2025 (4) TMI 1314 - SC - Indian Laws

Dishonour of Cheque - discharge of burden by accused u/s 118 (a) and 139 of the N.I. Act - rebuttal of presumption - whether the High Court was justified in overturning the order of acquittal passed by the Trial Court? - HELD THAT - Section 118 (a) assumes that every negotiable instrument is made or drawn for consideration while Section 139 creates a presumption that the holder of a cheque has received the cheque in discharge of a debt or liability. Presumptions under both are rebuttable meaning they can be rebutted by the accused by raising a probable defence. This Court through various pronouncements has consistently clarified the nature and extent of these presumptions and the standard of proof required by the accused to rebut them. A three-Judge Bench of this Court in Rangappa 2010 (5) TMI 391 - SUPREME COURT had the occasion to consider Section 139 elaborately. The Court reiterated that where the signature on the cheque is acknowledged a presumption has to be raised that the cheque pertained to a legally enforceable debt or liability however this presumption is of a rebuttal nature and the onus is then on the accused to raise a probable defence. The cheques issued were against an enforceable debt and held by the complainant as such even though there was no paperwork to that effect. The onus as such was shifted upon the other party i.e. the accused to raise a probable defence against such presumption. It has also come on record that the cheque subject matter of controversy was given to the complainant in the presence of common well-wishers. However none of the above statements stands scrutiny. The alleged well-wishers who could have proved the discussion and context in which the cheque was given remained unexamined. As stated by the complainant himself there is no official record such as income tax documents which would show that such an amount was extended by way of a loan to the accused neither have the books of account which the complainant allegedly maintained being produced to evidence the seven or eight transactions inter se the parties totalling the claimed amount. Conclusion - It cannot be said that the complainant was able to discharge the burden once it had shifted back upon him with the accused having discharged the burden of Sections 118 and 139 of the N.I. Act. The Trial Court was correct in recording a finding of acquittal in favour of the accused and reversal thereof by the High Court in terms of the impugned judgment with particulars as in Para 1 was unjustified - Appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the applicability and rebuttal of presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act, 1881 (N.I. Act), specifically:

(i) Whether the accused has discharged the burden of rebutting the presumption under Section 139 that the cheque was issued for discharge of a legally enforceable debt or liability;

(ii) Whether the High Court was justified in reversing the Trial Court's acquittal and convicting the accused under Section 138 of the N.I. Act;

(iii) The nature and extent of the burden of proof on the accused to rebut the statutory presumptions under Sections 118(a) and 139 of the N.I. Act;

(iv) The evidentiary value and credibility of the documents and oral evidence relied upon by both parties, including the Memorandum of Understanding (MoU) and the alleged forgery of documents;

(v) The sufficiency of the complainant's evidence to establish the existence of a legally enforceable debt or liability after the accused raised a probable defence.

Issue-wise detailed analysis:

1. Presumptions under Sections 118(a) and 139 of the N.I. Act and the burden of proof:

The Court examined the statutory presumptions under Sections 118(a) and 139, which respectively presume that every negotiable instrument is made for consideration and that the holder of a cheque received it for discharge of a debt or liability. Both presumptions are rebuttable, requiring the accused to raise a probable defence to shift the burden back to the complainant.

Precedents such as Mallavarapu Kasivisweswara Rao v. Thadikonda Ramulu Firm and Kumar Exports v. Sharma Carpets were extensively relied upon to elucidate that the accused need not prove the non-existence of consideration or debt beyond reasonable doubt but must bring on record facts or circumstances making the non-existence of consideration or debt probable or doubtful. Mere denial is insufficient; the defence must be reasonably probable to rebut the presumption.

The Court also referred to the three-Judge Bench decision in Rangappa, which clarified that the presumption under Section 139 is a rebuttable evidentiary burden, not a persuasive one, and the accused can rely on the complainant's own materials to raise a probable defence. The standard of proof is "preponderance of probabilities."

Further, the judgment in Basalingappa v. Mudibasappa was cited to summarize the principles that the accused need not necessarily examine himself in court and may rely on circumstantial evidence or documents to rebut the presumption.

