In a recent landmark judgment, the Supreme Court of India addressed crucial issues concerning defenses available to an accused in cases of cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881. The case revolved around a dispute involving a cheque of Rs.19 lakhs, issued by the respondent to a chit fund company. The cheque was dishonoured with the endorsement “Account Closed,” leading to the respondent’s conviction by the trial court. However, the appellate court and the High Court acquitted him, prompting the chit fund company to appeal to the Supreme Court.

The Core Issue
The crux of the case was whether the respondent could dispute the interest rate applied to the amount due as a defense in the dishonour of the cheque case. The appellate and High Courts had found that the company had incorrectly calculated the interest at 3% per month instead of the agreed 1.8%. The respondent argued that this discrepancy was significant enough to invalidate the cheque.

Supreme Court’s Analysis
The Supreme Court, comprising Justices Hima Kohli and Ahsanuddin Amanullah, overturned the lower courts’ acquittals and emphasized that once an accused admits to issuing a cheque, they cannot dispute the amount, including interest, as a defense. Here’s a detailed look at the Court’s reasoning:

Admission of Execution: The Court noted that the respondent admitted to having executed the cheque. This admission is pivotal, as once a cheque’s execution is admitted, the grounds for its dishonour cannot be challenged based on the dispute over the amount. The Court observed that the respondent’s act of closing the account shortly after issuing the cheque was a suspicious circumstance.
Relevance of Interest Rate: The Supreme Court dismissed the argument that the interest rate discrepancy (3% vs. 1.8%) was a valid defense. The Court reasoned that the principal amount was undisputed, and any variation in the interest rate did not undermine the fundamental nature of the cheque’s issuance for repayment. The Court referred to its previous judgment in Dashrath Rupsingh Rathod v. State of Maharashtra (2014), asserting that dishonour of the cheque constitutes the offence under Section 138, regardless of the interest rate applied.
Legal and Procedural Insights: The Supreme Court emphasized that the provisions of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003, which limits interest rates, could not be invoked in these proceedings. The respondent, by executing the promissory notes and cheques, had agreed to the terms, including the interest rates, and could not now challenge these terms in a collateral proceeding under the N.I. Act.
Impact and Outcome
The Supreme Court reversed the lower courts’ acquittal and imposed a fine of Rs.28.5 lakhs (one and a half times the cheque amount). While the Court acknowledged the respondent’s advanced age and personal circumstances, it waived the sentence of imprisonment provided the fine was paid within eight months. Failure to comply would result in a one-year simple imprisonment sentence.

Conclusion
This judgment underscores the stringent enforcement of Section 138 of the Negotiable Instruments Act and clarifies that disputes over the terms, including interest rates, do not constitute valid defenses once the execution of the cheque is admitted. The decision reaffirms the principle that cheque dishonour cases are primarily about the adherence to the cheque’s face value and its terms, rather than ancillary disputes. This ruling is a critical reminder of the legal obligations associated with issuing cheques and the limits of contestation in such cases.