KUKMAR EXPORTS V.

SHARMA CARPET
Taking as true without examination of proof,

In case where the defendant fails to discharge the initial onus of

proof by showing the non existence of consideration, the Plaintiff
is entitle to benefit of presumption arising u\s.118(a) in his faovur .

Beena v.muniyappa and another, court held that in view of the

provisions of section 139 of the NI Act read with s.118 thereof, the
court had to presume that the cheque had been issued for
discharging debt or liability. The said presumption was rebuttable
and could be rebutted by the accused by proving the contrary. But
mere denial or rebuttal by the accused was not enough the
accused had to prove by cogent evidence that there was no debt
or liability.

How to discharge burden?

Supreme court in kumar exports v. Sharma carpet, 2009(2) scc
513.

SC on Rebuttal by Accused against Presumption in Cheque

Bounce Cases
Case name: Kishan Rao v. Shankargouda

In this recent case, the Division Bench of Supreme Court has deliberated on two legal
propositions. Firstly, High Court’s scope of revisional jurisdiction and secondly, presumption in
favour of holder of cheque under Section 139 of NI Act.
In the case, the Appellant challenged High Court’s order, whereby the Court while exercising
revisional jurisdiction had set aside the order of conviction against the Respondent under Section
138 of Negotiable Instrument Act.

During trial of the case, the Appellant examined witnesses as well as produced documentary
evidence to prove the Respondent’s offence u/Section 138 of NI Act. However, the respondent
did not produce any oral or documentary evidence in the case. The Trial Court drew presumption
under Section 139 of the Act, 1881 against the accused. Accused failed to rebut the presumption
by leading any evidence on his behalf. Hence, the Trial Court convicted the Respondent
u/Section 138 of NI Act.

Aggrieved by Trial Court’s order the Respondent filed Criminal Revision in the High Court. The
High Court by the impugned judgment has allowed the revision by setting aside the conviction
order. The High Court held that the accused has been successful in creating doubt in the mind of
the Court with regard to the existence of the debt or liability. Aggrieved by the judgment of High
Court, the Appellant approached the Supreme Court.

Bench’s Verdict

The Supreme Court in the case ruled in favour of the Appellant and set aside High Court’s order.
The Apex Court in the case deliberated on two essential points, firstly, High Court’s scope of
revisional jurisdiction and secondly, presumption in favour of holder of cheque under Section
139 of NI Act.

Scope of Revisional Jurisdiction of High Court- That the High Court in exercise of revisional
jurisdiction shall not interfere with the order of the Magistrate unless it is perverse or wholly
unreasonable or there is non-consideration of any relevant material, the order cannot be set aside
merely on the ground that another view is possible.

With reference to the facts of the present case, the Court observed that in the instant case also
conviction of the accused was recorded, the High Court set aside the order of conviction by
substituting its own view. That the High Court did not returned any finding that order of
conviction based on evidence on record suffers from any perversity or based on no material or
there is other valid ground for exercise of revisional jurisdiction.

Presumption u/ Section 139 of NI Act– While referring to the case of Kumar Exports vs.
Sharma Carpets, the Supreme Court held that the accused may adduce evidence to rebut the
presumption, but mere denial regarding existence of debt shall not serve any purpose.

With reference to the facts of the present case, the Court noted that the trial court as well as the
Appellate Court having found that cheque contained the signatures of the accused and it was
given to the appellant to present in the Bank of the presumption under Section 139 was rightly
raised which was not rebutted by the accused. The accused had not led any evidence to rebut the
aforesaid presumption.
It was also stated that in the event the accused is able to raise a probable defence which creates
doubt with regard to the existence of a debt or liability, the presumption may fail.

Supreme Court on Object behind Enactment of Section 138

of NI Act
Case name: Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd.

The Supreme Court in the case while stressing on the object behind enactment of Section 138 of
NI Act stated that the provision was incorporated with a specified object of making a special
provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is
concerned. The law relating to negotiable instrument is the law of commercial world legislated to
facilitate the activities in trade and commerce making provision of giving sanctity to the
instruments of credit which could be deemed to be convertible into money and easily passable
from one person to another. In the absence of such instruments, including a cheque, the trade and
commerce activities, in the present day would, are likely to be adversely affected as it is
impracticable for the trading community to carry on with it the bulk of the currency in force.

The negotiable instruments are in fact the instruments of credit being convertible on account of
legality of being negotiated and are easily passable from one hand to another. To achieve the
objectives of the Act, the legislature has, in its wisdom, thought it proper to make such
provisions in the Act for conferring such privileges to the mercantile instruments contemplated
under it and provide special penalties and procedure in case the obligations under the instruments
are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the
light of the objects intended to be achieved by it despite there being deviations from the general
law and the procedure provided for the redressal of the grievances to the litigants.

Supreme Court of India

Kishan Rao vs Shankargouda on 2 July, 2018
Author: ..........................J.
Bench: A Bhushan, A Sikri
1

REPORTABLE
IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.803 OF 2018

(ARISING OUT OF SLP(CRL.)NO.10030 OF 2016)

KISHAN RAO ...

APPELLANT

VERSUS
 SHANKARGOUDA ...
RESPONDENT

J U D G M E N T

ASHOK BHUSHAN, J.

