NATIONAL LAW INSTITUE UNIVERSITY, BHOPAL (M.P.

XI TRIMESTER

BANKING LAW

Rangappa
Vs.
Sri Mohan

AIR 2010 SC 1898

SUBMITTED BY:

Smarika

2008 B.A.LL.B. 38

Trimester XI
 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

DECLARATION

The text reported in the project is the outcome of my own efforts and no part of this project has
been copied in any unauthorized manner. No part has been incorporated without due
acknowledgment. The text, if copied from some the source, has been appropriately quoted and
cited. Observations and analysis made are of my own.

Smarika

2008 B.A.LL.B. 38

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

CASES REFERRED BY THE COURT

Krishna Janardhan Bhat v. Dattatraya G. Hegde [(2008) 4 SCC 54]

M.M.T.C. Ltd. and Anr. v. Medchl Chemicals and Pharma (P) Ltd. [(2002) 1 SCC 234]

Goa Plast (Pvt.) Ltd. v. Chico Ursula D'Souza [(2003) 3 SCC 232]

PRESIDING JUDGE

Hon’ble K.G. Balakrishnan, C.J.

Decided On: 

07.05.2010

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

TABLE OF CONTENTS

1 Case History 5
2 Issues Involved 6
3 Facts 7
4 Finding of Trial Court 8
5 Finding of High Court 9
6 Contention of Appellant accused 10
7 Observation of Apex Court 12
8 Analysis of Judgment 13
9 Conclusion 14
10 Bibliography 15

CASE HISTORY

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

The trial court 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 reversed the trial court's decision and recorded a finding of
conviction directing that the appellant-accused should pay a fine of Rs. 75,000, failing which he
would have to undergo three months simple imprisonment. Aggrieved by this final order passed
by the High Court, the appellant-accused has approached Supreme Court seeking special leave to
appeal.

ISSUES INVOLVED

 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.

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

 The manner in which this statutory presumption can be rebutted.

FACTS

1. The appellant-accused was a mechanic who had engaged the services of the respondent-
complainant who was a Civil Engineer for the purpose of supervising construction of his
house. The parties were well acquainted with each other.

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

2. The accused requested the respondent for a hand loan of Rs. 45,000 in order to meet the
construction expenses. In view of their acquaintance, the complainant paid Rs. 45,000 by
way of cash. On receiving this amount, the appellant-accused assured repayment by
October 1999 but on the failure to do so, he sought more time till December 2000.
3. Accused then issued a cheque bearing No. 0886322, post-dated for 8-2-2001 for Rs.
45,000 drawn on Syndicate Bank, Kudremukh Branch. Therefore, on 8-2-2001, the
complainant presented this cheque through Karnataka Bank, Ranebennur for encashment.
However, on 16-2-2001 the 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.
4. 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.

Complainant then 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.

FINDING OF THE TRIAL COURT

A defence was raised by appellant-accused that the cheque in question was a blank cheque
bearing his signature which had been lost and it had come into the hands of the complainant-
respondent who had then tried to misuse it. The accused's case was that there was no legally

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

enforceable debt or liability between the parties since he had not asked for a hand loan as alleged
by the complainant.

The decision of the Trial Court was in favor of the accused as it found some discrepancies in
complainant’s version:

1. During cross-examination, the complainant was uncertain as to when the accused had
actually issued the cheque. 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.
2. In the complaint it was stated 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.
3. That the accused used to pay to the complainant monthly salary for his services as a
building supervisor apart from periodically giving money which was used for the
construction of the house. So, the trial judge found it unlikely that the complainant would
have spent his own money on the construction work.
4. 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 1391 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.
5. Furthermore, the trial judge decided that the offence made punishable by Section 138 of
the Act had not been committed in this case since the dishonour of cheque was not on
account of insufficiency of funds as the accused had instructed his bank to stop payment.

The trial judge had recorded a finding of acquittal.

1
S.139. Presumption in favor 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, or any
debt or other liability.

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

FINDING OF THE HIGH COURT

On appeal, the High Court reversed the findings and convicted the appellant-accused.

1. High Court observed that in the course of the trial proceedings, the accused had admitted
that the signature on the said cheque on the date so mentioned was his own. Once this
fact has been established, there is a presumption under S. 139 that the cheque relates to a
legally enforceable debt or liability. This presumption is rebuttable and onus is then on
the accused to raise a probable defence. The High Court found here that the defence
raised by the accused was not probable.
2. With respect to accused’s contention 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, and
if the accused had actually lost a blank cheque bearing his signature, the question of his
mentioning the date of the cheque could not arise.
3. During the cross-examination of complainant, it was suggested by 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, and this defeats his
claim that he lost a blank cheque. Also, evidence on record shows that the accused
belatedly took up defence of having lost a blank cheque during trial.

All of these observations led High Court to conclude that the accused had not raised a probable
defence to rebut the statutory presumption.

