2025 (6) TMI 1874 - HC - Indian Laws

Dishonour of Cheque - insufficient funds - discharge of legal liability or not - shifting of burden to prove legal liability - rebuttal of presumption contained in Section 139 of the NI Act - HELD THAT - It was laid down by the Hon ble Supreme Court in Basalingappa v. Mudibasappa 2019 (4) TMI 660 - SUPREME COURT that the admission of signatures raises the presumption under Sections 118 (a) and 139 of the NI Act that the cheque was issued for consideration in the discharge of the legal liability but the accused can rebut the presumption by leading the evidence or cross-examining the complainant and his witnesses to show that his version is not reliable. The complainant admitted in his cross-examination that cheques were issued as security in the year 2017 which is contrary to his statement in examination in chief that the cheques were issued in the year 2020. It was laid down by Hon ble Supreme Court in Dattatraya v. Sharanappa 2024 (8) TMI 468 - SUPREME COURT that where the accused had made contradictory statement regarding the date of handing over of the cheque his statement could not be relied upon and this would shift the burden upon the complainant to prove the legal liability. The version of the complainant that accused had purchased the articles from him and he issued cheques to return the amount to the complainant was not proved on record. Once the complainant admitted in his cross-examination that the cheques were issued in the year 2017 as security the complainant was required to prove the existence of legal liability for Rs. 7, 68, 600/- on the date of presentation of the cheque. He could not have relied upon a mere presumption to establish his case. It was laid down by the Hon ble Supreme Court in Sampelly Satyanarayana Rao vs. Indian Renewable Energy Development Agency Limited 2016 (9) TMI 867 - SUPREME COURT that when the cheque is issued as a security it will attract Section 138 of the NI Act only if the liability subsisted on the date of presentation of the cheque and not otherwise. In the present case the complainant failed to prove the existence of the liability. He stated in his cross-examination that his accountant had filled in the amount and date in both the cheques but did not examine the accountant to show the existence of liability on the date of presentation of the cheques. Conclusion - The learned Trial Court had taken a reasonable view while holding that the existence of the legal liability was not proved and this Court will not interfere with the reasonable view taken by the learned Trial Court while deciding the appeal against the acquittal even if another view is possible. There is no reason to grant leave to appeal. Consequently the present application fails and the same is dismissed.

Summary

The core legal questions considered in this judgment revolve around the applicability and interpretation of Sections 118(a) and 139 of the Negotiable Instruments Act (NI Act), specifically:

1. Whether the issuance of cheques by the accused creates a presumption that the cheques were issued in discharge of a legal liability under Sections 118(a) and 139 of the NI Act.

2. Whether the accused successfully rebutted the statutory presumption by adducing evidence or pointing out contradictions in the complainant's case.

3. The evidentiary value of documents such as bills and ledger entries in proving the existence of a legal liability.

4. The legal effect of cheques issued as security and the requirement to prove the subsistence of liability on the date of presentation of the cheque.

5. The standard of proof required to rebut the statutory presumption under Section 139 of the NI Act.

Issue 1: Presumption under Sections 118(a) and 139 of the NI Act upon admission of cheque issuance

The legal framework establishes that once the execution of the cheque is admitted, Sections 118(a) and 139 of the NI Act mandate a rebuttable presumption that the cheque was issued for the discharge of any debt or other liability. This principle was reiterated by the Supreme Court in Basalingappa v. Mudibasappa (2019), which summarized the law as follows:

- Section 139 creates a presumption that the cheque was issued to discharge a legal liability once the cheque's execution is admitted.

- This presumption is rebuttable, and the accused bears the evidentiary burden to raise a probable defence on the preponderance of probabilities standard.

- The accused may rely on evidence led by himself or on the complainant's materials to rebut the presumption.

- The accused is not required to personally testify to support the defence; the burden is evidentiary, not persuasive.

The Court also cited Rajaram v. Maruthachalam (2023) and S. Murugan v. M.K. Karunagaran (2023), which reaffirmed these principles.

In the present case, the accused admitted issuing the cheques, thereby initially attracting the presumption under Section 139. The complainant's counsel contended that minor contradictions in the complainant's statements were insufficient to rebut this presumption.

