The Hon’ble Supreme Court recently reiterated the principles relating to the presumption under Section 139 of the Negotiable Instruments Act, 1881 and reversed the acquittal of an accused in Rajesh Jain Vs. Ajay Singh.¹ The Accused was tried for the offence under Section 138 of the Negotiable Instruments Act, 1881. The Learned Trial Court acquitted him and thereafter the Hon’ble High Court dismissed the Complainant’s appeal and upheld the order of acquittal. Challenging the concurrent findings passed by both the Courts, the Complainant preferred a Special Leave Petition before the Hon’ble Supreme Court.

Facts of the Case

• The Accused along with his wife approached the Complainant on 01.03.2014 with a request for lending him money. The Complainant who appeared in person contended that he had lent a sum of Rs. 6 lakhs on that day and had further lent some amount in the genuine belief that the Accused would honour his promise of timely repayment and return the sum borrowed with interest as agreed.
• The Accused failed to repay as per the timeline agreed. The Complainant tried to recover the money lent however his attempts were met by avoidance tactics. The Accused had even changed his cellular phone number without giving notice to the Complainant with intent of evading his payment obligation. Only in 2017 could the Complainant finally manage to trace the Accused at which point, the Accused sought for forgiveness and promised to pay the amount borrowed along with interest. The Accused informed the Complainant that he would source the funds to clear his outstanding dues by selling two plots of land he owned in Nepal.
• Thereafter, the Accused again defaulted on his promise and was not to be found in his residential address. Having successfully concealed himself for about 7 months, the Complainant finally confronted the Accused and on confrontation the Accused issued a post-dated cheque for a sum of Rs. 6,95, 204/- (Rupees Six Lakhs Ninety Five Thousand Two Hundred Four Only) towards part repayment of the outstanding dues. The Accused further assured the Complainant that the balance dues would be repaid by issuing a second cheque in the month of December 2017.
• On the presentation of the said cheque, the same was returned with the endorsement “Funds Insufficient”. Thereafter the Complainant issued a demand notice on 26.10.2017 and called upon the Accused to make the payment of the said cheque and other expenses within 15 days. Since the demand notice was not complied with, a complaint under Section 138 of the Negotiable Instruments Act, 1881 was initiated before the Judicial Magistrate First Class (JMFC).

Proceedings before the Learned Trial Court
Taking cognizance of the offence, the Learned Trial Court summoned the Accused wherein the Accused pleaded not guilty and claimed to be tried.

On consideration of evidence on record, the Learned Trial Court returned a finding that the Accused was not guilty. The Learned Trial Court observed that:

1. The Complainant had discharged his initial onus of proving the essential facts underlying the offence under Section 138 of the Negotiable Instruments Act, 1881;
2. The signature on the cheque was admitted by the Accused and hence, it rightly raised the presumption under Section 139 of the Negotiable Instruments Act, 1881. It then, rightly noted that the onus of rebutting presumption lays on the Accused and said onus was to be discharged by raising a ‘probable defence’ which would create doubt as to the existence of a legally enforceable debt.

The Learned Trial Court then framed the issue which was to be considered:

“The only question remaining for determination is whether a legally valid and enforceable debt existed qua the complainant and the cheque in question (Ex.CWI/A) was issued in discharge of the said liability/debt?”

The Learned Trial Court answered the above issue in negative and held that the Complainant failed to prove his case beyond reasonable doubt. It observed that the defence led by the Accused created a doubt regarding the truthfulness of the Complainant’s case.

The Learned Trial Court therefore concluded that:

“i) That the legal notice [Ex. CW1/D] dated 26.10.2017 was not a valid legal notice since it was not signed by the complainant or his counsel.

(ii) In the complaint, legal notice as well as the affidavit evidence,the complainant has failed to mention the date, month and year on which he advanced various sums of money towards loan.

(iii) The evidence on records indicates that the complainant is in the business of money lending. Since he does not possess any valid license/registration4 under the Punjab Registration of Money Lenders Act, 19385 (Money Lenders Act), he could not have filed a suit for recovery of money advanced as per Section 3 of the Money Lenders Act. The Bombay High Court has in the case of Nanda v. Nandakishor interpreted the phrase 'in any suit' as found in Section 3, widely, to include even a complaint under Section 138 of the NI Act. Relying on the said decision, the Trial Court has concluded that the complaint has been filed in respect of an unenforceable claim.

(iv) The procedure set out in Section 138 has not been properly followed in that the legal notice has been issued prematurely, even before the complainant had received notice of the cheque return memo. The date reflected on the cheque return memo is 1.11.2017 and the date on which the legal notice was issued is 26.10.17. The legal notice could not have been issued until the cheque had been dishonoured.

