Cheque Bounce Case-No Presumption u/Sec 139 of NI Act Available in case of Principal-Agent Relationship between Parties

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March 29, 2019

In this recent case, the High Court  of Madras while determining a cheque bounce case, categorically stated that when there is principal agent relationship between the complainant and accused, unless and until the material evidence are placed to prove legally enforceable debt, mere issuance of cheques cannot lead to the presumption under Section 139 of the Negotiable Instruments Act.

Case name: G. Dhanasekar v. T.A. Jayaprakash

The appellant who is the complainant alleged commission of cheque bounce offence by the respondent under Section 138 of Negotiable Instrument Act, 1881. The Appellant has alleged that he lent a sum of Rs.10 lakhs to respondent and to discharge the said liability, respondent had issued cheques in favour of the complainant, however when presented for collection the cheques were with an endorsement “account closed”.

Here it would be relevant to mention that the complainant was the power of attorney holder for land transaction of the accused. Thus, through the admitted facts of the case, the High Court of Madras in appeal noted that the complainant was acting as an Agent of the accused and entered into sale agreements and executed several agreements and sale deeds on behalf of the accused and had received sale consideration. The Court was of the view that in such circumstances if the complainant had not rendered the account for the transactions done by him on behalf of the accused then the issuance of impugned cheques was highly doubtful.

The High Court held in the case that when there is principal agent relationship, unless and until the material evidence are placed to prove legally enforceable debt, mere issuance of cheques cannot lead to the presumption under Section 139 of the Negotiable Instruments Act. Thus, the High Court opined that the advantage of presumption under Section 139 of the Negotiable Instruments Act was not available for the complainant in the case and accordingly dismissed the appeal.