The High Court noted:

“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

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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....”2

Therefore, HC held that because the accused had failed to raise a probable defence to rebut the
presumption by way of s. 139, the discrepancies by complainant as alleged by him are not
acceptable. Conviction was maintained.

CONTENTION BY APPELLANT ACCUSED

The accused-appellant contended that the presumption under Section 139 of the Act does not
extend to the existence of a legally enforceable debt or liability and that it stands rebutted in this
case because of the discrepancies in the complainant's version.

It was contended that since the complainant did not 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 is not proved, and this
creates a probable defence for the accused.

The accused relied on the case of Krishna Janardhan Bhat v. Dattatraya G. Hegde3, wherein
it was observed:

“Indisputably, a mandatory presumption is required to be raised in terms of Section 118(b) and

Section 139 of the Act. Section 13(1) of the Act defines negotiable instrument to mean a
promissory note, bill of exchange or cheque payable either to order or to bearer. 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 pre- supposes a legally enforceable debt; and (iii) that the cheque so issued had
been returned due to insufficiency of funds. The proviso appended to the said section provides
for compliance of 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
2
Para 6
3
(2008) 4 SCC 54

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 Rangappa v. Sri Mohan [AIR 2010 SC 1898]

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…”

Basically the observations could be taken to imply that in prosecutions for violation of Section
138 of the Act, the complainant would have to prove the existence of a legally enforceable debt,
only after which the presumption under section 139 would operate to the extent that the Court
shall presume that the cheque was issued in relation to that debt.

OBSERVATIONS OF THE APEX COURT

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 they have been met, whether
the accused was able to rebut the statutory presumption contemplated by Section 139 of the Act.

It was observed by Supreme Court here that Section 138 of the Negotiable Instruments Act can
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 was substantiated by the case referred by SC, Goa Plast Pvt. Ltd. v. Chico
Ursula D’Souza.4

4
(2003) 3 SCC 232

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“Chapter XVII contains Sections 138 to 142 and these provisions were intended to discourage
people from not honouring their commitments by way of payment through cheques. 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 stopping payment of a post-
dated cheque, a party should not be allowed to get away from the penal provision of Section
138.”

The SC also relied on the case, M.M.T.C. Ltd. and Anr. V. Medchl Chemicals & Pharma (P)
Ltd.5:

“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.”

ANALYSIS OF JUDGMENT

The SC was in agreement with the respondent-claimant that the presumption raised under
Section 139 includes the existence of a legally enforceable debt or liability. To that extent, the
observations in Krishna Janardhan Bhat case may not be correct. Thus, this would not be correct
position to say that in prosecutions for violation of Section 138 of the Act, the complainant

5
(2002) 1 SCC 234

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would have to prove the existence of a legally enforceable debt, only after which the
presumption under section 139 would operate to the extent that the Court shall presume that the
cheque was issued in relation to that debt.

Thus, ultimately Supreme Court supported the High Court's view that the accused did not raise a
probable defence. The defence of the loss of a blank cheque was taken up belatedly and the
accused mentioned a different date in the ‘stop payment' instructions to the bank. Also the
instructions to ‘stop payment' had not even mentioned that the cheque had been lost. It was also
seen that the accused appeared to be aware of the fact that the cheque was with the complainant.
The very fact that the accused had failed to reply to the statutory notice under Section 138 of the
Act shows that complainant’s contention must be accepted. 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 complaint shows the existence of a legally enforceable debt or liability as the complainant
has maintained that his money was used for the construction expenses. Since the accused
admitted that the signature on the cheque was his, the statutory presumption thus comes up and
the same has not been rebutted by him.

HELD

There is no reason to interfere with the judgment of the High Court which recorded a finding of
conviction against the appellant. Appeal was disposed of accordingly.

CONCLUSION

Section 139 of the Negotiable Instruments Act, 1881 talks of presumption in favour of holder
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, or any debt
or other liability.

The Supreme Court in this case has clarified the scope of the presumption under Section 139 of
the Negotiable Instruments Act. Whether a cheque bounces due to insufficiency of fund in the
bank account of the drawer, or whether he issues a ‘stop payment’ order to the bank, the

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consequences under the Negotiable Instruments Act would be the same. When a cheque is
issued, there is a presumption that it is to clear a debt or liability. The drawer of the cheque can,
however, rebut the presumption. “There can be no doubt that there is an initial presumption
which favours the complaining person.” The presumption must be rebutted by the drawer. Thus
this is with respect to the first issue, as to proper interpretation of s.139. With respect to the issue
relating to the manner in which a presumption can be rebutted, the accused can rely on the
materials submitted by the complainant in order to raise such a defence.

Thus, the crux of this judgment interpretation of s.139 of the Negotiable Instruments Act.

BIBLIOGRAPHY

Web Source:

Case retrieved from <http://www.manupatra.com/>

Legislation:

The Negotiable Instruments Act, 1881

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