SECTION 138, The NI ACT, 1881

I. Whether an action Under Section 138 of the N.I. Act for dishonor of
cheque is the complainant required to establish his financial capacity to
lend money?

Criminal Appeal No. 636 of 2019

(Arising out of SLP (Crl.) No. 8641/2018)

Decided On: 09.04.2019

Appellants: Basalingappa

v.

Respondent: Mudibasappa1

Facts:

Complainant gave a notice to Accused, Appellant stating dishonour of cheque

dated 27.02.2012 for an amount of Rs. 6,00,000 for want of sufficient funds.
Thereafter, on non-payment of amount, a complaint was filed by complainant
under Section 138 of Act, 1881. Trial court after considering evidence and
material on record held that, if Accused was able to raise a probable defense
which created doubts about existence of a legally enforceable debt or liability,
prosecution could fail. By judgment, Accused was acquitted for offence under
Section 138. Complainant aggrieved by said judgment filed a Criminal Appeal
under Section 378(4) of Code of Criminal Procedure, 1973 (CrPC). High Court
set aside judgment of trial court and convicted Accused for offence under

1
2019 SCC OnLine SC 491.
Section 138. Accused aggrieved by judgment of High Court had come up in
present appeal.

24. Applying the preposition of law as noted above, in facts of the present case,
it is clear that signature on cheque having been admitted, a presumption shall be
raised Under Section 139 that cheque was issued in discharge of debt or
liability. The question to be looked into is as to whether any probable defence
was raised by the Accused. In cross-examination of the PW1, when the specific
question was put that cheque was issued in relation to loan of Rs. 25,000/- taken
by the Accused, the PW1 said that he does not remember. PW1 in his evidence
admitted that he retired in 1997 on which date he received monetary benefit of
Rs. 8 lakhs, which was encashed by the complainant. It was also brought in the
evidence that in the year 2010, the complainant entered into a sale agreement
for which he paid an amount of Rs. 4,50,000/- to Balana Gouda towards sale
consideration. Payment of Rs. 4,50,000/- being admitted in the year 2010 and
further payment of loan of Rs. 50,000/- with regard to which complaint No. 119
of 2012 was filed by the complainant, copy of which complaint was also filed as
Ex. D2, there was burden on the complainant to prove his financial capacity. In
the year 2010-2011, as per own case of the complainant, he made payment of
Rs. 18 lakhs. During his cross-examination, when financial capacity to pay Rs.
6 lakhs to the Accused was questioned, there was no satisfactory reply given by
the complainant. The evidence on record, thus, is a probable defence on behalf
of the Accused, which shifted the burden on the complainant to prove his
financial capacity and other facts.

28. We are of the view that when evidence was led before the Court to indicate
that apart from loan of Rs. 6 lakhs given to the Accused, within 02 years,
amount of Rs. 18 lakhs have been given out by the complainant and his
financial capacity being questioned, it was incumbent on the complainant to
have explained his financial capacity. Court cannot insist on a person to lead
negative evidence. The observation of the High Court that trial court's finding
that the complainant failed to prove his financial capacity of lending money is
perverse cannot be supported. We fail to see that how the trial court's findings
can be termed as perverse by the High Court when it was based on
consideration of the evidence, which was led on behalf of the defence.

Conclusion:- Complainant to prove financial capacity if disputed by accused

It is incumbent upon the complainant to prove his financial capacity to extend
the loan in question, if the accused disputes the same

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 2402 of 2014 (Arising out of SLP (Crl.) No. 6197 of
2014)

Decided On: 13.11.2014

K. Subramani

v.

K. Damodara Naidu

(13.11.2014 - SC) : MANU/SC/1031/2014

Facts:

This appeal is preferred against judgment and order dated 10.10.2013 passed by
the High Court of Karnataka at Bangalore in Criminal Appeal No. 368 of 2009
wherein the High Court set aside the judgment of acquittal of the trial court and
remanded the case to the trial court for retrial.