(v) The version of the complainant is doubtful since the cheque was, admittedly, issued in part-payment of outstanding dues. Nowhere in the complaint or demand notice has the complainant disclosed the total amount loaned to the accused. The Court found it rather surprising that the complainant, an orthopaedic surgeon, would advance huge amounts of loan to the accused, a Class IV employee, without any formal agreement/acknowledgement of loan advanced.”

Proceedings before the Hon’ble High Court

On reappreciating the evidence on record, the Hon’ble High Court found no merit in the appeal and upheld the order of acquittal passed by the Learned Trial Court. The Hon’ble High Court had reasoned that the Accused had discharged his onus in rebutting the statutory presumption raised under Section 139 of the Negotiable Instruments Act, 1881. The onus the again had shifted to the Complainant to prove that the cheque had been issued in respect of a legally enforceable debt and the Complainant had failed in discharging the onus to prove that the cheque was issued in respect of a legally enforceable debt.

The Hon’ble High Court’s judgment summarizes that the presumption under Section 139 was rebutted by putting questions to the Appellant in his cross examination and explaining the incriminating circumstances found in the statement recorded under Section 313 of the Code of Criminal Procedure, 1973.

The Complainant while appearing in person before the Hon’ble Apex Court contended that there was a serious flaw in the approach of the Courts mentioned above while appreciating the evidence on record. The Complainant stated that the signature on the cheque, not being under dispute, and the presumption under Section 139 having been drawn under against the Accused, there was nothing available on record to suggest that the Accused had discharged his onus of rebutting the presumption.

The Complainant argued that the Courts had erroneously proceeded to appreciate the evidence as though the onus was on the complainant to prove that ‘the cheque was issued in discharge of a debt’. Once the presumption operates, the onus rests on the accused to prove the non-existence of debt/liability and the courts could not have doubted the Complainant’s case from any point of view. He finally argued that the Accused cannot be said to have raised a 'probable defence' since the case set up in defence was full of inconsistencies and bereft of any evidence. He, accordingly, prayed that the concurrent findings be set aside, and an order of conviction be passed against the accused.

The Counsel for the Accused contended that merely because another view can be taken on reappreciation of the evidence, is no ground to interfere on the merits. He further contended that the Accused had discharged the burden fastened by raising a ‘probable defence’ which meets the standard of preponderance of probabilities. He submitted that it is always open to the Accused to rely on the materials produced by the Complainant for disproving the existence of a legally enforceable debt or liability.

Questions considered
The Hon’ble Apex Court framed limited questions for consideration:

1. Whether the Accused can be said to have discharged his ‘evidential burden’ for the courts to have concluded that the presumption of law supplied by Section 139 had been rebutted?

The Hon’ble Apex Court observed that if the answer to the above issue was found in the affirmative, the next question to be considered is:

ii. Whether the complainant has, in the absence of the artificial force supplied by the presumption under Section 139, independently proved beyond reasonable doubt that the cheque was issued in discharge of a debt/liability?

Observations made by the Hon’ble Supreme Court
The Hon’ble Bench while taking into consideration the necessary ingredients of Section 138 of the Negotiable Instruments Act, 1881 observed that the essentially in all trial concerning dishonouring of cheque, the courts are called upon to consider whether the ingredients of the offence enumerated in Section 138 of the Act have been met with and if so, whether the accused was able to rebut the statutory presumption contemplated under Section 139 of the Act.

Citing its own precedent in Gimpex Private Limited Vs. Manoj Goel (2022) 11 SCC 705, the Hon’ble Bench quoted the ingredients forming the basis of the offence under Section 138 of the Negotiable Instruments Act, 1881 in the following structure:

(1) The drawing of a cheque by person on do account maintained by him with the banker for the payment of any amount of money to another from that account;

1. The cheque being drawn for the discharge in whole or in part of any debt or other liability;
2. Presentation of the cheque to the bank arranged to be paid from that account,
3. The return of the cheque by the drawee bank as unpaid either because the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount.
4. A notice by the payee or the holder in due course making a demand for the payment of the amount to the drawer of the cheque within 30 days of the receipt of information from the bank in regard to the return of the cheque; and
5. The drawer of the cheque failing to make payment of the amount of money to the payee or the holder in due course within 15 days of the receipt of the notice.