This appeal has been filed against the judgment and order of the High Court dated 18.03.2016 by
which judgment, Criminal Revision Petition filed by the respondent-accused was allowed by
setting aside the order of conviction and sentence recorded against the accused under Section 138
of the Negotiable Instruments Act, 1881 (hereinafter referred to as Signature Not Verified “Act
Digitally signed by ASHWANI KUMAR 1881”). The parties shall be hereinafter Date:
2018.07.02 16:07:44 IST Reason:

referred to as described in the Magistrate’s Court.

2. Brief facts of case are:

The appellant(complainant) and the respondent (accused) were known to each other and had
good relations. Accused approached the complainant for a loan of Rs.2,00,000/- for the purpose
of his business expenses and promised to repay the same within one month. On 25.12.2005,
complainant had paid sum of Rs.2,00,000/- as a loan. For repayment of the loan accused issued
post dated cheque dated 25.01.2006 in the name of complainant for the amount of Rs.2,00,000/-.
The cheque was presented for collection at Bank of Maharashtra Branch at Gulbarga which
could not be encashed due to insufficient funds. At the request of the accused the cheque was
again represented on 01.03.2006 for collection which was returned on 02.03.2006 by the Bank
with the endorsement “insufficient funds”.

3. A notice was issued by the complainant demanding payment of Rs.2,00,000/- which was
received by the accused on 14.03.2006 to which reply was sent on 31.03.2006. A complaint was
filed by the appellant alleging the offence under Section 138 of the Act, 1881. Cognizance was
taken by the Magistrate. Accused stated not guilty of the offence, hence, trial proceeded. In order
to prove the guilt, the complainant himself examined as PW.1 and examined two other witnesses
PW.2 and Pw.3. He filed documentary evidence Exhs.P1 and P6, statement of the accused was
recorded under Section 313 Cr.P.C. Thereafter, the case proceeded for defence evidence.
Accused neither examined himself nor produced any evidence either oral or documentary. In the
reply to the notice which was sent by the complainant, it was alleged that the said cheque was
stolen by the complainant. The complainant was cross-examined by the defence. In the cross-
examination defence denied accused’s signatures on the cheque. The trial court rejected the
defence of the accused that cheque was stolen by the complainant. The trial court drew
presumption under Section 139 of the Act, 1881 against the accused. Accused failed to rebut the
presumption by leading any evidence on his behalf. The offence having been found proved, the
trial court convicted the accused under Section 138 of the Act, 1881 and sentenced him to pay a
fine of Rs.2,50,000/- and simple imprisonment for six months.
4. The appeal was filed by the accused against the said judgment. The Appellate Court
considered the submissions of the parties and dismissed the appeal by affirming the order of
conviction.

5. Criminal Revision was filed by the accused in the High Court. The High Court by the
impugned judgment has allowed the revision by setting aside the conviction order. The High
Court held that the accused has been successful in creating doubt in the mind of the Court with
regard to the existence of the debt or liability. Complainant aggrieved by the judgment of the
High Court has come in this appeal.

6. Learned counsel for the appellant submits that the offence having been proved before the trial
court by leading evidence, the conviction was recorded by the trial court after appreciating both
oral and documentary evidence led by the appellant which order was also affirmed by the
Appellate Court. There was no jurisdiction in the High court to re-appreciate the evidence on
record and come to the conclusion that accused has been able to raise a doubt regarding existence
of the debt or liability of the accused. He submits that the High court in exercise of jurisdiction
under Section 379/401 Cr.P.C. can interfere with the order of the conviction only when the
findings recorded by the courts below are perverse and there was no evidence to prove the
offence against the accused. It is submitted that in exercise of the revisional jurisdiction the High
Court cannot substitute its own opinion after re-appreciation of evidence.

7. It is submitted that the presumption under Section 139 was rightly drawn against the accused
and accused failed to rebut the said presumption by leading evidence. There was no ground for
setting aside the conviction order.

8. Although, the respondent was served but no one appeared at the time of hearing.

9. We have considered the submissions of the appellant and perused the records.

10. The trial court after considering the evidence on record has returned the finding that the
cheque was issued by the accused which contained his signatures. Although, the complainant led
oral as well as documentary evidence to prove his case, no evidence was led by the accused to
rebut the presumption regarding existence of debt or liability of the accused.

11. This Court has time and again examined the scope of Section 397/401 Cr.P.C. and the ground
for exercising the revisional jurisdiction by the High Court. In State of Kerala vs. Puttumana
Illath Jathavedan Namboodiri, 1999 (2) SCC 452, while considering the scope of the revisional
jurisdiction of the High Court this Court has laid down the following:

“5......In its revisional jurisdiction, the High Court can call for and examine the record of any
proceedings for the purpose of satisfying itself as to the correctness, legality or propriety of any
finding, sentence or order. In other words, the jurisdiction is one of supervisory jurisdiction
exercised by the High Court for correcting miscarriage of justice. But the said revisional power
cannot be equated with the power of an appellate court nor can it be treated even as a second
appellate jurisdiction. Ordinarily, therefore, it would not be appropriate for the High Court to
reappreciate the evidence and come to its own conclusion on the same when the evidence has
already been appreciated by the Magistrate as well as the Sessions Judge in appeal, unless any
glaring feature is brought to the notice of the High Court which would otherwise tantamount to
gross miscarriage of justice. On scrutinizing the impugned judgment of the High Court from the
aforesaid standpoint, we have no hesitation to come to the conclusion that the High Court
exceeded its jurisdiction in interfering with the conviction of the respondent by reappreciating
the oral evidence.....”