4. In the trial the complainant examined himself as PW1 and examined CWs1
and 2 on his side and marked documents Exh. P1 to P23. The accused examined
himself as DW1 and marked documents Exhs. D1 to D5. The trial court held
that the complainant had no source of income to lend a sum of Rs. 14 lakhs to
the accused and he failed to prove that there is legally recoverable debt payable
by the accused to him and that in discharge of said liability he issued the cheque
and accordingly acquitted the accused for the alleged offence Under Section
138 of N.I. Act. Aggrieved by the same the complainant preferred appeal in the
High Court in Criminal Appeal No. 368 of 2009, and the High Court heard the
appeal along with 9 other appeals by framing two legal issues which are as
under:

i) Whether an action Under Section 138 of the N.I. Act for dishonor of cheque
is the complainant required to establish his financial capacity to lend money?

ii) Will not presumption Under Section 139 of the N.I. Act accrues to the
benefit of the complainant unless the accused rebuts that presumption?

5. Relying on the ratio laid down by this Court in the decision in Rangappa v.
Sri Mohan MANU/SC/0376/2010 : (2010) 11 SCC 441 the High Court
answered the first issue in the negative and the second issue in the affirmative.
It further held that the orders of acquittal recorded by the trial court in all the
appeals suffer from legal infirmity as the prosecution has been undone only on
the ground that complainant had not proved his capacity to lend money and
hence those orders are liable to be set aside. Accordingly it allowed the appeals
and set aside the respective judgments of acquittal and remanded the cases to
courts concerned directing retrial. The present appeal is preferred challenging
the said judgment.

9. In the present case the complainant and the accused were working as
Lecturers in a Government college at the relevant time and the alleged loan of
Rs. 14 lakhs is claimed to have been paid by cash and it is disputed. Both of
them were governed by the Government Servants' Conduct Rules which
prescribes the mode of lending and borrowing. There is nothing on record to
show that the prescribed mode was followed. The source claimed by the
complainant is savings from his salary and an amount of Rs. 5 lakhs derived by
him from sale of site No. 45 belonging to him. Neither in the complaint nor in
the chief-examination of the complainant, there is any averment with regard to
the sale price of site No. 45. The concerned sale deed was also not produced.
Though the complainant was an income-tax Assessee he had admitted in his
evidence that he had not shown the sale of site No. 45 in his income-tax return.
On the contrary the complainant has admitted in his evidence that in the year
1997 he had obtained a loan of Rs. 1,49,205/- from L.I.C. It is pertinent to note
that the alleged loan of Rs. 14 lakhs is claimed to have been disbursed in the
year 1997 to the accused. Further the complainant did not produce bank
statement to substantiate his claim. The trial court took into account the
testimony of the wife of the complaint in another criminal case arising Under
Section 138 of the N.I. Act in which she has stated that the present
Appellant/accused had not taken any loan from her husband. On a consideration
of entire oral and documentary evidence the trial court came to the conclusion
that the complainant had no source of income to lend a sum of Rs. 14 lakhs to
the accused and he failed to prove that there is legally recoverable debt payable
by the accused to him.
10. In our view the said conclusion of the trial court has been arrived at on
proper appreciation of material evidence on record. The impugned judgment of
remand made by the High Court in this case is unsustainable and liable to be set
aside.

11. In the result this appeal is allowed and the impugned judgment insofar as the
Appellant is concerned is set aside and the judgment of acquittal passed by the
trial court is restored.

II. What happens when different inks had been used in the instruments for
the signatures and its contents?

i) It was held in Laxmi Dyechem v. State of Gujarat,2 The expression

“signatures do not match” or that the “image is not found”, would
constitute dishonour within the meaning of Section 138 of the Act.

