Supreme Court Quashes High Court Enhancement of Compensation in Cheque-Dishonour Case; Restores Trial Court Award

A Bench of Justices Vikram Nath and Sandeep Mehta heard appeals against the Karnataka High Court’s common judgment of 8 July 2024 which dismissed criminal revision petitions and upheld convictions under Section 138 of the Negotiable Instruments Act arising from four post‑dated cheques totalling Rs.9,00,000. The appeals concerned whether the entire cheque amount was a legally enforceable debt given the tenant’s continued occupation of the flat and counter-claims for rent and damages.

The Court partly allowed the appeals, quashed the judgments of the appellate Court and the High Court that had enhanced compensation to Rs.9,00,000, and restored the trial Court’s conviction and sentencing order which had awarded compensation of Rs.3,00,000 with interest. The Court accepted that deductions for unpaid rent and maintenance could be made from the security deposit and held that the complainant had failed to prove that the entire cheque amount was a legally enforceable debt. The Court, in its reasoning, observed: "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 Court also recorded that "it is as clear as daylight that the respondent-complainant continued to occupy the subject flat, for a period of nearly 5 years beyond the last date of the rent agreement without paying any rent or maintenance amount."

Background The dispute arose from a lease‑cum‑rent agreement dated 12 May 2014 for a flat in Bengaluru for 11 months, where the tenant (respondent) paid Rs.9,00,000 as security deposit. On expiry of the tenancy the landlord (appellant) issued four post‑dated cheques totalling Rs.9,00,000 for refund of the deposit. The cheques bounced with the endorsement "funds insufficient" and the tenant filed four separate criminal complaints under Section 138 NI Act.

The trial Court convicted the appellant and awarded compensation of Rs.3,00,000 with 6% interest, out of which Rs.5,000 was forfeited to the State. The appellate Court affirmed conviction but enhanced compensation to Rs.9,00,000. The High Court dismissed the appellant’s revision petitions and confirmed the enhanced award, directing payment by 31 July 2024 and prescribing imprisonment in default.

The appellant contended before the Supreme Court that the cheques were issued only as security for the deposit and that the tenant did not vacate the flat or pay rent, entitling the landlord to set off arrears from the deposit. The respondent argued that presentation and dishonour of the cheques established a liability. The trial record, including the tenant’s cross‑examination, showed continued occupation without rent and a subsequent civil decree for ejectment; execution returned possession only on 8 January 2020. The Supreme Court found that the tenant had not led evidence to show entitlement to the entire deposit and that deductions for rent and maintenance were permissible. The Court noted earlier interim orders in related SLPs concerning deposits (two demand drafts totalling Rs.4,20,000 were transmitted and invested) and directed accountal of those funds and interest.

Final result: the Supreme Court quashed the appellate and High Court orders enhancing compensation, restored the trial Court judgment awarding Rs.3,00,000 (with interest) to the complainant, ordered reimbursement of the balance to the appellant, and directed the trial Court to effect the disbursements and compliance within two months. The appeals were thus partly allowed and pending applications disposed of.

Case No.: Criminal Appeal @ SLP(Crl.) Nos. 11002-11009/2024 (2025 INSC 316) Case Title: M.S. NAGABHUSHAN v. D.S. NAGARAJA Appearances: For the Petitioner(s): Counsel not indicated in judgment For the Respondent(s): Counsel not indicated in judgment