12. Another judgment which has also been referred to and relied by the High Court is the
judgment of this Court in Sanjaysinh Ramrao Chavan vs. Dattatray Gulabrao Phalke and others,
2015 (3) SCC 123. This Court held that the High Court in exercise of revisional jurisdiction shall
not interfere with the order of the Magistrate unless it is perverse or wholly unreasonable or there
is non-consideration of any relevant material, the order cannot be set aside merely on the ground
that another view is possible. Following has been laid down in paragraph 14:

”14.....Unless the order passed by the Magistrate is perverse or the view taken by the court is
wholly unreasonable or there is non-consideration of any relevant material or there is palpable
misreading of records, the Revisional Court is not justified in setting aside the order, merely
because another view is possible. The Revisional Court is not meant to act as an appellate court.
The whole purpose of the revisional jurisdiction is to preserve the power in the court to do justice
in accordance with the principles of criminal jurisprudence. The revisional power of the court
under Sections 397 to 401 CrPC is not to be equated with that of an appeal. Unless the finding of
the court, whose decision is sought to be revised, is shown to be perverse or untenable in law or
is grossly erroneous or glaringly unreasonable or where the decision is based on no material or
where the material facts are wholly ignored or where the judicial discretion is exercised
arbitrarily or capriciously, the courts may not interfere with decision in exercise of their
revisional jurisdiction.”

13. In the above case also conviction of the accused was recorded, the High Court set aside the
order of conviction by substituting its own view. This Court set aside the High Court’s order
holding that the High Court exceeded its jurisdiction in substituting its views and that too
without any legal basis.

14. Now, we proceed to examine order of the High Court in the light of the law as laid down in
the above mentioned cases. The High Court itself in paragraph 40 has given its reasons for
setting aside the order of conviction, it has observed that though perception of a person differs
from one another with regard to the acceptance of evidence on record but in its perception and
consideration, the accused has been successful in creating doubt in the mind of the Court with
regard to the existence of the debt or liability. It is relevant to notice what has been said in
paragraph 40 of the judgment which is to the following effect:

”40. In view of the above said “facts and circumstances, though perception of a person differs
from one another with regard to the acceptance of evidence on record but in my perception and
consideration, the accused has been successful in creating doubt in the mind of the Court with
regard to the existence of the debt or liability particularly with reference to the alleged
transaction dated 25.12.2005 as alleged by the complainant. Hence, in my opinion the High
Court has full power to interfere with such judgment of the Trial Court as subject matter exactly
falls within the parameters of Section 397 of the Code and also guidelines of the Apex Court as
noted in the above said decisions. Therefore, I am of the considered opinion the Trial Court and
the First Appellate Court have committed serious error in merely proceeding on the basis of the
presumption under Section 139 of the Act and also on the basis that, the accused has not proved
his defence with reference to the loss of cheque etc. Hence, I answered the point in the
affirmative and proceeded to pass the following:
ORDER The revision petition is hereby allowed. Consequently, the judgment and sentence
passed by the III-Addl. Civil Judge (Jr.Dn.) & JMFC, Kalaburagi in C.C.No.1362/2006 which is
affirmed by Fast Track Court – 1 at Kalaburagi in Cr.A.No.46/2009 are hereby set aside.
Consequently, the accused is acquitted of the charges levelled against him under Section 138 of
N.I.Act. If any fine amount is deposited by the accused/petitioner, the same is ordered to be
refunded to him....”

15. The High Court has not returned any finding that order of conviction based on evidence on
record suffers from any perversity or based on no material or there is other valid ground for
exercise of revisional jurisdiction. There is no valid basis for the High Court to hold that the
accused has been successful in creating doubt in the mind of the Court with regard to the
existence of the debt or liability. The appellant has proved the issuance of cheque which
contained signatures of the accused and on presentation of the cheque, the cheque was returned
with endorsement “insufficient funds”. Bank official was produced as one of the witnesses who
proved that the cheque was not returned on the ground that it did not contain signatures of the
accused rather it was returned due to insufficient funds. We are of the view that the judgment of
High Court is liable to be set aside on this ground alone.

16. Even though judgment of the High Court is liable to be set aside on the ground that High
Court exceeded its revisional jurisdiction, to satisfy ourselves with the merits of the case, we
proceeded to examine as to whether there was any doubt with regard to the existence of the debt
or liability of the accused.

17. Section 139 of the Act, 1881 provides for drawing the presumption in favour of holder.
Section 139 is to the following effect:

“139.Presumption in favour of holder.- It shall be presumed, unless the contrary is proved, that
the holder of a cheque received the cheque of the nature referred to in section 138 for the
discharge, in whole or in part, of any debt or other liability.”

18. This Court in Kumar Exports vs. Sharma Carpets, 2009 (2) SCC 513, had considered the
provisions of Negotiable Instruments Act as well Evidence Act. Referring to Section 139, this
Court laid down following in paragraphs 14, 15, 18 and 19:

“14. Section 139 of the Act provides that it shall be presumed, unless the contrary is proved, that
the holder of a cheque received the cheque of the nature referred to in Section 138 for the
discharge, in whole or in part, of any debt or other liability.