Supreme Court of India

Sudin Dilip Talaulikar
v.
Polycap Wires Pvt. Ltd. and Ors.
(15.07.2019 - SC) : MANU/SC/0908/2019
8. The Appellant in its defence to the summons for judgment relied upon the
institution of the prosecution under the Act prior to the suit and its
unconditional withdrawal to contend that there were in fact no dues payable.
The Appellant further relied upon an order dated 29.10.2015 passed in the
2
(2012) 13 SCC 375.
prosecution under the Act requiring the Respondent to produce certain original
documents materials to the complaint and only subsequent to which, without
producing the said documents the prosecution under the Act was
unconditionally withdrawn. Denying any dealings with the Respondents after
2011, the Appellant questioned that there was no occasion for it to issue a
cheque in the year 2014 for any alleged dues of the year 2011. It was further
contended that different inks had been used in the instruments for the signatures
and its contents. Defective goods on the consignment had been returned and the
balance of Rs. 5,00,000/- paid, facts which were not disputed by the
Respondent.

14. In our opinion, both the Civil Judge and the High Court have posed unto
themselves the wrong question and have therefore misdirected themselves in
application of the above principles by granting conditional leave to defend
without properly adverting and referring to the facts of the case and the
materials on record. The fact that there was commercial dealing between the
parties was not in issue at all. According to the plaint of the Respondent,
commercial dealings between the parties ended on 03.06.2011. It stands to
reason why outstanding payment in respect of the same came to be made by
cheque as late as 01.03.2014. It does not appeal to logic or reason much less to
the usual practice in commercial dealings. In any event the Respondent has not
furnished any explanation with regard to the same. At this stage it becomes
necessary to notice the contention of the Appellant that the signatures and the
contents of the cheques are in different writings. The Respondent had the option
to institute a summary suit at the very inception of the dispute. But it
consciously opted for a prosecution under the Act which undoubtedly was a
more efficacious remedy for recovery of any specified amount of a dishonoured
instrument raising a presumption against the drawer, as in a summary suit the
possibility of leave to defend could not be completely ruled out, in which case
the recovery gets delayed and protracted.

Supreme Court of India

C. Antony

v.

K.G. Raghavan Nair

on 1 November, 2002

This appeal by special leave is preferred against the judgment of the High Court
of Kerala at Ernakulam dated 17.11.1995 made in Criminal Appeal No.438/93
whereby the appellant herein was found guilty of an offence punishable
under Section 138 of the Negotiable Instruments Act (the Act), and was
convicted and sentenced to pay a fine of Rs.37,500/- and in default to undergo
RI for a period of 3 months. The High Court had further directed that out of the
fine, if realised, a sum of Rs.34,500/- should be paid to the respondent herein by
way of compensation.

The third circumstance relied upon by the trial court is in regard to the
difference in the ink found in the body of the cheque as well as in the signature
of the appellant. It is the case of the respondent that the appellant had filled up
the cheque in its entirety including its signature and had brought the cheque to
the office of Vijay Kumar to be handed over to the respondent but the learned
Magistrate on a perusal of the cheque, found that the ink used in the body of the
cheque was different from the ink used in the signature on the cheque, therefore,
he drew an inference that the case put forth by the respondent was doubtful,
hence, could not be accepted.

Rajasthan High Court

Kishore Kumar Tank
 v.

State Of Rajasthan And Anr

On 3 August, 2016

The respondent no.2 had filed a complaint under Section 138 of Negotiable
Instrument Act against the petitioner. In the said complaint, the court of
Additional Chief Metropolitan Magistrate No.22, Jaipur Metropolitan Camp
Chomu took cognizance of offence under Section 138 N.I. Act against the
petitioner and the trial proceeded.

S.B. CRLMP No. 3303/2016 During the pendency of the trial, the petitioner
filed an application praying that the Cheque in question (Exhibit-P/1) for
analysis of handwriting be sent to Forensic Science Laboratory. The prayer
made by the petitioner was declined by the trial court vide order dated
10.3.2016. The trial court in its order held that the accused nowhere in his
defence earlier had taken a stand that writing on the cheque is not in the hand of
the petitioner or writing on the cheque and the signatures on the cheque were in
different ink.

