Wednesday 25 July 2018

When presumption under S 138 of NI Act shall not apply in cheque dishonour case?

A perusal of the aforesaid statements made in
cross-examination by the appellant shows that he has
completely failed to prove the foundational fact of
having advanced loan to the respondent. Therefore, his
claim that the cheques in question were issued by the
respondent for repayment of the loan could not be
accepted. The failure on the part of the appellant to
produce his account statement and absence of entry in
accounts maintained by him regarding loan advanced to
the respondent, does show that there was no material to
support the basic facts on which the entire case of the
appellant was based. Apart from this, suggestions given
in the cross-examination and statements made in
response thereto by the appellant, show that there
were other transactions in respect of which there was
exchange of moneys by the appellant. Applying the
position of law as it emerges from the above quoted
precedents to the facts of the present case, it becomes
clear that sufficient material was available on record

whereby the defence of the respondent became
probable. In such a situation, the presumption under
the provisions of the said Act ceased to operate and the
burden fell upon the appellant to prove his case, which
he failed to do by placing on record cogent evidence.
21. As the foundational facts were not established
by the appellant in the present case, it cannot be said
that the trial Court committed any error in holding that
the respondent deserved to be acquitted. The
appellant's case stood completely discredited in crossexamination
and, therefore, he could not succeed before
the trial Court riding on the presumption said to operate
in his favour under Sections 118 and 139 of the
aforesaid Act.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR.
Criminal Application (APPA) No.346/2017
(Sanjay Yadhavraoji Makode .vs. Suhas Prakashji Dhote )

CORAM : Manish Pitale, J.

DATED: July 10,2018

1. The applicant herein is the original
complainant who has challenged impugned judgment
and order dated 28.02.2017 passed by the Court of
Judicial Magistrate First Class, Warud (trial Court) in
Summary Criminal Case No.114/2012, whereby the trial
Court acquitted the respondent for offence punishable
under Section 138 of the Negotiable Instruments Act,
1881.
2. Having heard the counsel for the applicant,
sufficient ground is made out for grant of leave. Hence
leave granted to the applicant to challenge the said
impugned judgment and order.
Criminal Appeal No.429/2018.
The question that arises for consideration in
this appeal is whether presumption under Section 139
read with Section 118 of the aforesaid Act would operate
against the respondent (original accused) for an alleged

offence of dishonour of cheque under Section 138 of the
said Act and whether the respondent had rebutted such
presumption when he failed to file reply to the complaint
of the appellant and he did not adduce any direct
evidence in order to support his defence. It needs to be
examined whether the trial Court in such circumstances
was justified in acquitting the respondent in the present
case.
2. The facts in the present case are in a narrow
compass. The appellant (original complainant) and the
respondent (original accused) are related to each other
having cordial relations. It was the case of the appellant
that the respondent had approached him for a hand
loan of Rs.2 lakhs and that the appellant had given him
cash amount of Rs.2 lakhs. According to the appellant,
in order to repay the said loan, the respondent had
issued two cheques, but when they were presented for
encashment, they were returned by the Bank with the
remarks “funds insufficient”.
3. The appellant issued notice to the respondent
in respect of the dishonour of the cheques, but the
respondent failed to respond to the same and, therefore,
the appellant was constrained to file complaint under
the provisions of the said Act before the trial Court.
4. In the trial Court, the appellant led oral and
documentary evidence while the respondent failed to
lead any evidence in support of his stand. Therefore,
when the complaint came up for consideration before

the trial Court, it was only the complaint of the
complainant, documents filed therewith and the oral
evidence of the appellant that was available on record.
It was the case of the respondent in arguments before
the trial Court that the appellant had failed to give
necessary details of when and how the said amount of
hand loan was given to the respondent and that there
was ample material on record in the form of crossexamination
of the appellant, indicating that the cheque
in question had been issued in the context of another
transaction towards security.
5. The trial Court considered the entire material
on record and by the impugned judgment and order, it
was held that although presumption in favour of the
appellant did operate under Sections 118 and 139 of the
said Act, there was sufficient material on record to
demonstrate that the defence of the respondent was
probable. On this basis, the trial Court acquitted the
respondent.
6. Mrs. R.D. Raskar, learned counsel appearing
on behalf of the appellant, submitted that the trial Court
had committed an error in holding that the defence of
the respondent was probable because the respondent
had failed to send reply to the statutory notice, he had
failed to file any submissions or response to the
complaint before the trial Court and that he had not
entered the witness box in order to adduce evidence in
support of his defence. It was submitted that when the
respondent had failed to even respond to the statutory

