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2017 DIGILAW 295 (KER)

Basheer v. Wheels Auto Finance

2017-02-09

SUDHEENDRA KUMAR

body2017
ORDER : Sudheendra Kumar, J. The revision petitioner was convicted and sentenced by the courts below under Section 138 of the Negotiable Instruments Act (for short, the 'N.I. Act'). 2. The case of the complainant, who is the 1st respondent herein, can be briefly stated as follows:- "The complainant is a partnership firm engaged in the business of advancing money under hire purchase agreement. Towards the discharge of the liability of the revision petitioner to the complainant, the revision petitioner issued Ext. P2 cheque in favour of the complainant. Since the said cheque was dishonoured, the complainant filed the complaint after complying with the legal formalities." 3. Before the Trial Court, the authorised representative of the complainant was examined as PW1 and Exts. P1 to P7 were marked for the complainant. The revision petitioner himself got examined as DW1 and Ext. D1 was marked through him. 4. Heard. 5. The learned counsel for the revision petitioner has argued that since the amount in Ext. P2 cheque includes the normal interest of 18% per annum and the penal interest of 3% per month, the amount covered by Ext. P2 is not legally enforceable in view of Section 7(1) of the Kerala Money-Lenders Act, 1958 and the provisions of the Kerala Prohibition of Charging Exorbitant Interest Act, 2012. 6. Per contra, the learned counsel for the first respondent has argued that since the first respondent is a firm, the provisions of the Kerala Money-Lenders Act are not applicable to the first respondent. It has been further argued by the learned counsel for the first respondent that the notification issued by the State Government under proviso two to Section 7(1) of the Act was applicable only with effect from 11.03.2005 and not at the time of transaction involved in this case and in the said circumstances, the argument of the learned counsel for the revision petitioner in this regard cannot hold good. The learned counsel for the first respondent has also argued that since the Kerala Prohibition of Charging Exorbitant Interest Act was not even enacted during the period of the transaction involved in this case, the argument in this regard cannot also be accepted. 7. It is stated in the complaint that the complainant is a partnership firm. PW1 stated in the cross-examination that the firm of the complainant is engaged in the business of advancing money under hire purchase agreement. 7. It is stated in the complaint that the complainant is a partnership firm. PW1 stated in the cross-examination that the firm of the complainant is engaged in the business of advancing money under hire purchase agreement. The evidence of PW1 coupled with Exts. P6 and P7 would show that PW1 had advanced an amount of Rs.26,000/- to the revision petitioner on 10.11.1999 for purchasing a two wheeler on the basis of Ext. P7 hire purchase agreement. 8. Now the question to be considered is as to whether the provisions of the Kerala Money-Lenders Act are applicable to the complainant. In Sundaram Finance Ltd. v. State of Kerala & Ors. ( 2009 (4) KLT 833 : 2009 (4) KHC 871), the Division Bench of this Court held that the Companies registered under the Companies Act or Societies registered under the Co-operative Societies Act or even the partnerships registered under the Partnership Act or the like are institutions answering the description of 'person' referred to in Section 2(7) of the Kerala Money-Lenders Act. The Court further held in Sundaram Finance (supra) that the above said institutions are not the institutions covered by clause (f) of Section 2(7) of the Kerala Money-Lenders Act. Thus, it is now settled that the provisions of the Kerala Money-Lenders Act are applicable to companies registered under the Companies Act or societies registered under the Co-operative Societies Act or even partnerships registered under the Partnership Act or the like. The Division Bench further held in Sundaram Finance (supra) that the provisions of the Kerala Money-Lenders Act are applicable to the non-banking financial companies, because they are engaged in money lending business. Referring to the attack on the Constitutional validity of Section 7(1) of the Kerala Money-Lenders Act, the Division Bench in Sundaram Finance (supra) held that it was not within the powers of the court to interfere with the policy decision of the Government not to exempt non-banking financial companies from the provisions of the Kerala Money-Lenders Act. From the above authoritative pronouncement by the Division Bench in Sundaram Finance (supra), it is clear that the provisions of the Kerala Money-Lenders Act are applicable to the firm of the complainant as it is a partnership firm engaged in the business of money lending. For the said reason, the argument in this regard advanced by the learned counsel for the first respondent cannot be accepted. 