Sec 138 NI Act- No Legally Enforceable

Debt If Cheque Issued For Illegal

Consideration In A Void Contract :
Karnataka HC Judgment-
AUGUST 2, 2018...

“When it is said it is illegal or unlawful consideration, it cannot

be at any stretch of imagination be called a legally recoverable
debt”
The High Court of Karnataka quashed a complaint filed for
dishonour of cheque under Section 138 of the Negotiable
Instruments Act on the ground that the complaint did not
reveal any “legally enforceable debt”, in the case R.Parimala Bai
v. Bhaskar Narasimhaiah..
The complaint was filed with respect to dishonour of a cheque
issued for returning the amount collected by the accused as
consideration for securing a job .
The complainant alleged that he had paid a sum of ten lakhs
rupees to the accused on his promise that he will secure job for
the son of the complainant at HAL Factory.
When the promise was not kept, the complainant demanded
the amount back, and a cheque for rupees ten lakhs was issued
by the accused, which got dishonoured for lack of sufficient
funds, leading to filing of the complaint.
When the Magistrate issued summons to the accused after
taking cognizance of the complaint, the accused filed petition
under Section 482 of the Code of Criminal Procedure, seeking
to quash the proceedings.
It was his contention that there was no legally enforceable
debt in existence, as the cheque was given for illegal
consideration received out of a void contract.
It was contended on behalf of the complainant that the
promise of securing job was a contract opposed to public
policy, which was void as per Section 23 of the Contract Act.
Specific reference was made to illustration (f) of Section 23,
which covered a situation like the present case.
Reliance was placed on a decision of Delhi High Court in
Virender Singh v. Laxmi Narayain and another 2007 CrLJ 2262,
which held that Sec.138 NI Act was not attracted for dishonour
of a cheque issued for recovery of bribe paid for securing job.
Reference was also made to Supreme Court decision in Kuju
Collieries Ltd v. Jharkhand Mines Ltd AIR 1974 SC 1892, to
buttress the point that when both contracting parties are
equally at wrong, principle of restitution under Contract Act
was not applicable.
The complainant, on the other hand, opposed quashing of
complaint by contending that the existence of legally
enforceable debt was a fact to be established in trial.
The complainant referred to apex court decision in A.V Murthy
v. B.S Nagabasavanna (2002) 2 SCC 642 for the point that
existence of legally enforceable debt was a matter to be
decided in trial.
SC decision in S.Natarajan v. Sama Dharman 2014(9) SCALE 3
was referred regarding the applicability of presumption under
Section 139 with regard to existence of legally enforceable
debt.
Justice K.N Phaneendra of High Court of Karnataka agreed with
the arguments of the accused, and held that there was no
legally enforceable debt as the underlying contract was void.
The Court found that the complainant himself has entered into
a void contract with the accused and paid money as against the
public policy for illegal purpose.
“As could be seen from the rulings cited by the learned counsel
for the petitioner and the provision of Section 23 of the Indian
Contract Act, it is crystal clear 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 at any stretch of imagination be
called a legally recoverable debt.”
Negativing the contention of the complainant that presumption
of legally enforceable debt under Section 139 was applicable,
the Court held that “if an illegal consideration is relied upon by
the complainant himself, then presumption under Section 139
of the Negotiable Instruments Act cannot be raised in the initial
stages also”.
The Court noted that the complainant himself had not pleaded
any legally enforceable debt.
Therefore, the precedents relied on by him were distinguished,
holding that the complaint itself did not reveal any offence in
the instant case.
“It is a well established principle of criminal law jurisprudence
that, if on plain and meaningful reading of the FIR, the
allegations made in the complaint or in the FIR do not
constitute any offence or under any penal law for the time
being in force, the continuation of such prosecution amounts to
abuse of process of law”., observed the Court.
The Court held that none of the ingredients of offence under
Section 138 NI Act were made out in the complaint, and hence
the Magistrate ought not to have taken cognizance of the
same.
Since the allegations in the complaint did not constitute
offence, the High Court proceeded to quash the complaint in
exercise of inherent powers under Section 482 Cr.P.C.