In another case, Aslam Khan vs. Nanak Chand Vashishth, S.B. Cr. Misc.
Petition No. 3368/2016, this Court had examined the efficacy of sending the
cheque for comparison to Forensic Science Laboratory and this Court had
rejected the said contention by observing as under:-

"During the course of trial, the petitioner-accused had taken a stand that the
cheque is neither in hand-writing of accused nor signed by him. The trial Court
rejected the prayer of the petitioner for sending cheques to Forensic Science
Laboratory on the ground that in the reply to the notice received from the
complainant, it was nowhere stated that cheques are not in the hand- writing of
the petitioner. The trial Court further noticed that in cross-examination of PW-1,
no suggestion was given that hand-writing on the cheques is not of the
petitioner-accused.

This Court had earlier opined that in the State of Rajasthan due to limited
infrastructure, F.S.L. is not in a S.B. CRLMP No. 3303/2016 position to submit
timely reports in cases of rape and murder.

This Court has held that in a litigation pertaining to Negotiable Instruments Act,
which is a akin to civil litigation working of F.S.L. cannot be clogged by
sending cheques for comparison pertaining to Negotiable Instruments
Act Cases, which already have burdened the judicial system. To take care of the
arguments raised by the learned counsel appearing for the petitioner, it is
observed that petitioner has remedy available and he can always call
handwriting expert as witness in defence and examine as an expert to support
his stand by taking recourse to Section 45 of Indian Evidence Act. Therefore,
right course of the petitioner is to file an application at the stage of defence
evidence to call a handwriting expert to compare writing of cheque with the
admitted and specimen writing of the accused.

Hence, this Court cannot come to rescue of the petitioner and the present
petition is, hereby, dismissed with liberty to the petitioner to file an appropriate
application at the time of commencement of defence evidence to examine
handwriting expert as a defence evidence."

After going through the order passed in Aslam Khan's case (supra), the learned
counsel for the petitioner has also prayed that liberty be also granted to him to
file an appropriate application at the time of commencement of defence
evidence to examine handwriting expert as defence witness.

As prayed, liberty aforesaid is granted and the present petition is disposed of.

Rajasthan High Court

 Ram Gopal Agarwal

V.

Ramesh Kumar Parwal

On 3 February, 2010

9. Perusal of the aforesaid para shows that the Court being the master of the
proceedings must determine as to whether application filed by the accused is
bonafide or not. In the case of Kalyani Baskar also denial of the signatures on
the cheques was raised at the initial stage by way of preliminary objections. The
cheque therein was dishonoured due to insufficient fund. The Officer of the
bank was examined as PW-3, who then deposed that he has not verified the
signatures before returning the cheque. The appellant therein immediately
moved an application for seeking opinion of the handwriting expert. In the
aforesaid background, appeal was allowed considering the fact that the
appellant therein is having right of fair trial. The view of this High Court in the
case of Mahaveer Prasad Sarraf (supra) is based on the aforesaid judgments of
the Hon'ble Supreme Court.

It is no doubt that Section 243(2) Cr.P.C. gives a right to the accused, however,
in view of the judgment of the Hon'ble Apex Court in the case of T. Nagappa
(supra) and specifically Para 9 therein clarifies the position that it is discretion
of the Magistrate to look into the relevant material and passed appropriate order.
As and when discretion is given to the Court, it has to be exercised judiciously
and not arbitrarily. Looking to T. Nagappa's case, as and when application is
moved pursuant to Sections 45 & 73 of the Evidence Act read with Section
243 Cr.P.C., the Magistrate is under an obligation to exercise its jurisdiction
judiciously to see that a proper and fair opportunity of defence is given to the
accused. While doing the so, the Court should bear in mind its own jurisdiction
under Sections 45 & 73 of the Evidence Act. Section 73 of the Evidence Act is
quoted hereunder:-

73. Comparison of signature, writing or seal with others admitted or proved - In

order to ascertain whether a signature, writing or seal is that of the person by
whom it purports to have been written or made, any signature, writing or seal
admitted or proved to the satisfaction of the Court to have been written or made
by that person may be compared with the one which s to be proved, although
that signature, writing, or seal has not been produced or proved for any other
purpose.

