2008 (1) TMI 827 - SC - Companies Law

Whether the presumption whether stood rebutted or not? Held that - The courts below as noticed hereinbefore proceeded on the basis that Section 139 raises a presumption in regard to existence of a debt also. The courts below in our opinion committed a serious error in proceeding on the basis that for proving the defence the accused is required to step into the witness box and unless he does so he would not be discharging his burden. The courts below approached the case from a wholly wrong angle viz. wrong application of the legal principles in the fact situation of the case. In view of the legal position the High Court should have entertained the revision application. Appeal allowed. The judgments of conviction and sentence passed against the appellant are set aside.

Issues Involved:
1. Legally enforceable debt.
2. Issuance of cheque to satisfy part or whole of the debt.
3. Return of cheque due to insufficiency of funds.
4. Presumption under Section 139 of the Negotiable Instruments Act.
5. Burden of proof on the accused.
6. Compliance with Section 269SS of the Income Tax Act.

Detailed Analysis:

1. Legally enforceable debt:
The appellant and R.G. Bhat were running a business together. Disputes arose, and the appellant canceled the power of attorney granted to Bhat. The respondent claimed that he advanced Rs. 1,50,000 to the appellant, who issued a cheque that was dishonored. The appellant denied any dealings with the respondent and alleged collusion with Bhat. The courts below presumed the existence of a legally enforceable debt based on the dishonored cheque, without requiring concrete evidence from the respondent.

2. Issuance of cheque to satisfy part or whole of the debt:
The appellant allegedly issued a cheque to repay the loan. The trial court framed points to determine whether the cheque was issued for discharging a debt and whether it was dishonored due to insufficient funds. The appellant contended that the cheque was misused by Bhat. The trial court relied on the presumption under Section 139 of the Act, which the appellant argued was misapplied.

3. Return of cheque due to insufficiency of funds:
The cheque issued by the appellant was dishonored due to insufficient funds. The respondent sent a notice, and the appellant replied, denying any dealings with the respondent and alleging misuse of the cheque by Bhat. The trial court convicted the appellant, and the appellate court upheld the conviction, reducing the sentence. The High Court, in its revisional jurisdiction, accepted the appellant's contention regarding the presumption under Section 139 but still held the appellant guilty.

4. Presumption under Section 139 of the Negotiable Instruments Act:
The appellant argued that the presumption under Section 139 only applies to the issuance of the cheque and not the existence of a legally enforceable debt. The courts below presumed the existence of a debt based on the dishonored cheque. The Supreme Court clarified that Section 139 raises a presumption regarding the issuance of the cheque for discharging a debt, not the existence of the debt itself. The burden of proving the non-existence of consideration can be discharged by raising a probable defense.

5. Burden of proof on the accused:
The courts below erred in holding that the accused must step into the witness box to discharge the burden of proof. The Supreme Court emphasized that an accused can discharge the burden based on materials already on record and has a constitutional right to maintain silence. The standard of proof for the accused is preponderance of probabilities, not beyond reasonable doubt. The appellant raised a probable defense by alleging misuse of the cheque by Bhat, which the courts failed to consider adequately.

6. Compliance with Section 269SS of the Income Tax Act:
The courts below failed to consider that any loan above Rs. 20,000 should be made by an account payee cheque as per Section 269SS of the Income Tax Act. The respondent did not provide any documentary evidence or witness to support his claim of advancing Rs. 1,50,000 in cash. The Supreme Court noted that the absence of such evidence and the improbability of the transaction should have been considered by the lower courts.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgments of conviction and sentence passed against the appellant. The Court emphasized the correct application of legal principles, particularly the presumption under Section 139 of the Negotiable Instruments Act and the burden of proof on the accused. The Court highlighted the need for a balanced approach, considering the presumption of innocence as a human right and the factual matrix of each case.

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