2. Evaluation of the accused's defence and evidence:

The accused's defence was that the cheque was issued as security for a smaller loan of Rs.3,50,000/- taken for producing a Kannada film completed in 2003, and that this loan was fully settled by a Memorandum of Understanding dated 29th March 2008 recording a final payment of Rs.5,50,000/- inclusive of interest.

Additionally, the accused had lodged a police complaint regarding the loss of two blank signed cheques given as security, alleging misuse by the complainant. The cheque in question was presented for encashment after this police complaint was filed.

The accused's affidavit and cross-examination admitted issuance of two blank cheques as security for the Rs.3,50,000/- loan, indicating the cheque was linked to an enforceable debt. However, the accused contended that the debt was fully discharged as per the MoU.

The Court found that these facts constituted a probable defence sufficient to rebut the statutory presumptions. The defence was supported by documentary evidence (the MoU) and the police complaint, and the timing of events (loan repayment prior to cheque dishonour) was significant.

3. Assessment of the complainant's evidence and credibility:

The complainant claimed to have extended a hand loan of Rs.20,00,000/- and relied on the cheque dated 14th October 2008, which was dishonoured. The complainant issued a statutory notice demanding repayment.

However, the Court noted several weaknesses in the complainant's case:

- The complainant admitted in cross-examination that the alleged loans were given in multiple installments without any receipts or official records such as income tax documents or books of accounts;

- The alleged well-wishers who could have corroborated the context of cheque issuance were not examined;

- The document relied upon by the accused (MoU) was challenged as forged by the complainant, supported by unchallenged expert handwriting evidence; however, contradictions in the complainant's witnesses' testimonies and the suspicious circumstances surrounding the document's creation undermined the complainant's case;

- The High Court had relied on these contradictions and expert evidence to convict the accused, but the Supreme Court found the High Court failed to appreciate the totality of the evidence and the accused's probable defence.

4. Application of law to facts and treatment of competing arguments:

The Trial Court had acquitted the accused, holding that the accused rebutted the presumption under Sections 118 and 139 by raising a probable defence supported by evidence and circumstances, including the MoU and police complaint.

The High Court reversed this acquittal, relying on contradictions in the accused's witnesses and the alleged forgery of the MoU, and held that the complainant had discharged the burden of proof by issuing the statutory notice and proving dishonour of the cheque.

The Supreme Court undertook a detailed analysis of the evidentiary standards and the nature of presumptions under the N.I. Act. It emphasized that the accused's defence need only be probable, not beyond reasonable doubt, and that once a probable defence is raised, the burden shifts back to the complainant to prove existence of debt or liability beyond reasonable doubt.

On this basis, the Court found the complainant failed to discharge this burden due to lack of credible evidence and official records substantiating the alleged loan amount of Rs.20,00,000/-, and the absence of examination of corroborative witnesses.

The Court also noted that the High Court had erred in its interpretation of the precedent in Rangappa, failing to explain how it supported the complainant's case and overlooking the accused's probable defence.

5. Final conclusions:

The Supreme Court concluded that the accused had raised a probable defence rebutting the statutory presumptions and that the complainant failed to prove the existence of a legally enforceable debt or liability beyond reasonable doubt. Therefore, the Trial Court's acquittal was justified, and the High Court's conviction was set aside.

The Court ordered release of the amount deposited in the Registry to the accused along with interest and dismissed the appeal.

Significant holdings and core principles established include:

"Once the accused adduces evidence to the satisfaction of the Court that on a preponderance of probabilities there exists no debt/liability in the manner pleaded in the complaint or the demand notice or the affidavit-evidence, the burden shifts to the complainant and the presumption 'disappears' and does not haunt the accused any longer."

"The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities."

"It is not necessary for the accused to come in the witness box to support his defence."

"The accused can rely on the materials submitted by the complainant in order to raise a probable defence."

"The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities showing that the existence of consideration was improbable, doubtful or illegal."

"The High Court erred in reversing the acquittal without adequately appreciating the accused's probable defence and the complainant's failure to establish the existence of debt beyond reasonable doubt."