15. Presumptions are devices by use of which the courts are enabled and entitled to pronounce on
an issue notwithstanding that there is no evidence or insufficient evidence. Under the Evidence
Act all presumptions must come under one or the other class of the three classes mentioned in
the Act, namely, (1) “may presume” (rebuttable), (2) “shall presume” (rebuttable), and (3)
“conclusive presumptions” (irrebuttable). The term “presumption” is used to designate an
inference, affirmative or disaffirmative of the existence of a fact, conveniently called the
“presumed fact” drawn by a judicial tribunal, by a process of probable reasoning from some
matter of fact, either judicially noticed or admitted or established by legal evidence to the
satisfaction of the tribunal. Presumption literally means “taking as true without examination or
proof”.

18. Applying the definition of the word “proved” in Section 3 of the Evidence Act to the
provisions of Sections 118 and 139 of the Act, it becomes evident that in a trial under Section
138 of the Act a presumption will have to be made that every negotiable instrument was made or
drawn for consideration and that it was executed for discharge of debt or liability once the
execution of negotiable instrument is either proved or admitted. As soon as the complainant
discharges the burden to prove that the instrument, say a note, was executed by the accused, the
rules of presumptions under Sections 118 and 139 of the Act help him shift the burden on the
accused. The presumptions will live, exist and survive and shall end only when the contrary is
proved by the accused, that is, the cheque was not issued for consideration and in discharge of
any debt or liability. A presumption is not in itself evidence, but only makes a prima facie case
for a party for whose benefit it exists.

19. The use of the phrase “until the contrary is proved” in Section 118 of the Act and use of the
words “unless the contrary is proved” in Section 139 of the Act read with definitions of “may
presume” and “shall presume” as given in Section 4 of the Evidence Act, makes it at once clear
that presumptions to be raised under both the provisions are rebuttable. When a presumption is
rebuttable, it only points out that the party on whom lies the duty of going forward with
evidence, on the fact presumed and when that party has produced evidence fairly and reasonably
tending to show that the real fact is not as presumed, the purpose of the presumption is over.”

19. This Court held that the accused may adduce evidence to rebut the presumption, but mere
denial regarding existence of debt shall not serve any purpose. Following was held in paragraph
20:

“20....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 non-
existence 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...”
20. In the present case, the trial court as well as the Appellate Court having found that cheque
contained the signatures of the accused and it was given to the appellant to present in the Bank of
the presumption under Section 139 was rightly raised which was not rebutted by the accused.
The accused had not led any evidence to rebut the aforesaid presumption. The accused even did
not come in the witness box to support his case. In the reply to the notice which was given by the
appellant the accused took the defence that the cheque was stolen by the appellant. The said
defence was rejected by the trial court after considering the evidence on record with regard to
which no contrary view has also been expressed by the High Court.

21. Another judgment which needs to be looked into is Rangappa vs. Sri Mohan, 2010 (11) SCC
441. A three Judge Bench of this Court had occasion to examine the presumption under Section
139 of the Act, 1881. This Court in the aforesaid case has held that in the event the accused is
able to raise a probable defence which creates doubt with regard to the existence of a debt or
liability, the presumption may fail. Following was laid down in paragraphs 26 and 27:

“26. In light of these extracts, we are in agreement with the respondent claimant that the
presumption mandated by Section 139 of the Act does indeed include the existence of a legally
enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan
Bhat, (2008) 4 SCC 54, may not be correct. However, this does not in any way cast doubt on the
correctness of the decision in that case since it was based on the specific facts and circumstances
therein. As noted in the citations, this is of course in the nature of a rebuttable presumption and it
is open to the accused to raise a defence wherein the existence of a legally enforceable debt or
liability can be contested. However, there can be no doubt that there is an initial presumption
which favours the complainant.
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 defendant-accused cannot be
expected to discharge an unduly high standard or proof.”

22. No evidence was led by the accused. The defence taken in the reply to the notice that cheque
was stolen having been rejected by the two courts below, we do not see any basis for the High
court coming to the conclusion that the accused has been successful in creating doubt in the mind
of the Court with regard to the existence of the debt or liability. How the presumption under
Section 139 can be rebutted on the evidence of PW.1, himself has not been explained by the
High court.

23. In view of the aforesaid discussion, we are of the view that the High Court committed error
in setting aside the order of conviction in exercise of revisional jurisdiction. No sufficient ground
has been mentioned by the High Court in its judgment to enable it to exercise its revisional
jurisdiction for setting aside the conviction.
24. In the result, the appeal is allowed, judgment of the High Court is set aside and judgment of
trial court as affirmed by the Appellate Court is restored.

..........................J.

( A.K. SIKRI ) ..........................J.

( ASHOK BHUSHAN ) NEW DELHI, JULY 02, 2018.

Supreme Court of India
Rangappa vs Sri Mohan on 7 May, 2010
Author: K B I.
Bench: P. Sathasivam, J.M. Panchal
REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1020 OF 2010

[Arising out of SLP (Crl.) No. 407 of 2006]

Rangappa ... Appellant

Versus

Sri Mohan ... Respondent

JUDGMENT

K.G. Balakrishnan, C.J.I.