The Court may direct any person present in Court to write any words or figures
for the purpose of enabling the Court to compare the words or figures so written
with any words or figures alleged to have been written by such person.

In S.B. Criminal Misc. Petition No.2581/2009 the application was moved at the
stage when petitioner had already taken many adjournments to cross-examine
complainant's witnesses and even cost was imposed. The allegation therein is
that cheques were not signed or issued to the complainant, thus there exists
fraudulent signature as well as writing. Section 73 of the Evidence Act has
already been discussed and provides as to in what manner matter has to be dealt
with as and when such applications are made. In view of the provisions
of Section 73 of the Evidence Act, the Court may either observe its own finding,
however, if it is not found to be safe to record such finding, then Court should
not venture in its opinion without expert report. The matter is, thus, kept open
for the Court to seek expert opinion, if so required.

ii) Age of ink :- In the case of T. Nagappa Vs. Y.R. Murlidhar

reported in (2008) 5 SCC 633, it was held that the cheques were
 signed in the year 1999 and thereupon they have been filled up in the
month of August, October and December 2004, thus age of the
signatures is required to be examined by the FSL. The Hon'ble Apex
Court allowed the appeal on the ground that the accused has a right of
fair trial.

iii) Bank’s Role when Signature on the Cheque is Forged

In the case of Canara Bank vs Canara Sales Corporation & Ors., -
The Supreme Court while analysing the Supreme Court’s role in the
case stated that “when a cheque which is presented for encashment
contains a forged signature the bank has no authority to make
payment against such a cheque. The bank would be acting against law
in debiting the customer with the amounts covered by such cheques.

III. Defences under Section 138 of Negotiable Instrument Act:

1. Non-existence of a consideration
In the Supreme Court of India
Bharat Barrel & Drum Manufacturing Co.
v.
Amin Chand Pyarelal,
MANU/SC/0123/1999 (1999) 3 SCC 35
The Supreme court had occasion to consider Section 118(a) of the Act.
The Court held 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 and Defendant can
prove the non-existence of a consideration by raising a probable defence.
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 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, shall act upon the plea that it did not exist......
  It is not necessary for the Accused to disprove the existence of
consideration by way of direct evidence and even the evidence
adduced on behalf of the complainant can be relied upon
Janardhan Bhat
v.
Dattatraya G. Hegde,
MANU/SC/0503/2008

32. The standard of proof evidently is preponderance of probabilities. Inference

of preponderance of probabilities can be drawn not only from the materials on
record but also by reference to the circumstances upon which he relies.

 Financial Capacity
Basalingappa vs . Mudibasappa (supra)

2. Case to be instituted at the Place where Branch of the Bank on which

Cheque was drawn is located.

In the Supreme Court of India

Dashrath Roopsingh Rathod

v.

State of Maharashtra & Anr.

In this case, the Supreme Court changed the basic criteria under Section
138 of Negotiable Instruments Act which is to prosecute a person who
had presented the cheque which had been returned due to insufficiency of
funds or if the amount exceeds the amount in the bank of the payer. The
case has to be initiated at the place where the branch of the bank on
 which the cheque was drawn is located.The judgment would apply
retrospectively.

Kishan Rao v. Shankargouda

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

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 1771 of 2010

Decided On: 31.03.2015

Appellants: S. Krishnamoorthy

Vs.