9. For the said reason, the argument in this regard advanced by the learned counsel for the first respondent cannot be accepted. 9. Before proceeding further, it will be advantageous to read Section 7 of the Kerala Money-Lenders Act, which is extracted hereunder:- "7. Interest and charges allowed to money lenders.-- (1) No money-lender shall charge interest on any loan at a rate exceeding two percent above the maximum rate of interest charged by commercial banks on loans granted by them: Provided that money-lender shall be entitled to charge a minimum of one rupee as interest on any transaction: Provided further that the Government may specify, by notification, the rate of interest under sub-section (1) from time to time. (2) xxxx (3) A money-lender shall not demand or take from the debtor any interest, in excess of that payable under sub-section (1). (4) xxxx" 10. Admittedly, the first respondent is a money lender. Under Section 7(1) of the Kerala Money-Lenders Act, no money lender shall charge the interest on any loan at a rate exceeding 2% above the maximum rate of interest charged by commercial banks on loans granted by them. Sub-section (3) of Section 7 specifically makes it clear that the money lender shall not demand or take from the debtor any interest in excess of that payable under sub-section (1). Ext. P2 cheque is dated 22.04.2002. PW1 stated that the amount covered by Ext P2 cheque was arrived at by charging penal interest of 3% per month over and above the usual interest of 18% per annum on the defaulted amount. This would show that the total interest charged in this case would come to 54% per annum. The learned Advocates on both sides have submitted that the prevailing rate of interest charged by commercial banks during 1999-2000 was 12% to 12.5% per annum, during 2000-2001 was 11% to 12% per annum, during 2001-2002 was 12% per annum and during 2002-2003 was 10.75% to 11.50% per annum. The first respondent could have charged interest at a rate not exceeding 2% above the maximum rate of interest charged by commercial banks on loans granted by them. Therefore, the maximum interest which the first respondent could have demanded from the petitioner was only 14% per annum during the period of issuance of Ext. P2 cheque, as the cheque was issued during April 2002. Therefore, the maximum interest which the first respondent could have demanded from the petitioner was only 14% per annum during the period of issuance of Ext. P2 cheque, as the cheque was issued during April 2002. However, the first respondent charged 54% interest per annum, which is no doubt exorbitant. 11. The second proviso to Section 7(1) of the Kerala Money-Lenders Act empowers the State Government by notification specify the rate of interest under sub-section (1) from time to time. By virtue of the said power, the Government of Kerala issued notification, which was published in K.G.(P) No. 541 dated 11.03.2005, which is extracted hereunder- "S.R.O. No. 255/2005.- In exercise of the powers conferred by Section 7 of the Kerala Money-Lenders Act, 1958 (Act 35 of 1958) the Government of Kerala, having considered it necessary in public interest so to do, hereby fix the rate of interest under sub-section (1) of Section 7 of the said Act at twelve percent annum." 12. It is true that the said notification is applicable only from 11.03.2005 onwards. The transaction in this case was during the year 2002. Therefore, the said notification has no application to the case in hand as correctly argued by the learned counsel for the first respondent. 13. Before proceeding further, it is necessary to mention about the Kerala Prohibition of Charging Exorbitant Interest Act, 2012. The said Act came into force with effect from 07.01.2013. The said Act was enacted for the purpose of prohibiting lending of money for exorbitant interest and providing for stringent punishment for charging exorbitant interest in the money lending business in the State of Kerala and for matters connected therewith or incidental thereto. There was no effective mechanism to control charging of exorbitant interest in the business by the money lenders in Kerala. Therefore, in order to relieve the general public from the difficulties being experienced by them by falling prey to any person charging exorbitant interest, the Government of Kerala considered it necessary to enact a new legislation, in the public interest to prohibit lending money for such exorbitant interest and to provide stringent punishment thereof. The Act was intended to achieve the above object. 14. The Act was intended to achieve the above object. 