1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF JULY, 2025 BEFORE THE HON'BLE MR. JUSTICE H.P. SANDESH CRIMINAL APPEAL NO.1909/2019 BETWEEN: THE VENKATARAMAN CREDIT CO-OPERATIVE SOCIETY (R), SULLIA BRANCH AT PADMA COMPLEX, OPP : INDIANA HOSPITAL, PUMPWELL, MANGALURU, D.K. DISTRICT-575 001. REPRESENTED BY ITS BRANCH MANAGER, SRI. VIMALAKSHA P., AGED ABOUT 43 YEARS. … APPELLANT (BY SRI. BALAKRISHNA M.R., ADVOCATE) AND: SRI. GOWTAM S/O. LATE GOPALAKRISHNA, AGED ABOUT 33 YEARS, R/AT NO.7-27, NEAR LAKSHMI VENKATESHWARA TEMPLE, TENKULIPADY VILLAGE, POST MALALI, MANGALURU TALUK, D.K. DISTRICT-574 165. … RESPONDENT (BY SRI. J. SATHISH KUMAR, ADVOCATE) 2 THIS CRIMINAL APPEAL IS FILED UNDER SECTION 378(4) OF CR.P.C. PRAYING TO SET ASIDE THE JUDGMENT AND ORDER OF ACQUITTAL DATED 06.09.2019 PASSED BY THE JMFC (V COURT), MANGALURU, D.K. DISTRICT IN C.C.NO.1273/2017 - ACQUITTING THE RESPONDENT/ACCUSED FOR THE OFFENCE PUNISHABLE UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT AND ETC. THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 18.07.2025 THIS DAY, THE COURT PRONOUNCED THE FOLLOWING: CORAM: HON'BLE MR. JUSTICE H.P.SANDESH CAV JUDGMENT Heard the learned Counsel for the appellant and the learned Counsel for the respondent. 2. This criminal appeal is filed praying this Court to set aside the judgment and order dated 06.09.2019 passed in C.C.No.1273/2017 on the file of JMFC (V Court), Mangaluru for the offence punishable under Section 138 of N.I. Act. 3. The factual matrix of the case of the complainant/appellant before the Trial Court is that the complainant is a registered Credit Co-operative Society. That the accused has approached the complainant on 21.05.2016 with 3 a request for grant of loan of Rs.26,60,000/- for purchase of Ashok Leyland Tipper. Hence, the complainant has sanctioned a loan of Rs.26,50,000/- to the accused as per its resolution No.59/2 dated 09.06.2016 and the accused has executed a bond in favour of the complainant on 24.06.2016 along with two sureties and also executed letter of guarantee in favour of complainant and also executed a Deed of Hypothecation by hypothecating the Ashok Leyland Tipper bearing Reg. No.KA19- AB-6150 and also executed a promissory note in favour of complainant along with two sureties. The amount was paid by way of Cheque. As per the terms and condition of the loan, the accused has agreed to repay the loan by 60 monthly installments. The accused was very irregular in payment of the loan installments and hence, the complainant repeatedly requested the accused to pay the loan installments. But he has not paid the overdue loan amount. Hence, the complainant seized the hypothecated tipper and issued a notice to the accused to settle the loan amount but, the accused has not responded to the said notice. Hence, the officer of the complainant personally visited the accused residence and 4 advised him to repay the loan amount or otherwise, the complainant society will proceed to sell the hypothecated tipper. Then, the accused issued a Cheque for Rs.27,94,502/- but the said Cheque was dishonoured and thereafter, the complainant society again issued a notice to the accused but the accused has not paid the amount as mentioned in the Cheque. Hence, the complainant instead of taking legal action against the accused, proceeded to auction the tipper by issuing publication and sold the hypothecated vehicle on 19.04.2017 in a public auction to the highest bidder for Rs.19,50,000/- and adjusted the said amount towards the accused loan account and after adjusting also, the accused is liable to pay a sum of Rs.10,32,977/-. On demand, the accused again issued a Cheque for Rs.10,32,977/- to the complainant and the said Cheque was also returned with an endorsement ‘insufficient funds’. Thereafter, the complainant had issued a legal notice dated 23.05.2017 calling upon the accused to pay the amount covered under the dishonoured Cheque through registered post and when acknowledgment was not received, the complainant society enquired with the Post Master to furnish the details whether the notice is served to the 5 accused or not and the Senior Superintendent of Post Office, Mangalore has issued endorsement on 04.07.2017 stating that notice was served to the accused on 27.05.2017. Inspite of service of notice, accused failed to repay the amount. Hence, filed the complaint under Section 138 of N.I. Act. 4. After receipt of the complaint, the Trial Court took the cognizance and recorded the sworn statement of the complainant. In pursuance of the summons, accused