Respondent: Chellammal

Brief facts of the case are that Respondent Chellammal borrowed a sum of Rs.
2,20,000/- from Appellant S. Krishnamoorthy on 1.3.2007, and issued a post-
dated (8.3.2007) cheque towards repayment of the loan. However, when the
cheque was presented before the Bankers on 8.3.2007, the same was returned
unpaid on the ground of insufficiency of funds. Consequently, a notice dated
17.3.2007 was sent by the Appellant to the Respondent demanding payment of
the loan. Said notice was received by the Respondent on 22.3.2007. But, instead
of making the payment, she sent reply dated 5.4.2007 falsely alleging that her
father and son-in-law had borrowed loan of Rs. 2,00,000/- from the Appellant,
and the Respondent stood only surety to said transaction. Consequently,
criminal complaint (C.C. No. 120 of 2007) was filed by the Appellant before the
Judicial Magistrate, Dharapuram, for prosecution of Respondent Chellammal in
respect of offence punishable Under Section 138 of the Act.

4. The Respondent (accused) challenged the proceedings of criminal complaint

case by moving a Criminal Original Petition Under Section 482 of the Code
before the High Court. In said petition the accused pleaded that her son-in-law
A. Raj and Ayyavu (father of A. Raj) had actually borrowed a sum of Rs.
2,00,000/- on 19.4.2005. The cheques in question were only taken as security.
Actually, loan was taken by A. Raj and Ayyavu by mortgaging their house in
favour of one Balakrishnan, brother of the present Appellant. It is alleged by the
present Respondent (accused) in the petition that Balakrishnan, instead of
getting the mortgage deed executed, obtained an agreement of sale from
aforesaid two persons with false and incorrect recitals, that a sum of Rs.
2,00,000/- was paid as advance and part of consideration, and balance of Rs.
25,000/- shall be paid within 35 months. Cheques bearing Nos. 857491, 857492
and 857493 of Canara Bank, Dharapuram Branch, were got filled up in the
name of the complainant (Appellant), which were misused by him.

5. The above defence of the Respondent (accused) before the High Court, in the
petition filed Under Section 482 of the Code, is nothing but absolutely factual in
nature, which is neither admitted by the complainant, nor apparent on the face
of the record. Such type of disputed factual defences could have been
appreciated only by the trial court, after the parties led their evidence. In our
opinion, the High Court committed grave error of law in examining the
allegations and counter allegations which are disputed and factual in nature in a
proceeding Under Section 482 of the Code.

A. Rebutting presumption under Section 139 of Negotiable Instrument

Act

3. Accused charged under Section 138 NI Act, 1881, acquitted in light

of “no evidence”

Madras High Court

Arul Mari Joseph v. Edward Raj,
2018 SCC OnLine Mad 1322,
dated 11-04-2018

In a Single Judge Bench decision comprising of P. Kalaiyarasan, J., accused

was acquitted of the charges under Section 138 of Negotiable Instruments Act,
1881, confirming the decision of the first appellate court.
The brief facts of the case states that the complainant/ appellant had given an
amount of Rs. 3, 50,000 to the accused for meeting his family expenses for
which the accused had issued a cheque to the complainant. On the deposit of the
said cheque it was returned with an endorsement “insufficient funds”. For the
same stated contention a legal notice was issued in the name of the accused.
The trial court had convicted the accused under Section 138 of the Negotiable
Instruments Act, 1881, which further was reversed in the decision of the first
appellate court; therefore, the complainant filed the criminal appeal. The
contention of the accused was that the cheque was stolen and the same was
misused in the year 2007 with some other cheques contained in a bag.
The Hon’ble High Court, on perusal of the records, in which exhibits were
attached in regard to the complaint filed for the lost bag containing the cheques,
held it as established that the criminal appeal stands dismissed as no evidence
has been recorded against the accused and the decision of the first appellate
court was confirmed.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 433 of 1959

Decided On: 16.03.1961

Appellants:Kundan Lal Rallaram

v.