14. Section 2(1) of the Kerala Prohibition of Charging Exorbitant Interest Act, 2012 provides that "exorbitant interest" means an interest at the rate more than the rate specified in sub-section (1) of Section 7 of the Kerala Money-Lenders Act, 1958. Section 3 of the Kerala Prohibition of Charging Exorbitant Interest Act provides that no person shall charge exorbitant interest on any loan advanced by him. Section 4 of the said Act provides that any offence under the said Act shall be cognisable and non-bailable. The punishment for the offence under the said Act is provided under Section 9 of the said Act which provides that whoever contravenes the provisions of Section 3 shall, on conviction, be punished with imprisonment for a term which may extend to three years and also with fine which may extend to fifty thousand rupees. Thus, it is clear that the Government considered the matter seriously and provided severe punishment for collecting exorbitant interest when loan is advanced. It is true that the said Act was not in force at the time of transaction involved in this case. However, the object of the above legislation was to prohibit lending of money for exorbitant interest. 15. Now it is profitable to refer to Section 138 of the Negotiable Instruments Act, 1881, which is extracted hereunder:- "138. It is true that the said Act was not in force at the time of transaction involved in this case. However, the object of the above legislation was to prohibit lending of money for exorbitant interest. 15. Now it is profitable to refer to Section 138 of the Negotiable Instruments Act, 1881, which is extracted hereunder:- "138. Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) xxxx (b) xxxx (c) xxxx Explanation.- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability." 16. The Explanation to Section 138 of the 'N.I. Act' clearly stipulates that the 'debt or other liability' means legally enforceable debt or other liability. Therefore, only legally enforceable debt or liability can be enforced in the proceedings under Section 138 of the N.I. Act. Therefore, the dishonoured cheque must have been received by the complainant against a legally enforceable debt or other liability, to attract the offence under Section 138 of the N.I. Act. If the amount covered by the cheque exceeds the legally enforceable debt or other liability, the offence under Section 138 of the N.I. Act is not attracted on dishonour of the said cheque, as the amount covered by the said cheque is not enforceable in law. 17. In this context, it is relevant to refer to Section 23 of The Indian Contract Act, which is extracted hereunder: "23. 17. In this context, it is relevant to refer to Section 23 of The Indian Contract Act, which is extracted hereunder: "23. What considerations and objects are lawful, and what not.- The consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void." 18. An agreement which is against the public policy or forbidden by law is void and invalid. It cannot become valid even if the parties thereto agree to it. Since there is clear provision under Section 7(1) of the Kerala Money-Lenders Act that the money lender shall not change interest exceeding 2% above the maximum rate of interest charged by commercial banks on loans granted by them, any interest charged above the rate stipulated in Section 7(1) of the Kerala Money-Lenders Act is clearly forbidden by law and is hence opposed to public policy. Therefore, even if there is an agreement to the effect that the party is prepared to pay exorbitant interest, the said agreement cannot be enforceable in law in view of Section 23 of the Indian Contract Act, as it is forbidden by law. 19. Therefore, even if there is an agreement whereby the parties agree to pay penal interest at the rate of 3% per month over and above the interest of 18% per annum, the said agreement is not legally enforceable. In view of the above reason, even if there existed Ext. P7 agreement, that would not help the first respondent to charge exorbitant interest. It is also to be noted that Ext. P7 is blank in respect of almost all details. 20. The words 'for the discharge in whole or in part, of any debt or other liability' appearing in Section 138 of the N.I. Act make it clear that the cheque must be drawn towards the discharge of either the whole or in part of any debt or other liability. P7 is blank in respect of almost all details. 20. The words 'for the discharge in whole or in part, of any debt or other liability' appearing in Section 138 of the N.I. Act make it clear that the cheque must be drawn towards the discharge of either the whole or in part of any debt or other liability. If the amount covered by the cheque is more than the whole of the debt or other liability, the provisions of Section 138 of the N.I. Act will not be attracted, even if the said cheque is dishonoured for insufficiency of funds. This would show that the amount covered by the cheque must be always equivalent to or lesser than the total debt or liability to the complainant. 21. The Division Bench of this Court in Joseph Sartho v. Gopinathan Nair, 2008 (4) KLT 509 ) held that if the whole amount of debt or liability is lesser than the amount covered by the cheque, no offence under Section 138 of the N.I. Act will be attracted, even if, the said cheque is dishonoured for insufficiency of funds in the account of the accused. 