appeared and not pleaded guilty and claims for trial. In order to prove the case of the complainant, examined its Branch Manager as PW1 and got marked the documents at Ex.P1 to P12. On the other hand, accused examined himself as DW1 and got marked the documents at Ex.D1 to D3. The Trial Court having considered both oral and documentary evidence placed on record did not accept the case of the complainant in coming to the conclusion that the authorized person can depose and verify on oath before the Court in order to prove the contents of the complaint. However, the authorized person must have witnessed the transaction as an agent of the payee/holder in due course of 6 possess due knowledge regarding the said transactions. The authorized person did not utter anything as to how he acquired the knowledge about the transaction in his chief examination. In the absence of specific assertion in this regard in the complaint, in his sworn statement and in his chief examination placed by way of affidavit, the Court is under no obligation to draw favourable presumption about the competency of the deponent of the affidavit. In paragraph 18, extracted the admission on the part of PW1 that in the evidence he says that he does not remember after how many months of default, the vehicle was seized and before seizure, no notice was given and paper publication was also not given but claims that paper publication was given after auction. But, with regard to public auction is concerned, no notice was given. However, he claims that notice was given in terms of Ex.P7 and they did not get the valuation of the vehicle. 5. The Trial Court having taken note of this admission comes to the conclusion that before seizure, no notice was given and also comes to the conclusion that when vehicle was sold, the 7 hypothecation agreement entered between the parties comes to an end. After appropriating the sale proceeds and after collecting installments from the accused, the company cannot say that the accused is due to pay a sum of Rs.10,32,977/- and accused has denied the fact that he is due of said amount. The Trial Court also comes to the conclusion that mere signature on Ex.P1- Cheque itself is not sufficient to hold that the accused has issued the Cheque towards his liability. No doubt, accused had not replied to the demand notice of the complainant but not replying the demand notice itself is not a badge of his admission with regard to the existence of a debt or liability on his part because, it is not a civil case wherein the complainant has taken the responsibility of proving the allegation against the accused. There is no document before the Court to show that the accused had issued a Cheque at Ex.P1 towards the balance payment as legally recoverable debt. In the absence of such evidence, the Court cannot hold that the accused had issued the said Cheque for Rs.10,32,977/-. The Trial Court having considered all these material on record, acquitted the accused. 8 6. Being aggrieved by the said judgment of acquittal, the complainant filed this appeal before this Court. The learned counsel for the appellant would vehemently contend that availing of loan is not in dispute and issuance of Cheque is also not in dispute. The counsel would vehemently contend that before conducting the auction also notice was given. But the fact that Cheque was dishonoured and notice was issued but no reply was given and the counsel would vehemently contend that the observation of the Trial Court is erroneous. The counsel would vehemently contend that there is no probable defence and not rebutted the same under Section 139 of N.I. Act. The date of loan is 09.06.2016. When all these materials are placed on record, the Trial Court committed an error in acquitting the accused. 7. In response to the arguments of the appellant’s counsel, the counsel for the respondent would vehemently contend that the vehicle valuation was not done before conducting the auction and there is no notice of seizure and there is no notice while disposing of the vehicle and the same is 9 admitted by PW1 in his cross-examination. The counsel also would vehemently contend that the value of the vehicle is more than Rs.35,00,000/- and loan was only Rs.26,50,000/- and also submits that interest was paid but not paid any installments. Hence, the Trial Court having considered the material on record rightly comes to the conclusion that the very issuance of Cheque is not proved. 