notice and no evidence was adduced on his behalf to
support his stand, the presumption under Sections 118
and 139 of the aforesaid Act operated in full force
against the respondent. In the absence of any material
placed on record by the respondent to rebut such
presumption, the trial Court could not have acquitted
the respondent. It was submitted that the contents of
the complaint of the appellant ought to have been
accepted by the trial Court and the respondent
deserved to be convicted.
7. Per contra, Mr. V.N. Morande, learned counsel
appearing on behalf of the respondent, submitted that
even if there was presumption that cheque was issued
for discharge of legal debt or liability, once the signature
on the cheque was admitted, the appellant
(complainant) was still required to prove foundational
facts of his case. It was further submitted that when the
appellant failed to prove such foundational facts
regarding hand loan advanced to the respondent, the
presumption under the said Act would not be triggered.
It was further submitted that even if presumption was to
operate against the respondent, he was entitled to rebut
the same on the basis of material brought on record by
way of cross-examination of the appellant. It was
submitted that in order to rebut the presumption, it was
not necessary for the respondent to enter the witness
box and that he could very well rebut the presumption
by discrediting the appellant in cross-examination. Both
parties placed reliance on various judgments pertaining
to the said question.

8. Before referring to the evidence and material
on record in the present case, in order to examine
whether the appellant was justified in contending that
presumption operated against the respondent, which
remained unrebutted, it would be necessary to refer to
few precedents which would help in answering the said
question.
9. In the case of M.S. Narayana Menon .vs.
State of Kerala – (2006) 6 Supreme Court Cases
39, the Hon'ble Supreme Court has referred to the
presumption under Sections 118 and 139 of the said Act
and it has been held that the presumption is rebuttable.
In that context, the Hon'ble Supreme Court in the said
judgment has held as follows:-
“30. Applying the said definitions of
'proved' or 'disproved' to principle
behind Section 118(a) of the Act, the
Court shall presume a negotiable
instrument to be for consideration
unless and until after considering the
matter before it, it either believes that
the consideration does not exist or
considers the non-existence of the
consideration so probable that a
prudent man ought, under the
circumstances of the particular case, to
act upon the supposition that the
consideration does not exist. For
rebutting such presumption, what is
needed is to raise a probable defence.
Even for the said purpose, the evidence
adduced on behalf of the complainant
could be relied upon.
31. A Division Bench of this Court
in Bharat Barrel & Drum Manufacturing
Company v. Amin Chand Payrelal

[(1999) 3 SCC 35] albeit in a civil case
laid down the law in the following
terms:
"12. Upon consideration of
various judgments as noted
hereinabove, the position of
law which emerges is that once
execution of the promissory
note is admitted, the
presumption under Section
118(a) would arise that it is
supported by a consideration.
Such a presumption is
rebuttable. The defendant can
prove the non-existence of a
consideration by raising a
probable defence. If the
defendant is proved to have
discharged the initial onus of
proof showing that the
existence of consideration was
improbable or doubtful or the
same was illegal, the onus
would shift to the plaintiff who
will be obliged to prove it as a
matter of fact and upon its
failure to prove would disentitle
him to the grant of relief on the
basis of the negotiable
instrument. 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 by reference to
the circumstances upon which
he relies. In such an event, the
plaintiff is entitled under law to
rely upon all the evidence led
in the case including that of
the plaintiff as well. In case,
where the defendant fails to
discharge the initial onus of
proof by showing the nonexistence
of the consideration,

the plaintiff would invariably be
held entitled to the benefit of
presumption arising under
Section 118(a) in his favour.
The court may not insist upon
the defendant to disprove the
existence of consideration by
leading direct evidence as the
existence of negative evidence
is neither possible nor
contemplated and even if led,
is to be seen with a doubt."
This Court, therefore, clearly opined
that it is not necessary for the
defendant to disprove the existence of
consideration by way of direct evidence.
32. The standard of proof
evidently is preponderance of
probabilities. Inference of
preponderance of probabilities can be
drawn not only from the materials on
records but also by reference to the
circumstances upon which he relies.
33. Presumption drawn under a
statute has only an evidentiary value.
Presumptions are raised in terms of the
Evidence Act. Presumption drawn in
respect of one fact may be an evidence
even for the purpose of drawing
presumption under another.”
10. In the case of Kumar Exports .vs. Sharma
Carpets – (2009) 2 Supreme Court Cases 513, in
the context of presumption against the accused under
the said Act, the Hon'ble Supreme Court has held as
follows:-
“20. The accused in a trial under
Section 138 of the Act has two options.
He can either show that consideration
and debt did not exist or that under the