The Hon’ble Bench further quoted its own judgement passed in K.Bhaskarna vs. Sankaran Vaidhyan Balan (1999) 7 SCC 510 and observed further that the burden of proving that the cheque was issued in discharge of a debt would ordinarily fall upon the Complainant. However, it further observed that through the introduction of a presumptive device in Section 139 of the Negotiable Instruments Act, 1881, the Parliament has fixed the onus of proving the same on the accused as it sought overcome the general norm as stated in Section 102 of the Evidence Act.

The Hon’ble Apex Court observed that Section 139 is an example of a reverse onus clause and requires the Accused to prove the non-existence of the presumed fact i.e., the cheque was not issued in discharge of a debt or liability.

While considering the effect of presumption and shifting the onus of proof, the Hon’ble Bench further quoted many of its judgments including its judgment in Basalingappa Vs. Mudisbasappa (AIR 2019 SC 1983) wherein the Hon’ble Bench observed that in order to rebut the presumption and prove to the contrary, it is open to the accused to raise a probable defence wherein the existence of a legally enforceable debt or liability can be contended. The Hon’ble Bench observed that the words ‘until the contrary is proved’ occurring in Section 139 of the Act do not mean that the accused must necessarily prove the negative that the instrument is not issued in discharge of any debt/liability but the accused has the option to ask the Court to consider the non existence of the debt/liability so probable that a prudent man ought, under the circumstances of the case, to act upon the supposition that debt or liability did not exist.In other words,the accused is left with two options: The first option-of proving that the debt/liability does not exist-is to lead defence evidence and conclusively establish with certainty that the cheque was not issued in discharge of a debt/liability. The second option is to prove the non-existence of debt/liability by a preponderance of probabilities by referring to the particular circumstances of the case.

Analysis of the Hon’ble Apex Court:
The Hon’ble Bench while agreeing with the Complainant that there exists a fundamental flaw in the way both the Courts had proceeded to appreciate the evidence on record and further observed that the nothing significant has been elicited in the cross examination of the Complainant to raise any suspicion in the case. It further observed that the Complainant’s case had satisfied every ingredient necessary for sustaining a conviction under Section 138 of the Act. The Hon’ble Bench further observed that the case of the defence was limited only to the issue as to whether the cheque had been issued in discharge of a debt/liability and that the Accused had failed to discharge his evidential burden. The Hon’ble Bench also observed that once the presumption under Section 139 of the Act was given effect to, the Courts ought to have proceeded on the cheque was indeed, issued in discharge of a debt/liability and the entire focus would then shift on the case of the Accused since the activation of the presumption has the effect of shifting the evidential burden on the accused.

The Hon’ble Bench further observed that at the stage when the Courts concluded that the signature had been admitted, the Courts ought to have inquired into either of the two questions:

1. Has the Accused led any defence evidence to prove nad conclusively establish that there existed no debt/liability at the time of issuance of cheque?
2. Has the Accused proved the non-existence of debt/liability by a preponderance of probabilities by referring to the particular circumstances of the case?

Coming to the findings of the Learned Trial Court, the Hon’ble Bench observed that the perversity in the Learned Trial Court’s approach was noticeable from the way it proceeded to frame a question at trial. The Hon’ble Bench observed that the question framed by the Learned Trial Court was erroneous and that the same was due to lack of proper understanding of the nature of the presumption in Section 139 and its effect had resulted in an erroneous Order being passed.

The Hon’ble Bench further analyzing the findings of the Hon’ble High Court observed that the Hon’ble Court in paragraph 6 of the Order, the Hon’ble High Court found that the Complainant had proved the issuance of cheque which means that the presumption would come to immediate effect. In paragraph 13, the Hon’ble High Court rightly observed that the burden is on the Accused to rebut such presumption. The Hon’ble Bench found it surprising that in the very next paragraph of the Order, the Hon’ble High Court concluded that the Accused had rebutted the presumption by putting questions to the Complainant and explaining the circumstances under Section 313 of the Code of Criminal Procedure, 1973.

The Hon’ble Bench observed that the Hon’ble High Court had questioned the want of evidence on part of Complainant in order to support his allegation of having extended loan to the Accused, when it ought to have instead concerned itself with the case set up by the Accused and whether he had discharged his evidential burden that there existed no debt/liability at the time of issuance of cheque.

Taking into consideration the above, the Hon’ble Supreme Court found this case fit for interference notwithstanding that both the Courts had concurrently held in favour of the Accused and allowed the Appeal by setting aside the Judgment of the Hon’ble High Court and thereby allowing the Complaint under Section 138 of the Negotiable Instruments Act, 1881 and convicted the Accused with a fine of twice the amount of the cheque failing which the Accused shall undergo simple imprisonment for one year.

By - Soumya Kamat