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Synopsis

The Supreme Court recently set aside the judgments of the Karnataka High Court and the appellate court, which directed a flat owner to pay compensation to the sum of Rs 9,00,000, given by a tenant as a security deposit, for dishonour of cheques, after noting that the complainant failed to conclusively establish that the entire amount under the post-dated cheques was a legally enforceable debt.

A bench of Justices Vikram Nath and Sandeep Mehta also noted it was as clear as daylight that the respondent-complainant continued to occupy the subject flat for a period of nearly five years beyond the last date of the rent agreement without paying any rent or maintenance amount.

"In this background, the appellant-accused was definitely not liable to refund the entire security deposit amount of Rs 9,00,000 covered by the post-dated cheques, to the respondent-complainant because he was entitled to deduct the amount of due rent and maintenance from the said amount. Hence, the respondent-complainant failed to lead evidence to conclusively establish that the entire amount under the post-dated cheques was a legally enforceable debt against the appellant-accused," the bench said.

The court held that the judgments of the appellate court and the Karnataka High Court did not stand to legal scrutiny. It noted that the appellant had already deposited Rs 4,20,000. 

The bench, while setting aside the judgments of the high court and the appellate court and restoring that of the trial court, directed that the sum of Rs 3,00,000 by way of compensation would be paid to the respondent-complainant. The remaining amount over and above the sum of Rs 3,00,000 awarded to the respondent-complainant by way of compensation should be reimbursed to the appellant-accused, court ordered.

The appeal challenged the validity of a common judgment and final order dated July 8, 2024, passed by the single judge of the High Court of Karnataka at Bengaluru, whereby the criminal revision petitions were dismissed.

The appellant-accused and respondent entered into a lease-cum-rent agreement on May 12, 2014, for a flat in Bangalore. The respondent-complainant deposited a sum of Rs 9,00,000 with the appellant-accused by way of ‘security deposit’. The rent for the subject flat was settled at Rs 2,500 per month as per the rent agreement, which was valid for a period of 11 months and was to terminate on April 11, 2015. 

Upon completion of 11 months, the respondent-complainant issued a notice on June 18, 2015, to the appellant-accused, imploring him to refund the security deposit amount. However, the appellant-accused could not arrange the said amount and thus issued four post-dated cheques to the respondent-complainant. The cheques were dishonoured with the endorsement ‘funds insufficient’.

The respondent-complainant filed four separate complaints against the appellant-accused before the Additional Chief Metropolitan Magistrate, Bangalore City. The trial court, on November 9, 2016, convicted the appellant-accused in all four complaints for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881, and sentenced him to pay a total fine amount of Rs 3,00,000 with simple interest at the rate of 6% per annum from the date of the cheques till realisation thereof.

The appellate court, by separate judgments dated March 6, 2018, dismissed the appeals filed by the appellant-accused and partly allowed the appeals filed by the respondent-complainant, affirming the conviction of the appellant-accused and enhancing the compensation amount to Rs 9,00,000. In default, the appellant-accused was directed to undergo imprisonment for one year.

The high court, by a common judgment dated July 8, 2024, dismissed all the revision petitions filed by the appellant-accused and upheld his conviction under Section 138 of the NI Act. Further, the high court also directed the appellant-accused to pay a fine amount of Rs 9,00,000 to the respondent-complainant on or before July 31, 2024 (less the amount, if any, already deposited). In default, the appellant-accused was directed to undergo simple imprisonment for a period of two years.

Before the apex court, the appellant-accused said he had issued four post-dated cheques by way of security in favour of the respondent-complainant, who had acknowledged the receipt thereof but refused to hand over the keys till the date of the last cheque. He said that the respondent-complainant did not vacate the subject flat and started threatening the appellant-accused by demanding a huge amount. 

The respondent-complainant misused the post-dated cheques and instituted four malicious complaints under the NI Act against the appellant-accused.

He pointed out that the respondent-complainant admitted in his cross-examination that he had not vacated the flat and continued to occupy the same without paying any rent or maintenance charges. He submitted that the appellant-accused was ultimately compelled to institute a suit under the Karnataka Rent Act, 1999, seeking ejectment of the respondent-complainant from the subject flat and for damages, which came to be partly decreed by the Additional Judge, Small Causes Court, Bengaluru, by its judgment dated September 27, 2019.

The appellant also submitted that the respondent-complainant was actually evicted from the subject flat only on January 8, 2020, pursuant to action taken in the execution petition filed by him. He said that the respondent-complainant admittedly continued to occupy the flat owned by the appellant-accused without paying any rent for nearly five years and, hence, his conviction for failing to refund the cheques given for covering the security deposit amount is absolutely unjustified because the case set up by the respondent-complainant does not satisfy the parameters of a legally enforceable debt against the appellant-accused so as to make him liable for the offence punishable under Section 138 of the NI Act.

The respondent-complainant, on the opposite, said that the appellant-accused was unjustifiably trying to confuse the issue of rent of the subject flat with the dishonour of cheques, whereas both had no correlation whatsoever. Indisputably, the respondent-complainant had paid a sum of Rs 9,00,000 to the appellant-accused by way of security deposit when the subject flat was taken on rent. 

Upon completion of the tenure of the rent agreement, since the security deposit amount was not refunded, the appellant-accused issued four disputed post-dated cheques to the respondent-complainant. These cheques were presented by the respondent-complainant in his bank to cover his rightful claim, and the same came to be dishonoured on account of insufficient funds.

Hence, the respondent-complainant submitted that the appellate court and the high court were totally justified in confirming the conviction of the appellant-accused and in enhancing the amount of compensation from Rs 3,00,000.

The bench partly allowed the appeals and restored the trial court’s judgment, also noting that the flat was locked by the tenant and the locks were broken to hand over possession to the appellant-accused on January 8, 2020, on a direction of the court.

Case Title: M S Nagabhushan Vs D S Nagaraja