Respondent:Custodian, Evacuee Property,

Bombay

Section 118 lays down a special rule of Evidence applicable to negotiable

instruments. The presumption is one of law and thereunder a Court shall
presume, inter alia, that the negotiable instrument or the endorsement was made
or endorsed for consideration. In effect it throws the burden of proof of failure
of consideration on the maker of the note or the endorser, as the case may be.
The phrase "burden of proof" has two meanings: One, the burden of proof as a
matter of law and pleading and the other the burden of establishing a case; the
former is fixed as a question of law on the basis of the pleadings and is
unchanged during the entire trial, whereas the latter is not constant but shifts as
soon as a party adduces sufficient evidence to raise a presumption in his favour.
The evidence required to shift the burden need not necessarily be direct
evidence, i.e., oral or documentary evidence or admissions made by opposite
party; it may comprise circumstantial evidence or presumptions of law or fact.
A plaintiff who says that he had sold certain goods to the defendant and that a
promissory note was executed as consideration for the goods and that he is in
possession of the relevant account books to show that he was in possession of
the goods sold and that the sale was effected for a particular consideration
should produce the said account books. If such a relevant evidence is withheld
by the plaintiff, Section 114. Evidence Act enables the Court to draw a
presumption to the effect that, if produced, the said accounts would be
unfavourable to the plaintiff. This presumption if raised by a court, can under
certain circumstances rebut the presumption of law raised under Section 118 of
the Negotiable Instruments Act.

IN THE SUPREME COURT OF INDIA

Criminal Appeal No. 2045 of 2008 (Arising out Special

Leave Petition (Criminal) No. 955 of 2007)

Decided On: 16.12.2008

Appellants: Kumar Exports

Vs.

Respondent: Sharma Carpets

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
presumption" (irrebuttable). The term (sic) to designate an inference,
affirmative or disaffirmative (sic) 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.

In the Supreme Court of India

Kanahiyalal Ghamandi Lal
v.
Subhash
(16.02.2012 - RAJHC) : MANU/RH/0725/2012

riefly, the facts of the case are that according to the complainant firm, Subhash
had opened an account with the firm for selling of agricultural products for this
purpose, there were monetary transactions between the firm and Subhash.
Moreover Subhash had requested the firm to give loans to his father, Kasi Ram,
which he would repay. Thus, according to the firm, accused respondent, and his
father had taken loans from the firm. As on 30.9.2002, the loan amount was Rs.
1,98,700. The loan amount was entered in the account books (bahi). Moreover,
according to the complainant between 4.10.2002 and 9.11.2002, the
accused/respondent had taken further loan of Rs. 7,785. Thus, he owed a total of
Rs. 2,06,485. The complainant further claimed that on 29.11.2003, the
accused/respondent had sought a loan of Rs. 50,000. Thus, the accused
respondent owed a grand total amount of Rs. 2,56,485. In order to repay this
loan, the accused respondent issued two cheques in favour of the firm namely;
cheque No. 0402982 dated 10.12.2003 for an amount of two lacs rupees, and
another cheque, bearing cheque No. 402979 dated 18.12.2003 for an amount of
fifty thousand rupees. But when these cheques were presented for encashment,
they were dishonoured by the bank on the ground of insufficient fund.
Therefore, the firm sent a legal notice to the accused respondent. However,
despite the service of notice, the accused respondent did not repay the loan
amount. Hence, the complaint under Section 138 of the Act had been filed.
Thus, if the material or the relevant evidence is withheld by a party, then the
presumption raised against the opposite party stands rebutted. Similar view has
also been expressed in the case of Kumar Exports (supra). In the present case,
the books of accounts were material and relevant evidence. Yet, they were
withheld from the perusal of the trial Court. Thereafter, the presumption drawn
against Subhash stands rebutted. Since the presumption under Section 139 of
the Act is rebuttable one since Subhash has been able to rebutt the presumption,
the learned Judge was certainly justified in acquitting the accused respondent.

4. A probable defence which creates doubt about the existence of a legally

enforceable debt or liability- Explanation to Section 138 is abundantly
clear that the dishonoured cheque must have been received by the
complainant against a “legally enforceable debt or
liability”, Nanda v. Nandkishor, 2010 SCC OnLine Bom 54.