8. Having heard the learned counsel appearing for the respective parties and also on perusal of the material on record, the point that would arise for consideration of this Court is: 1. Whether the Trial Court committed an error in acquitting the accused in coming to the conclusion that the issuance of Cheque at Ex.P1 is not proved and whether it requires interference of this Court? 2. What order? Point No.1 9. Having heard the learned counsel appearing for the respective parties and also on perusal of both oral and 10 documentary evidence placed on record, it is not in dispute that accused had availed the loan of Rs.26,50,000/- from the complainant. It is also not in dispute that Cheque was presented and same was dishonoured with an endorsement ‘funds insufficient’. It is also not in dispute that when notice was issued, reply was not given. In order to prove the fact that the Cheque was returned, the document at Ex.P2 is placed before the Court that is bank return memo and legal notice was also issued in terms of Ex.P3 and postal receipt is marked as Ex.P4. In order to prove that notice was served, Post Master has issued an endorsement on 04.07.2017 stating that the notice was served on the accused on 27.05.2017 and copy of the letter given to the Post Master and the copy of the letter given by the Post Master also marked as Ex.P5 and P6. It is the contention of the appellant/complainant that Ex.P8 is the loan application and same is not in dispute. Ex.P9 is also agreement and same is not in dispute. Ex.P10 is the statement of accounts which reflects that for having made the payment towards interest amount and except that payment nothing is paid towards any EMI. Ex.P11 is the auction details and Ex.P12 is the resolution. 11 10. Having considered all these documents, it discloses that Ex.P1 – Cheque is not in dispute and accused admits issuance of Cheque. It is the case of the complainant that the Cheque was issued and the same was not disputed and also the fact that availment of loan is also not in dispute. Ex.P7 reflects that after selling of the vehicle, given notice to the accused to pay the balance amount, but, the accused did not pay the balance amount. It is the case of the complainant that after issuance of notice, it was acknowledged and subsequently, the accused had issued a Cheque at Ex.P1 and said Cheque was bounced. 11. I have already pointed out that issuance of Cheque is not disputed and same was returned on 11.05.2017 with an endorsement ‘insufficient funds’ is also not in dispute. It has to be noted that in the admission of PW1, he categorically admitted that reply was given in terms of Ex.D1. PW1 categorically admits that for sale of vehicle is concerned, no public notice was given and also admits that no notice was given with regard to the seizure of the vehicle but claims that before selling the vehicle, 12 public notice was given. PW1 also admits that for auction is concerned, no notice was given but claims that Ex.P7 was given and on perusal of Ex.P7, it discloses that the complainant demanded the balance amount after conducting the auction sale. It is admitted that for the sale of vehicle is concerned, documents are not produced before the Court and also admits that vehicle was not valued before conducting the auction. Having perused these admissions on the part of PW1 and also evidence of accused, it discloses that the accused only claims that he paid the interest of Rs.74,900/- and same reflects in the account extracts produced by the complainant. But in the cross- examination, accused admits that he had availed the loan of Rs.26,50,000/- and except the payment of Rs.74,900/-, he has not made any payment of EMI and also admits that in order to make the payment of installment, no agreement as to give any notice. The accused also categorically admits that he has received the notice regarding dishonour of the Cheque which was issued by him and also categorically admits that he did not seek any time with the complainant to make the payment. But he categorically admits that the seizure was informed to him 13 through phone and he came to know about the seizure of the vehicle through his driver also and he categorically admits that from November 2016 to 19.04.2017, he did not made any payment except claiming that he made the payment of interest for a period of three months. He also categorically admits that even after the seizure of the vehicle also he did not make any efforts to pay the EMI balance amount. When suggestion was made to the accused that public auction was conducted, he says that he was not aware of the same but not specifically denied that it was not conducted in the public auction. The accused also admits that he did not give any notice to return the Cheque which was obtained for security and also no action was taken against the complainant for sold the vehicle for lesser amount. 