Prem Raj v. Poonamma Menon & Anr. (2024)

Introduction 

This is a landmark judgment which lays down that criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 cannot be sustained when a competent Civil Court has already decreed that the subject cheque was issued only for the purpose of security. 

Facts 

• The appellant (Prem Raj) borrowed Rs. 2,00,000/- from the complainant (K.P.B Menon) and issued a cheque dated June 30, 2002, for the said amount as security. 
• The cheque was sent through the post with a covering letter dated September 24, 2002, but was dishonoured due to insufficient funds and 'payments stopped by drawer'. 
• Following a demand notice dated December 22, 2002, a complaint under Section 138 of the N.I. Act (CC No. 51 of 2003) was filed against the appellant. 
• Concurrently, the appellant had filed Original Suit No. 1338 of 2002 before the Additional District Munsif, Irinjalakuda, seeking to declare the cheque as a security cheque, obtain a mandatory injunction for its return, and restrain the defendants from encashing it. 
• The Munsif Court decreed the suit wholly in favour of the plaintiff (accused) on April 11, 2003, declaring the cheque to be a security cheque. 
• Defendant No. 1 filed an appeal (C.M.A. No. 6/2006) which was dismissed by the Additional Subordinate Judge on January 30, 2007, affirming the Munsif Court's conclusion. 
• Despite the final civil decree, the Trial Court convicted the appellant in the criminal case on August 14, 2007, sentencing him to one year simple imprisonment and Rs. 2 lakh compensation. 
• Both the First Appellate Court and the High Court of Kerala upheld the conviction on January 23, 2018. 
• Hence, the matter was before the Supreme Court. 

Issues Involved 

• Whether a criminal proceeding can be initiated and the accused held guilty under Section 138 of the Negotiable Instruments Act when a decree by a competent Civil Court already stands passed, particularly when the Civil Court has conclusively declared the cheque to be a security cheque? 

Court’s Observations 

• The Court expressed concern over the simultaneous civil and criminal courses adopted for the very same issue and transaction. 
• The Court found the approach of the Trial Court, which stated that a criminal court is not subordinate to a civil court, to be erroneous in this context. 
• The Court held that the Civil Court, having declared the cheque to be only for the purpose of security, necessarily precluded the finding of a legally enforceable debt required for conviction under Section 138 of the N.I. Act. 
• Given that the criminal court had imposed both sentence and damages, the principle dictates that the criminal jurisdiction would be bound by the civil court's decision. 
• While acknowledging the Constitution Bench ruling in Iqbal Singh Marwah vs. Meenakshi Marwah regarding different standards of proof between civil (preponderance of evidence) and criminal (proof beyond reasonable doubt) courts, the Court applied the specific binding principle applicable where the civil court has conclusively determined the character of the very instrument in dispute. 
• Conclusively, the law was laid down that when a civil court has declared a cheque to be issued only for security purposes, criminal proceedings under Section 138 of the N.I. Act are unsustainable in law. 
• The appeal was allowed, and the judgments of the High Court, Additional Sessions Judge, and Judicial First Class Magistrate upholding the conviction were quashed and set aside. 
• The Court directed that the damages (compensation) imposed by the Courts below must be returned to the appellant forthwith.

Conclusion 

The Court laid down in this case that criminal proceedings under Section 138 of the Negotiable Instruments Act cannot be sustained when a competent Civil Court has conclusively determined that the cheque was issued only as security, establishing that civil court decisions are binding on criminal courts regarding the character of the instrument in dispute.