particular circumstances of the case the
non-existence of consideration and debt
is so probable that a prudent man ought
to suppose that no consideration and
debt existed. To rebut the statutory
presumptions an accused is not
expected to prove his defence beyond
reasonable doubt as is expected of the
complainant in a criminal trial. The
accused may adduce direct evidence to
prove that the note in question was not
supported by consideration and that
there was no debt or liability to be
discharged by him. However, the court
need not insist in every case that the
accused should disprove the nonexistence
of consideration and debt by
leading direct evidence because the
existence of negative evidence is
neither possible nor contemplated. At
the same time, it is clear that bare
denial of the passing of the
consideration and existence of debt,
apparently would not serve the purpose
of the accused. Something which is
probable has to be brought on record
for getting the burden of proof shifted
to the complainant. To disprove the
presumptions, the accused should bring
on record such facts and circumstances,
upon consideration of which, the court
may either believe that the
consideration and debt did not exist or
their non-existence was so probable
that a prudent man would under the
circumstances of the case, act upon the
plea that they did not exist. Apart from
adducing direct evidence to prove that
the note in question was not supported
by consideration or that he had not
incurred any debt or liability, the
accused may also rely upon
circumstantial evidence and if the
circumstances so relied upon are
compelling, the burden may likewise
shift again on to the complainant. The
accused may also rely upon

presumptions of fact, for instance, those
mentioned in Section 114 of the
Evidence Act to rebut the presumptions
arising under Sections 118 and 139 of
the Act.
21. The accused has also an
option to prove the non-existence of
consideration and debt or liability either
by letting in evidence or in some clear
and exceptional cases, from the case
set out by the complainant, that is, the
averments in the complaint, the case
set out in the statutory notice and
evidence adduced by the complainant
during the trial. Once such rebuttal
evidence is adduced and accepted by
the court, having regard to all the
circumstances of the case and the
preponderance of probabilities, the
evidential burden shifts back to the
complainant and, thereafter, the
presumptions under Sections 118 and
139 of the Act will not again come to
the complainant's rescue.
11. Thereafter, a three Judge Bench of the
Hon'ble Supreme Court in the case of Rangappa .vs.
Sri Mohan – (2010) 11 Supreme Court Cases 441 ,
in the context of Section 139 of the said Act, has held
as follows:-
“27. Section 139 of the Act is an
example of a reverse onus clause that
has been included in furtherance of the
legislative objective of improving the
credibility of negotiable instruments.
While Section 138 of the Act specifies a
strong criminal remedy in relation to the
dishonour of cheques, the rebuttable
presumption under Section 139 is a
device to prevent undue delay in the
course of litigation. However, it must be
remembered that the offence made
punishable by Section 138 can be better

described as a regulatory offence since
the bouncing of a cheque is largely in
the nature of a civil wrong whose
impact is usually confined to the private
parties involved in commercial
transactions. In such a scenario, the
test of proportionality should guide the
construction and interpretation of
reverse onus clauses and the
accused/defendant cannot be expected
to discharge an unduly high standard or
proof.
28. In the absence of compelling
justifications, reverse onus clauses
usually impose an evidentiary burden
and not a persuasive burden. Keeping
this in view, it is a settled position that
when an accused has to rebut the
presumption under Section 139, the
standard of proof for doing so is that of
`preponderance of probabilities'.
Therefore, if the accused is able to raise
a probable defence which creates
doubts about the existence of a legally
enforceable debt or liability, the
prosecution can fail. As clarified in the
citations, the accused can rely on the
materials submitted by the complainant
in order to raise such a defence and it is
conceivable that in some cases the
accused may not need to adduce
evidence of his/her own.”
12. In this context, the trial Court has taken note
of judgment of the Hon'ble Supreme Court in the case of
John K. Abraham .vs. Simon C. Abraham and
another – (2014) 2 Supreme Court Cases 236
wherein at para 9, the Hon'ble Supreme Court has held
as follows:-
“9. It has to be stated that in order to
draw the presumption under Section
118 read along with 139 of the

Negotiable Instruments Act, the burden
was heavily upon the complainant to
have shown that he had required funds
for having advanced the money to the
accused; that the issuance of the
cheque in support of the said payment
advanced was true and that the
accused was bound to make the
payment as had been agreed while
issuing the cheque in favour of the
complainant.”
13. The position of law that emerges from the
aforesaid precedents is that although presumption does
arise against the accused in such cases under Sections
118 and 139 of the said Act, the presumption is
rebuttable on the touchstone of preponderance of
probabilities. The accused is also entitled to show that
the foundational facts on which such presumption arises
have not been proved by the complainant and further
that the accused can rebut a presumption under the
said provisions, either by adducing direct evidence in
support of his stand or by discrediting the complainant
in cross-examination to demonstrate that his defence
was probable. On the accused demonstrating the real
facts of the matter either by direct evidence or by
showing that the evidence and material placed on
record by the complainant himself was not believable
and that it stood discredited, the presumption would
cease to operate against the accused.
14. David Kaiser way back in the year 1955 in an
article titled “Presumptions of Law and Fact” published
in Marquette Law Review quoted majority opinion of the
Missouri Court in the case of Machowik .vs. Kansas