12. Having reassessed the evidence of DW1 also it is very clear that though he availed the loan from the complainant bank, he did not pay any installments except payment of interest of Rs.74,900/- and the same is reflected in the account extract. I have already pointed out that even after the seizure of the vehicle also the accused did not make any efforts to pay the 14 balance payment though vehicle was seized in the month of November, 2016 till the month of April, 2019 and vehicle was brought to the public auction on 19.04.2017. When the accused did not make any efforts to make the payment of installment and sought for custody of the vehicle, now, he cannot find fault with the complainant in conducting the auction of the vehicle and they cannot keep the vehicle for longer period since its value will be deteriorated. 13. It is important to note that when vehicle was seized, accused did not make any efforts to take back the vehicle by paying the amount and the complainant also have no option other than to conduct the auction and Ex.P11 which is marked before the Court discloses that auction was conducted in the public and highest bidder quoted the amount as Rs.19,15,000/- and same was accepted. No doubt, there are lapses on the part of the complainant in not valuing the vehicle before conducting the auction. But even after seizure of the vehicle also, accused did not question the same and not make any attempt to take back the vehicle by paying the balance payment. It is clear from 15 the records that none of the installments was paid by the accused. Hence, the accused cannot find fault with the complainant in bringing the vehicle for auction. 14. On perusal of the material on record, it discloses that Cheque was issued and same was dishonoured. It is not the case of the accused that cheque was not issued. Under such circumstances, presumption comes to rescue of the complainant that Cheque was issued and accused has to rebut the same. The accused except taking the contention that Cheque was issued towards the security, nothing is placed on record. When such being the case, the Trial Court committed an error in coming to the conclusion that issuance of Cheque has not been proved unless the case of the complainant is rebutted under Section 139 of N.I. Act. The very reasoning given by the Trial Court that there is no document before the Court to show that accused had issued Ex.P1 Cheque towards legally recoverable debt and the same is erroneous when there is no denial from the accused. Apart from that other reason given by the Trial Court that accused has successfully rebutted the presumption available to 16 the complainant is nothing but an error on the part of the Trial Court and reasoning that dishonour of Ex.P1 Cheque do not attract penal consequences and complainant has not established its case and the said finding of the Trial Court is an error. Hence, the matter requires interference of this Court and presumption lies in favour of the complainant. 15. However, it is important to note that when the complainant conducted the auction sale of the vehicle, they have not issued notice before conducting the auction and also not valued the vehicle. When such being the case, though the complainant is entitled for interest is concerned, having taken note of this fact into consideration that valuation is not done and also not given notice of seizure to the accused and also notice was not given while disposing of the vehicle and thus, the accused cannot be penalised to pay the interest. Hence, I am of the opinion that the Trial Court committed an error in acquitting the accused and it requires interference when there is a liability on the accused and accused also did not make payment of installments except payment of interest after availing the benefit 17 of loan. Hence, the matter requires interference. Accordingly, the above point is answered as affirmative. Point No.2: 16. In view of the discussions made above, I pass the following: ORDER The appeal is allowed. The impugned order dated 06.09.2019 passed in C.C.No.1273/2017 by the Trial Court is set aside. The accused is directed to pay the cheque amount of Rs.10,32,997/- within one month from today. If accused fails to pay the said amount, he shall undergo simple imprisonment for a period of one year. Sd/- (H.P. SANDESH) JUDGE SN