1. Leave granted.

2. In the present case, the trial court had acquitted the appellant-accused in a case related to the
dishonour of a cheque under Section 138 of the Negotiable Instruments Act, 1881 [Hereinafter
`Act']. This finding of acquittal had been made by the Addl. JMFC at Ranebennur, Karnataka in
Criminal Case No. 993/2001, by way of a judgment dated 30-5-2005. On appeal by the
respondent-complainant, the High Court had reversed the trial court's decision and
recorded a finding of conviction while directing that the appellant-accused should pay a fine of
Rs. 75,000, failing which he would have to undergo three months simple imprisonment (S.I.).
Aggrieved by this final order passed by the High Court of Karnataka [in Criminal Appeal No.
1367/2005] dated 26-10-2005, the appellant-accused has approached this Court by way of a
petition seeking special leave to appeal. The legal question before us pertains to the proper
interpretation of Section 139 of the Act which shifts the burden of proof on to the accused in
respect of cheque bouncing cases. More specifically, we have been asked to clarify the manner in
which this statutory presumption can be rebutted.

3. Before addressing the legal question, it would be apt to survey the facts leading up to the
present litigation. Admittedly, both the appellant-accused and the respondent- claimant are
residents of Ranebennur, Karnataka. The appellant-accused is a mechanic who had engaged the
services of the respondent-complainant who is a Civil Engineer, for the purpose of supervising
the construction of his house in
Ranebennur. The said construction was completed on 20-10- 1998 and this indicates that the
parties were well acquainted with each other.

4. As per the respondent-complainant, the chain of facts unfolded in the following manner. In
October 1998, the accused had requested him for a hand loan of Rs. 45,000 in order to meet the
construction expenses. In view of their acquaintance, the complainant had paid Rs. 45,000 by
way of cash. On receiving this amount, the appellant-accused had initially assured repayment by
October 1999 but on the failure to do so, he sought more time till December 2000. The accused
had then issued a cheque bearing No. 0886322, post-dated for 8-2-2001 for Rs. 45,000 drawn on
Syndicate Bank, Kudremukh Branch. Consequently, on 8-2-2001, the complainant had presented
this cheque through Karnataka Bank, Ranebennur for encashment. However, on 16-2-2001 the
said Bank issued a return memo stating that the `Payment has been stopped by the drawer' and
this memo was handed over to the complainant on 21-2-2001. The complainant had
then issued notice to the accused in this regard on 26-2-2001. On receiving the same, the accused
failed to honour the cheque within the statutorily prescribed period and also did not reply to the
notice sent in the manner contemplated under Section 138 of the Act. Following these
developments, the complainant had filed a complaint (under Section 200 of the Code of Criminal
Procedure) against the accused for the offence punishable under Section 138 of the Act.

5. The appellant-accused had raised the defence that the cheque in question was a blank cheque
bearing his signature which had been lost and that it had come into the hands of the complainant
who had then tried to misuse it. The accused's case was that there was no legally enforceable
debt or liability between the parties since he had not asked for a hand loan as alleged by the
complainant.

6. The trial judge found in favour of the accused by taking note of some discrepancies in the
complainant's version. As per the trial judge, in the course of the cross-examination the
complainant was not certain as to when the accused had actually issued the cheque. It was noted
that while the complaint stated that the cheque had been issued in December 2000, at a later
point it was conceded that the cheque had been handed over when the accused had met the
complainant to obtain the work completion certificate for his house in March 2001. Later, it was
stated that the cheque had been with the complainant about 15-20 days prior to the presentation
of the same for encashment, which would place the date of handing over of the cheque in
January 2001. Furthermore, the trial judge noted that in the complaint it had been submitted that
the complainant had paid Rs. 45,000 in cash as a hand loan to the accused, whereas during the
cross-examination it appeared that the complainant had spent this amount during the construction
of the accused's house from time to time and that the complainant had realised the extent of the
liability after auditing the costs on completion of the construction. Apart from these
discrepancies on part of the complainant, the trial judge also noted that the accused used to pay
the complainant a monthly salary in lieu of his services
as a building supervisor apart from periodically handing over money which was used for the
construction of the house. In light of these regular payments, the trial judge found it unlikely that
the complainant would have spent his own money on the construction work. With regard to these
observations, the trial judge held that there was no material to substantiate that the accused had
issued the cheque in relation to a legally enforceable debt. It was observed that the accused's
failure to reply to the notice sent by the complainant did not attract the presumption under
Section 139 of the Act since the complainant had failed to prove that he had given a hand loan to
the accused and that the accused had issued a cheque as alleged. Furthermore, the trial judge
erroneously decided that the offence made punishable by Section 138 of the Act had not been
committed in this case since the alleged dishonour of cheque was not on account of insufficiency
of funds since the accused had instructed his bank to stop payment. Accordingly, the trial judge
had recorded a finding of acquittal.
7. However, on appeal against acquittal, the High Court reversed the findings and convicted the
appellant-accused. The High Court in its order noted that in the course of the trial proceedings,
the accused had admitted that the signature on the impugned cheque (No. 886322, dated 8-2-
2001) was indeed his own. Once this fact has been acknowledged, Section 139 of the Act
mandates a presumption that the cheque pertained to a legally enforceable debt or liability. This
presumption is of a rebuttal nature and the onus is then on the accused to raise a probable
defence. With regard to the present facts, the High Court found that the defence raised by the
accused was not probable. In respect of the accused's stand that he had lost a blank cheque
bearing his signature, the High Court noted that in the instructions sent by the accused to his
Bank for stopping payment, there is a reference to cheque No. 0886322, dated 20-7-1999. This is
in conflict with the complainant's version wherein the accused had given instructions for
stopping payment in respect of the same cheque, albeit one which was dated 8-2-2001. The High
Court also noted that if the accused had indeed lost a blank cheque
bearing his signature, the question of his mentioning the date of the cheque as 20-7-1999 could
not arise. At a later point in the order, it has been noted that the instructions sent by the accused
to his bank for stopping payment on the cheque do not mention that the same had been lost.
However, the correspondence does refer to the cheque being dated 20-7-1999. Furthermore,
during the cross-examination of the complainant, it was suggested on behalf of the accused that
the complainant had the custody of the cheque since 1998. This suggestion indicates that the
accused was aware of the fact that the complainant had the cheque, thereby weakening his claim
of having lost a blank cheque. Furthermore, a perusal of the record shows that the accused had
belatedly taken up the defence of having lost a blank cheque at the time of his examination
during trial. Prior to the filing of the complaint, the accused had not even replied to the notice
sent by the complainant since that would have afforded an opportunity to raise the defence at an
earlier stage. All of these circumstances led the High Court to conclude that the
accused had not raised a probable defence to rebut the statutory presumption. It was held that:

`6. Once the cheque relates to the account of the accused and he accepts and admits the
signatures on the said cheque, then initial presumption as contemplated under Section 139 of the
Negotiable Instruments Act has to be raised by the Court in favour of the complainant. The
presumption referred to in Section 139 of the N.I. Act is a mandatory presumption and not a
general presumption, but the accused is entitled to rebut the said presumption. What is required
to be established by the accused in order to rebut the presumption is different from each case
under given circumstances. But the fact remains that a mere plausible explanation is not expected
from the accused and it must be more than a plausible explanation by way of rebuttal evidence.
In other words, the defence raised by way of rebuttal evidence must be probable and capable of
being accepted by the Court. The defence raised by the accused was that a blank cheque was lost
by him, which was made use of by the complainant. Unless this barrier is crossed by the accused,
the other defence raised by him whether the cheque was issued towards the hand loan or towards
the amount spent by the complainant need not be considered. ...' Hence, the High Court
concluded that the alleged discrepancies on part of the complainant which had been noted by the
trial court were not material since the accused
had failed to raise a probable defence to rebut the presumption placed on him by Section 139 of
the Act.

Accordingly, the High Court recorded a finding of conviction.

8. In the course of the proceedings before this Court, the contentions related to the proper
interpretation of Sections 118(a), 138 and 139 of the Act. Before addressing them, it would be
useful to quote the language of the relevant provisions:

118. Presumptions as to negotiable instruments. - Until the contrary is proved, the following
presumptions shall be made:
(a) of consideration: that every negotiable instrument was made or drawn for consideration, and
that every such instrument when it has been accepted, endorsed, negotiated or transferred, was
accepted, endorsed, negotiated or transferred for consideration; ...

138. Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque
drawn by a person on an account maintained by him with a banker for payment of any amount of
money to another person from out of that account for the discharge, in whole or in part, of any
debt or other liability, is returned by the bank unpaid, either because of the amount of money
standing to the credit of that account is insufficient to honour the cheque or that it exceeds the
amount arranged to be paid from that account by an agreement made with that bank, such person
shall be deemed to have committed an offence and shall, without prejudice to any other provision
of this Act, be punished with imprisonment for a term which may extend to two years, or with
fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless-

(a) the cheque has been presented to the bank within a period of six months from the date on
which it is drawn or within the period of its validity, whichever is earlier.

(b)the payee or the holder in due course of the cheque, as the case may be, makes a demand for
the payment of the said amount of money by giving a notice, in writing, to the drawer of the
cheque, within thirty days of the receipt of information by him from the bank regarding the
return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the
receipt of the said notice. Explanation. - For the purposes of this section, `debt or other liability'
means a legally enforceable debt or other liability.

139. Presumption in favour of holder.- It shall be presumed, unless the contrary is proved, that
the holder of a cheque received the cheque, of the nature referred to in Section 138 for the
discharge, in whole or in part, of any debt, or other liability.

9. Ordinarily in cheque bouncing cases, what the courts have to consider is whether the
ingredients of the offence
enumerated in Section 138 of the Act have been met and if so, whether the accused was able to
rebut the statutory presumption contemplated by Section 139 of the Act. With respect to the facts
of the present case, it must be clarified that contrary to the trial court's finding, Section 138 of the
Act can indeed be attracted when a cheque is dishonoured on account of `stop payment'
instructions sent by the accused to his bank in respect of a post-dated cheque, irrespective of
insufficiency of funds in the account. This position was clarified by this Court in Goa Plast (Pvt.)
Ltd. v. Chico Ursula D'Souza, (2003) 3 SCC 232, wherein it was held:

"Chapter XVII containing Sections 138 to 142 was introduced in the Act by Act 66 of 1988 with
the object of inculcating faith in the efficacy of banking operations and giving credibility to
negotiable instruments in business transactions. These provisions were intended to discourage
people from not honouring their commitments by way of payment through cheques. The court
should lean in favour of an interpretation which serves the object of the statute. A post-dated
cheque will lose its credibility and acceptability if its payment can be stopped routinely.