City - 196 Mo.550 (1906), which reads as follows:-
“Presumptions are the bats of the law,
flitting in the twilight, but disappearing
in the sunshine of actual facts”.
15. As per the law laid down by the Hon'ble
Supreme Court the presumption under Sections 118 and
139 of the said Act is rebuttable. The accused can throw
the sunshine of actual facts and rebut the presumption
that may arise. This can be done either by adducing
direct evidence or on the basis of material placed on
record by the complainant, including discrediting the
complainant in cross-examination, thereby raising a
probable defence.
16. Applying the said position of law to the facts
of the present case, it is found that the respondent
(accused) failed to reply to the statutory notice sent by
the appellant (complainant), he failed to file any reply or
submissions in response to the complaint filed before
the trial Court and he did not enter the witness box.
Therefore, there was no direct evidence led by him to
support his stand and he merely relied upon the
evidence of the complainant as it emerged in crossexamination.
17. In the present case, it was not disputed that
the signatures on the cheques were that of the
respondent. It was argued that the cross-examination of
the appellant demonstrated that he had failed to
support his case of having advanced cash hand loan to
the respondent. It was further contended that the cross-

examination also demonstrated that the cheques were
issued for some other transaction and not for repayment
of hand loan as claimed by the appellant.
18. A perusal of the evidence of the appellant
shows that although in chief examination the appellant
has reiterated the contents of his complaint to the effect
that he had advanced cash hand loan of Rs.2 lakhs to
the respondent, but in cross-examination, the appellant
has conceded that he was not aware about the details of
when and in what manner he had given the cash hand
loan amount to the respondent. He claimed to have
withdrawn the cash amount from his bank accounts and
that he was holding saving bank accounts in State Bank
of India, Warud Branch and District Central Co-operative
Bank, Warud Branch, but he stated that he was not able
to produce the account statements of his bank accounts.
Thus, the appellant failed to produce any material in
support of his claim that he had indeed advanced cash
hand loan of Rs.2 lakhs to the respondent. This was a
foundational fact in the present case because according
to the appellant the cheques in question had been
issued by the respondent in order to repay the said loan
amount. The appellant failed to discharge the initial
burden to show that he had required funds for
advancing money to the respondent.
19. In further cross-examination, the appellant
admitted that although he had PAN number, he was not
submitting income tax returns. He further admitted that
he did maintain accounts but there was no entry in his

accounts about having given loan of Rs.2,00,000/- to the
respondent. The appellant admitted that he had
invested certain amounts in stocks and shares with one
Anand Rathi, Stocks and Broker and that he had
received certain amounts from the said Anand Rathi.
There was a suggestion given to the appellant that the
respondent had given the said cheques towards security
till the time accounts with the said Anand Rathi were
settled, but he denied the same. The appellant also
denied the suggestion that he was doing transactions
with Anand Rathi through the respondent.
20. A perusal of the aforesaid statements made in
cross-examination by the appellant shows that he has
completely failed to prove the foundational fact of
having advanced loan to the respondent. Therefore, his
claim that the cheques in question were issued by the
respondent for repayment of the loan could not be
accepted. The failure on the part of the appellant to
produce his account statement and absence of entry in
accounts maintained by him regarding loan advanced to
the respondent, does show that there was no material to
support the basic facts on which the entire case of the
appellant was based. Apart from this, suggestions given
in the cross-examination and statements made in
response thereto by the appellant, show that there
were other transactions in respect of which there was
exchange of moneys by the appellant. Applying the
position of law as it emerges from the above quoted
precedents to the facts of the present case, it becomes
clear that sufficient material was available on record

whereby the defence of the respondent became
probable. In such a situation, the presumption under
the provisions of the said Act ceased to operate and the
burden fell upon the appellant to prove his case, which
he failed to do by placing on record cogent evidence.
21. As the foundational facts were not established
by the appellant in the present case, it cannot be said
that the trial Court committed any error in holding that
the respondent deserved to be acquitted. The
appellant's case stood completely discredited in crossexamination
and, therefore, he could not succeed before
the trial Court riding on the presumption said to operate
in his favour under Sections 118 and 139 of the
aforesaid Act. In the impugned judgment and order, the
trial Court has taken into consideration the entire
material on record and by applying the law in respect of
presumptions under the said Act, has taken a possible
view of the matter. It is trite law that when two views
are possible, the one that accrues in favour of the
accused (respondent in the present case), must be
adopted.
22. In the light of the above, there is no merit in
the present appeal and it stands dismissed.
Consequently, the impugned judgment and order
passed by the trial Court stands confirmed.
JUDGE

Print Page

No comments:

Post a Comment