not strictly necessary to constitute an offence under Section 138. The instruction of ‘stop payment’ to the bank can also lead to dishonour of a cheque, an offence under this Section. In the case of M.M.T.C. Ltd. and Anr. v. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234, it was held that:
“… The authority shows that even when the cheque is dishonoured by reason of stop payment instruction, by virtue of Section 139 the Court has to presume that the cheque was received by the holder for the discharge in whole or in part, of any debt or liability. Of course, this is a rebuttable presumption. The accused can thus show that the `stop payment’ instructions were not issued because of insufficiency or paucity of funds. If the accused shows that in his account there was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque for encashment at the drawer bank and that the stop payment notice had been issued because of other valid causes including that there was no existing debt or liability at the time of presentation of cheque for encashment, then offence under Section 138 would not be made out. The important thing is that the burden of so proving would be on the accused. …”
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Section 138 is then followed by Section 139 of the Act which talks about presumption in favour of the holder. According to this section, “it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.” Furthermore, Section 118 of the Act states the presumptions as to negotiable instruments. Under Section 118(a) of the Negotiable Instruments Act, the court is obliged to presume, until the contrary is proved, that the promissory note was made for consideration. The initial burden lies on the defendant to prove the non-existence of consideration either by direct evidence or by preponderance of probabilities. The same was clarified in the case of BharatBarrel & Drum Manufacturing Company v. Amin Chand Pyarelal, (1993) 3 SCC 35:
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“Once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbably or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilitiesby reference to the circumstances upon which he relies. In such an event, the plaintiff is entitled under law to rely upon all theevidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour….To disprove the presumption, the defendant has to bring on record such facts and circumstances upon consideration of which the court may either believe that the consideration did not exist or its non-existence was so probable that a prudent man would, under the circumstances of the case, act upon the plea that it did not exist.”
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Apart from this, Section 140 of the Act talks about the defences which may not be allowed in the prosecution under Section 138. According to this section, it is not material whether a person had a reason to believe when he issued the cheque that the cheque may be dishonoured on presentment. Therefore, the state of mind of the accused person, his knowledge or reasonable belief are not the necessary ingredients of an offence under section 138 of the Negotiable Instruments Act, 1881.
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