22. Both the courts below observed that the amount covered by Ext. P2 cheque was not due to the complainant from the revision petitioner. However, since the revision petitioner admitted that part of the amount covered by Ext. P2 cheque was due to the complainant, the courts below found the revision petitioner guilty under Section 138 of the N.I. Act. Consequently, the revision petitioner was convicted and sentenced thereunder. 23. In order for a cheque to become enforceable in law, it should satisfy the condition stipulated in Section 138 of the N.I. Act. The said cheque should be to discharge in whole or in part of any debt or other liability. In this case, Ext. P2 is for Rs.41,505/-. Ext. P6 contains a rough calculation on its right side, which would show that the principle debt was only Rs.26,000/-, the interest was Rs.11,700/- and the overdue interest was Rs.13,154/-. Rs.315/- was charged as insurance charges and thus the total amount was calculated as Rs.51,169/-. The revision petitioner had already deposited an amount of Rs.8,000/-. Therefore, the balance amount was worked out at Rs.43,169/-. Out of the said balance amount, an amount of Rs.1664/- had been deducted as discount as per the evidence of PW1. Rs.315/- was charged as insurance charges and thus the total amount was calculated as Rs.51,169/-. The revision petitioner had already deposited an amount of Rs.8,000/-. Therefore, the balance amount was worked out at Rs.43,169/-. Out of the said balance amount, an amount of Rs.1664/- had been deducted as discount as per the evidence of PW1. It is not discernible as to why that discount was given to the revision petitioner. No explanation had been given by PW1 in this regard. Even though the revision petitioner repaid an amount of Rs.8000/- out of the amount of Rs.26,000/- borrowed by him, the revision petitioner was called upon to pay an amount of Rs.41,505/-, which is totally unjustified. 24. The evidence of PW1 would make it clear that the amount covered by the cheque includes the defaulted interest plus 3% interest per month as overdue interest. 3% interest per month is 36% interest per annum. The defaulted interest was calculated charging 18% per annum as interest. Thus the amount covered by Ext. P2 cheque would include the actual amount due plus 54% of interest per annum, which is not only against the provisions of Section 7(1) of the Kerala Money-Lenders Act, but is also very exorbitant, unreasonable and against public policy. If the amount covered by any cheque issued to a Money Lender prior to the notification issued by the Government of Kerala, referred above, included the interest exceeding the interest stipulated in Section 7(1) of the Kerala Money-Lenders Act, the said cheque is not enforceable in law and hence the offence under Section 138 of the N.I. Act cannot be attracted. 25. As already mentioned, the Kerala Government in exercise of its power conferred by the second proviso to Section 7(1) of the Kerala Money-Lenders Act issued notification, namely, S. R.O. No. 255/2005, which stipulates the interest provided under Section 7(1) of the Act at 12% per annum. Therefore, after the date of the above notification, namely 11.03.2005, a Money Lender can collect only interest at 12% per annum. Therefore, if the amount in respect of a cheque issued to a Money Lender on or after 11.03.2005 includes the interest exceeding 12% per annum, the said cheque is not enforceable in law and consequently, even if the said cheque is dishonoured for insufficiency of funds, the offence under Section 138 of the N.I. Act is not attracted. 26. Therefore, if the amount in respect of a cheque issued to a Money Lender on or after 11.03.2005 includes the interest exceeding 12% per annum, the said cheque is not enforceable in law and consequently, even if the said cheque is dishonoured for insufficiency of funds, the offence under Section 138 of the N.I. Act is not attracted. 26. In this case, in view of the reasons mentioned above, there can be no doubt that the amount covered by Ext. P2 cheque is not enforceable in law and consequently the offence under Section 138 of the N.I. Act cannot be attracted. For the said reason, the conviction and sentence passed by the courts below cannot be sustained and consequently, I set aside the same. 27. In the result, this Revision Petition stands allowed setting aside the conviction and sentence passed by the courts below under Section 138 of the N.I. Act and the revision petitioner stands acquitted for the said offence. The bail bond of the revision petitioner stands discharged. Needless to state that if the revision petitioner had deposited any amount before the trial court pursuant to the direction of this Court, the revision petitioner is entitled to reimbursement of the said amount from the trial court.