The purpose of a post-dated cheque is to provide some accommodation to the drawer of the
cheque. Therefore, it is all the more necessary that the drawer of the cheque should not be
allowed to abuse the accommodation given to him by a creditor by way of acceptance of a post-
dated cheque. In view of Section 139, it has to be presumed that a cheque is issued in discharge
of any debt or other liability. The presumption can be rebutted by adducing evidence and the
burden of proof is on the person who wants to rebut the presumption. This presumption coupled
with the object of Chapter XVII of the Act leads to the conclusion that by countermanding
payment of a post-dated cheque, a party should not be allowed to get away from the penal
provision of Section 138. A contrary view would render S. 138 a dead letter and will provide a
handle to persons trying to avoid payment under legal obligations undertaken by them through
their own acts which in other words can be said to be taking advantage of one's own wrong. ..."

10. It has been contended on behalf of the appellant-accused that the presumption mandated by
Section 139 of the Act does not extend to the existence of a legally enforceable debt or liability
and that the same stood rebutted in this case, keeping in mind the discrepancies in the
complainant's version. It was reasoned that it is open to the accused to rely on the materials
produced by the complainant for disproving the existence of a legally enforceable debt or
liability. It has been contended that since the complainant did not conclusively show whether a
debt was owed to him in respect of a hand loan or in relation to expenditure incurred during the
construction of the accused's house, the existence of a legally enforceable debt or
liability had not been shown, thereby creating a probable defence for the accused. Counsel
appearing for the appellant- accused has relied on a decision given by a division bench of this
Court in Krishna Janardhan Bhat v. Dattatraya G. Hegde, (2008) 4 SCC 54, the operative
observations from which are reproduced below (S.B. Sinha, J. at Paras. 29-32, 34 and 45):

"29. Section 138 of the Act has three ingredients viz.:

(i) that there is a legally enforceable debt
(ii) that the cheque was drawn from the account of bank for discharge in whole or in part of any
debt or other liability which presupposes a legally enforceable debt; and
(iii) that the cheque so issued had been returned due to insufficiency of funds.
30. The proviso appended to the said section provides for compliance with legal requirements
before a complaint petition can be acted upon by a court of law. Section 139 of the Act merely
raises a presumption in regard to the second aspect of the matter. Existence of legally
recoverable debt is not a matter of presumption under Section 139 of the Act. It merely raises a
presumption in favour of a holder of the cheque that the same has been issued for discharge of
any debt or other liability.

31. 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. Such an
approach on the part of the courts, we feel, is not correct.

32. An accused for discharging the burden of proof placed upon him under a statute need not
examine himself. He may discharge his burden on the basis of the materials already brought on
record. An accused has a constitutional right to maintain silence. Standard of proof on the part of
the accused and that of the prosecution in a criminal case is different.

...

34. Furthermore, whereas prosecution must prove the guilt of an accused beyond all reasonable
doubt, the standard of proof so as to prove a defence on the part of the accused is `preponderance
of probabilities'. Inference of preponderance of probabilities can be drawn not only from the
materials brought on record by the parties but also by reference to the circumstances upon which
he relies."

(emphasis supplied) Specifically in relation to the nature of the presumption contemplated by

Section 139 of the Act, it was observed;

"45. We are not oblivious of the fact that the said provision has been inserted to regulate the
growing business, trade, commerce and industrial activities of the country and the strict liability
to promote greater vigilance in financial matters and to safeguard the faith of the creditor in the
drawer of the cheque which is essential to the economic life of a developing country like India.
This however, shall not mean that the courts shall put a blind eye to the ground realities. Statute
mandates raising of presumption but it stops at that. It does not say how presumption drawn
should be held to have been rebutted. Other important principles of legal jurisprudence, namely,
presumption of innocence as a human right and the doctrine of reverse burden introduced by
Section 139 should be delicately balanced. Such balancing acts, indisputably would largely
depend upon the factual matrix of each case, the materials brought on record and having regard
to legal principles governing the same."
(emphasis supplied)
11. With respect to the decision cited above, counsel appearing for the respondent-claimant has
submitted that the observations to the effect that the `existence of legally recoverable debt is not
a matter of presumption under Section 139 of the Act' and that `it merely raises a presumption in
favour of a holder of the cheque that the same has been issued for discharge of any debt or other
liability' [See Para. 30 in Krishna Janardhan Bhat (supra)] are in conflict with the statutory
provisions as well as an established line of precedents of this Court. It will thus be necessary to
examine some of the extracts cited by the respondent-claimant. For instance, in Hiten P. Dalal v.
Bratindranath Banerjee, (2001) 6 SCC 16, it was held (Ruma Pal, J. at Paras. 22-23):
"22. Because both Sections 138 and 139 require that the Court `shall presume' the liability of the
drawer of the cheques for the amounts for which the cheques are drawn, ..., it is obligatory on the
Court to raise this presumption in every case where the factual basis for the raising of the
presumption has been established. It introduces an exception to the general rule as to the burden
of proof in criminal cases and shifts the onus on to the accused (...). Such a presumption is a
presumption of law, as distinguished from a presumption of fact which describes provisions by
which the court may presume a certain state of affairs. Presumptions are rules of evidence and do
not conflict with the presumption of innocence, because by the latter all that is meant is that the
prosecution is obliged to prove the case against the accused beyond reasonable doubt. The
obligation on the prosecution may be discharged with the help of presumptions of law or fact
unless the accused adduces evidence showing the reasonable probability of the non-existence of
the presumed fact.