Issue 2: Whether the accused successfully rebutted the presumption

The Trial Court found that the accused rebutted the presumption by highlighting contradictions and deficiencies in the complainant's evidence. Key findings include:

- The complainant gave contradictory statements regarding the date of issuance of the cheques, stating 2020 in examination-in-chief but 2017 in cross-examination.

- The complainant admitted that the cheques were issued as security.

- The bills produced in support of the claim were unsigned by the accused, despite having a column for customer signatures, undermining their reliability.

- Ledger entries relied upon by the complainant were held insufficient to establish liability, as per the Supreme Court's ruling in Manohar Lal Sharma v. Union of India (2017), which clarified that entries in books of account are corroborative but not independently sufficient evidence to fasten legal liability.

These factors collectively cast doubt on the complainant's version and enabled the accused to rebut the statutory presumption.

Issue 3: Evidentiary value of documents (Bills and Ledger entries)

The Court applied the principle from Manohar Lal Sharma v. Union of India (2017) and CBI v. V.C. Shukla (1998), which hold that entries in books of account or unsigned bills cannot alone establish liability. Independent corroborative evidence is necessary to prove the authenticity and correctness of such entries.

In this case, the complainant failed to produce independent evidence linking the bills and ledger entries to the accused, weakening the claim that the accused owed a debt to the complainant.

Issue 4: Legal effect of cheques issued as security and proof of subsisting liability

The Court emphasized that cheques issued as security attract Section 138 of the NI Act only if the liability subsisted on the date of presentation of the cheque. This principle was drawn from Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency Limited (2016) and Sripati Singh v. State of Jharkhand (2021).

In the present case, the complainant admitted that the cheques were issued as security in 2017 but failed to prove the existence of any legal liability on the date of presentation of the cheques. The complainant's failure to produce the accountant who filled in the cheque details further weakened the claim.

Issue 5: Standard of proof to rebut presumption

The Court reiterated that the accused must rebut the presumption on the preponderance of probabilities. It is not necessary for the accused to prove the defence beyond reasonable doubt or to personally testify. The accused may rely on contradictions in the complainant's evidence or other materials to raise a probable defence.

In this case, the accused effectively raised doubts about the complainant's version, and the Trial Court's conclusion that the presumption was rebutted was held to be a reasonable view.

Conclusions on issues:

The Court concluded that the complainant failed to prove the existence of a legal liability on the date of cheque presentation, as required under Section 138 of the NI Act, especially given the admission that the cheques were issued as security. The contradictions in the complainant's testimony and the lack of independent corroborative evidence rendered the complainant's case doubtful. Consequently, the accused successfully rebutted the presumption under Sections 118(a) and 139 of the NI Act.

The Court held that the Trial Court had taken a reasonable view in dismissing the complaint and declined to interfere with the acquittal, even if another view was possible.

Significant holdings and core principles established:

"Once the execution of the cheque is admitted, Section 139 of the Act mandates a presumption that the cheque was for the discharge of any debt or other liability."

"The presumption under Section 139 is a rebuttable presumption, and the onus is on the accused to raise the probable defence. The standard of proof for rebutting the presumption is that of preponderance of probabilities."

"To rebut the presumption, it is open for the accused to rely on evidence led by him or the accused can also rely on the materials submitted by the complainant in order to raise a probable defence."

"Entries in books of account are not by themselves sufficient to charge any person with liability... There must be independent evidence of the transaction to which the entries relate."

"A cheque issued as security pursuant to a financial transaction will attract Section 138 of the NI Act only if the liability subsisted on the date of presentation of the cheque."

"The inability of the complainant to prove the existence of legal liability on the date of presentation of the cheque is fatal to the complaint under Section 138."

"The Court will not interfere with the reasonable view taken by the learned Trial Court while deciding the appeal against the acquittal even if another view is possible."

Final determinations:

- The presumption under Sections 118(a) and 139 of the NI Act was initially attracted due to admission of cheque issuance.

- The accused successfully rebutted the presumption by exposing contradictions and lack of independent evidence of liability.

- The complainant failed to prove the existence of a subsisting legal liability on the date of cheque presentation.

- The Trial Court's dismissal of the complaint was justified and reasonable.

- The application for special leave to appeal was dismissed, and the proposed appeal disposed of accordingly.