Supreme Court of India

Rangappa

v.

Sri Mohan

On 7 May, 2010

Facts:

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. 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.

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. 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.

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 doubt about the
existence of a legally enforceable debt or liability, the prosecution can fail. 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 own.
Important points:

Case of a fiduciary relationship between complainant and

accused [relationship of trust and confidence]
Bir Singh v. Mukesh Kumar, 3 The existence of a fiduciary relationship between
the payee of a cheque and its drawer, would not disentitle the payee to the
benefit of the presumption under Section 139, in the absence of evidence of
exercise of undue influence or coercion.

Case of a blank cheque

Bir Singh v. Mukesh Kumar- If a signed blank cheque is voluntarily handed
over to a payee, towards some payment, the payee may fill up the amount and
other particulars. This in itself would not invalidate the cheque. The onus would
still be on the accused to prove that the cheque was not in discharge of a debt or
liability by adducing evidence. It is immaterial that the cheque may have been
filled in by any person other than the drawer, if the cheque is duly signed by the
drawer.

Quashing of complaint by the High Court under S. 482 CrPC [inherent

powers]
If an accused wants the process under Sections 138 and 141 to be quashed by
filing a petition under Section 482 CrPC , he must make out a case that making
him stand the trial would be an abuse of process of court, Gunmala Sales (P)
Ltd. v. Anu Mehta, (2015) 1 SCC 103.

Conditions precedent for constituting an offence under S. 138

3
(2019) 4 SCC 197.
There are three distinct conditions precedent, which must be satisfied before the
dishonour of a cheque can constitute an offence and become punishable.
(i) The cheque ought to have been presented to the bank within a period of 6
months [3 months]* from the date on which it is drawn or within the period of
its validity, whichever is earlier.
(ii) The payee or the holder in due course of the cheque, as the case may be,
ought to make a demand for the payment of the said amount of money by giving
a notice in writing, to the drawer of the cheque, within 30 days of the receipt of
information by him from the bank regarding the return of the cheque as unpaid.
(iii) The drawer of such a cheque should have failed to make 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 15 days of the receipt of the said notice.
It is only upon the satisfaction of all the three conditions mentioned above and
enumerated under the proviso to Section 138 as clauses (a), (b) and (c) thereof
that an offence under Section 138 can be said to have been committed by the
person issuing the cheque, MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177

Modi Cements Limited v. Kuchil Kumar Nandi (1998) 3 SCC 249

Insufficiency of funds at the time of issue of cheque does not by itself create the
presumption of dishonesty in issuing the cheque.

Mens rea not required for offence under S. 138

The objective of Parliament was to strengthen the use of cheques, distinct from
other negotiable instruments, as mercantile tender and therefore it became
essential for Section 138 to be freed from the requirement of proving mens rea
[guilty state of mind]. This has been achieved by deeming the commission of an
offence dehors mens rea not only under Section 138 but also by virtue of the
succeeding two sections. Section 139 carves out the presumption that the
holder of a cheque has received it for the discharge of any liability. Section
140 clarifies that it will not be available as a defence to the drawer that he had
no reason to believe, when he issued the cheque, that it would be
dishonoured, Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9
SCC 129.

Mens rea not open to presumption- Geekay Exim (India) Ltd. v. State of
Gujarat (1998) 94 Comp Cas 516 - even though mens rea is not an essential
condition specified in Section 138, such element may be presumed to have
existed only on the basis of facts and circumstances of each case.

Case of a post-dated cheque

On the faith of payment by way of a post-dated cheque, the payee alters his
position by accepting the cheque. If stoppage of payment before the due date of
the cheque is allowed to take the transaction out of the purview of Section 138,
it will shake the confidence which a cheque is otherwise intended to inspire
regarding payment being available on the due date, Goaplast (P) Ltd. v. Chico
Ursula D’Souza, (2003) 3 SCC 232