23. In other words, provided the facts required to form the basis of a presumption of law exists,
the discretion is left with the Court to draw the statutory conclusion, but this does not preclude
the person against whom the presumption is drawn from rebutting it and proving the contrary. A
fact is said to be proved when, after considering the matters before it, the Court either believes it
to exist, or considers its existence so probable that a prudent man ought, under the circumstances
of the particular case, to act upon the supposition that it exists. Therefore, the rebuttal does not
have to be conclusively established but such evidence must be adduced before the Court in
support of the defence that the Court must either believe the defence to exist or consider its
existence to be reasonably probable, the standard of reasonability being that of the prudent man."

(emphasis supplied)
12. The respondent-claimant has also referred to the decision reported as Mallavarapu
Kasivisweswara Rao v. Thadikonda Ramulu Firm & Ors., 2008 (8) SCALE 680, wherein it was
observed:

"Under Section 118(a) of the Negotiable Instruments Act, the court is obliged to presume, until
the contrary is proved, that the promissory note was made for consideration. It is also a settled
position that the initial burden in this regard lies on the defendant to prove the non-existence of
consideration by bringing on record such facts and circumstances which would lead the Court to
believe the non-existence of the consideration either by direct evidence or by preponderance of
probabilities showing that the existence of consideration was improbable, doubtful or illegal. ..."

This decision then proceeded to cite an extract from the earlier decision in Bharat Barrel & Drum
Manufacturing Company v. Amin Chand Pyarelal, (1993) 3 SCC 35 (Para. 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 improbably 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 non-existence 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. The bare denial of the passing of the consideration
apparently does not appear to be any defence. Something which is probable has to be brought on
record for getting the benefit of shifting the onus of proving to the plaintiff. To disprove the
presumption, the defendant has to bring on record such facts and circumstances upon
consideration of which the court may either believe that the consideration did not exist or its non-
existence was so probable that a prudent man would, under the circumstances of the case, act
upon the plea that it did not exist."
(emphasis supplied) Interestingly, the very same extract has also been approvingly cited in
Krishna Janardhan Bhat (supra).
13. With regard to the facts in the present case, we can also refer to the following observations in
M.M.T.C. Ltd. and Anr. v. Medchl Chemicals & Pharma (P) Ltd., (2002) 1 SCC 234 (Para. 19):

"... The authority shows that even when the cheque is dishonoured by reason of stop payment
instruction, by virtue of Section 139 the Court has to presume that the cheque was received by
the holder for the discharge in whole or in part, of any debt or liability. Of course this is a
rebuttable presumption. The accused can thus show that the `stop payment' instructions were not
issued because of insufficiency or paucity of funds. If the accused shows that in his account there
was sufficient funds to clear the amount of the cheque at the time of presentation of the cheque
for encashment at the drawer bank and that the stop payment notice had been issued because of
other valid causes including that there was no existing debt or liability at the time of presentation
of cheque for encashment, then offence under Section 138 would not be made out. The important
thing is that the burden of so proving would be on the accused. ..."
(emphasis supplied)
14. In light of these extracts, we are in agreement with the respondent-claimant that the
presumption mandated by Section 139 of the Act does indeed include the existence of a legally
enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan
Bhat (supra)
may not be correct. However, this does not in any way cast doubt on the correctness of the
decision in that case since it was based on the specific facts and circumstances therein. As noted
in the citations, this is of course in the nature of a rebuttable presumption and it is open to the
accused to raise a defence wherein the existence of a legally enforceable debt or liability can be
contested. However, there can be no doubt that there is an initial presumption which favours the
complainant.

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. 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.

15. Coming back to the facts in the present case, we are in agreement with the High Court's view
that the accused did not raise a probable defence. As noted earlier, the defence of the loss of a
blank cheque was taken up belatedly and the accused
had mentioned a different date in the `stop payment' instructions to his bank. Furthermore, the
instructions to `stop payment' had not even mentioned that the cheque had been lost. A perusal of
the trial record also shows that the accused appeared to be aware of the fact that the cheque was
with the complainant. Furthermore, the very fact that the accused had failed to reply to the
statutory notice under Section 138 of the Act leads to the inference that there was merit in the
complainant's version. Apart from not raising a probable defence, the appellant-accused was not
able to contest the existence of a legally enforceable debt or liability. The fact that the accused
had made regular payments to the complainant in relation to the construction of his house does
not preclude the possibility of the complainant having spent his own money for the same
purpose. As per the record of the case, there was a slight discrepancy in the complainant's
version, in so far as it was not clear whether the accused had asked for a hand loan to meet the
construction-related expenses or whether the complainant had incurred the said expenditure over
a period of time. Either way, the complaint
discloses the prima facie existence of a legally enforceable debt or liability since the complainant
has maintained that his money was used for the construction-expenses. Since the accused did
admit that the signature on the cheque was his, the statutory presumption comes into play and the
same has not been rebutted even with regard to the materials submitted by the complainant.

16. In conclusion, we find no reason to interfere with the final order of the High Court, dated 26-
10-2005, which recorded a finding of conviction against the appellant. The present appeal is
disposed of accordingly.

...................................... CJI (K.G. BALAKRISHNAN) ........................................J. (P.

SATHASIVAM) .......................................J. (J.M. PANCHAL) NEW DELHI MAY 07, 2010