2025 (7) TMI 61 - HC - Indian Laws

Dishonour of Cheque - acquittal of the offence u/s 138 of the Negotiable Instruments Act 1881 - failure to produce any document or witness in respect of the advancement of the alleged friendly loan and that the loan had not been proven by any independent witness/document - burden to prove the existence of debt - presumption of innocence of the accused - HELD THAT - The present case relates to acquittal of an accused in a complaint under Section 138 of the NI Act. The restriction on the power of Appellate Court in a petition seeking leave to appeal against order of acquittal in regard to other offence does not apply with same vigor in the offence under NI Act which entails presumption against the accused. The Hon ble Apex Court in the case of Rohitbhai Jivanlal Patel v. State of Gujarat 2019 (3) TMI 769 - SUPREME COURT had observed that the accused is entitled to bring on record the relevant material to rebut such presumption and to show that preponderance of probabilities are in favour of his defence but while examining if the accused has brought about a probable defence so as to rebut the presumption the appellate court is certainly entitled to examine the evidence on record in order to find if preponderance indeed leans in favour of the accused. It is well settled that once the execution of the cheque is admitted the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque/ respondent received the cheque in discharge of a legally enforceable debt or liability are raised against the accused. Before delving into the correctness of the impugned order it is pertinent to note that the presumption under Section 139 of the NI Act is not absolute and may be controverted by the accused. In doing so the accused only ought to raise a probable defence on a preponderance of probabilities to show that there existed no debt in the manner so pleaded by the complainant in his complaint/ demand notice or the evidence. Once the accused successfully raises a probable defence to the satisfaction of the Court his burden is discharged and the presumption disappears. The burden then shifts upon the complainant who then has to prove the existence of such debt as a matter of fact - From a perusal of the cross-examination of the petitioner it is evident that despite the respondents having questioned the mode manner and advancement of loan amount no evidence or document was placed on record by the petitioner to corroborate the advancement of the loan. The petitioner was further unable to point towards the date or the purpose for which the loan amount was advanced. It is pertinent to note that in terms of the dictum of the Hon ble Apex Court in Rajesh Jain v. Ajay Singh 2023 (10) TMI 418 - SUPREME COURT once the respondents were able to raise a probable defence by either leading direct or circumstantial evidence to show that there existed no debt/liability in the manner as pleaded in the complaint/ demand notice/ affidavit-evidence the presumption raised against them disappeared. It was then for the petitioner to prove as a matter of fact that there in fact existed a debt/liability - The respondents already having dislodged the burden it was on the petitioner to show the existence of the debt that too as a matter of fact. In fact once the respondents had raised a probable defence to the satisfaction of the Court the presumptions under Sections 118(a) or 139 of the NI Act were no longer in the favour of the petitioner. For this reason the petitioner having failed to lead evidence to show the existence of the debt/liability his contentions that the presumptions under Section 118 and 139 of the NI Act were in his favour do not bolster the case of the petitioner. It is pertinent to note that a decision of acquittal fortifies the presumption of innocence of the accused and the said decision must not be upset until the appreciation of evidence is perverse. Upon a consideration of the facts and circumstances of the case this Court finds no such perversity in the impugned judgments so as to merit an interference in the finding of acquittal. Consequently this Court finds no reason to entertain the present petitions - petition dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the respondents can be held liable under Section 138 of the Negotiable Instruments Act, 1881, for dishonour of cheques issued towards repayment of an alleged loan amount.

- Whether the petitioner has discharged the burden of proving the existence of a legally enforceable debt or liability at the time of issuance of the cheques.

- Whether the presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act operate in favour of the petitioner and against the respondents and if so, whether the respondents have successfully rebutted these presumptions by raising a probable defence.

- The extent and scope of appellate interference in an acquittal order passed in a complaint under Section 138 of the Negotiable Instruments Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of respondents under Section 138 of the Negotiable Instruments Act

The core legal framework involves Section 138 of the NI Act which penalizes dishonour of cheques issued for discharge of a debt or liability. Sections 118(a) and 139 of the NI Act create presumptions in favour of the holder of the cheque that the cheque was issued for discharge of a legally enforceable debt or liability, shifting the initial evidential burden onto the accused to rebut the presumption.

The Court referred to authoritative precedents including the Apex Court's rulings in Rangappa v. Sri Mohan and Rajesh Jain v. Ajay Singh, which clarify that once the cheque's execution is admitted, the presumption of consideration and existence of debt arises against the accused. However, these presumptions are rebuttable on a preponderance of probabilities.

In the present case, the respondents denied having taken any loan and questioned the mode, manner, and purpose of the alleged loan's advancement. They contended that the petitioner failed to establish the existence of a legally recoverable debt or liability. The respondents also produced a ledger entry indicating that it was the petitioner who owed money to them, thereby raising a probable defence.

The petitioner's case rested on the assertion of advancing a sum of Rs. 75 lakhs as a friendly loan, allegedly in cash, without any documentary proof or security. The petitioner failed to produce any independent witnesses or documents to substantiate the loan or his capacity to lend such a large sum. The petitioner also did not produce Income Tax Returns (ITR) or bank statements to corroborate the source of funds or the transaction.

The Court noted that mere non-production of ITR does not ipso facto negate the complainant's case, but in the context where the respondents raised a probable defence questioning the loan's existence and the petitioner failed to produce any material evidence in support, the petitioner's claim remained unsubstantiated.

Thus, the Court found that the respondents had successfully raised a probable defence to rebut the presumptions under Sections 118(a) and 139 of the NI Act.

Issue 2: Burden of proof and operation of presumptions under Sections 118(a) and 139 of the NI Act

The Court extensively analyzed the evidentiary burden under the NI Act. It emphasized the two-stage process: first, the presumption arises in favour of the complainant once the cheque's execution is admitted; second, the accused can rebut this presumption by producing evidence to show that no debt or liability existed.

Relying on Rajesh Jain v. Ajay Singh, the Court reiterated that the accused need not prove the negative but must raise a probable defence on a preponderance of probabilities. Upon successful rebuttal, the presumption disappears, and the burden shifts back to the complainant to prove the existence of the debt independently.

In the present case, the respondents' denial of the loan and their request for the petitioner's accounts and ITR in reply to the legal demand notice constituted a probable defence. The petitioner's failure to produce any corroborative evidence or independent witness testimony meant that the petitioner did not discharge the burden of proving the existence of the debt as a matter of fact.

The Court noted that the impugned acquittal was not solely based on non-production of ITR but on the overall failure of the petitioner to establish the existence of a debt or liability, the mode and manner of loan advancement, or the petitioner's financial capacity to advance such a sum.

Issue 3: Scope of appellate interference in acquittal under Section 138 NI Act

The Court discussed the general principle that appellate courts are slow to interfere with acquittal orders unless the judgment is perverse or wholly unsustainable. However, in NI Act cases, where statutory presumptions operate against the accused, the appellate court is entitled to examine whether the accused has successfully raised a probable defence rebutting the presumption.

Referring to Rohitbhai Jivanlal Patel v. State of Gujarat, the Court highlighted that the appellate court's role includes examining the evidence to ascertain if the preponderance indeed leans in favour of the accused. The Court found no perversity or unsustainable reasoning in the impugned judgments that acquitted the respondents.

Issue 4: Treatment of competing arguments regarding the petitioner's failure to produce documentary evidence

The petitioner argued that the absence of documentary evidence such as loan agreements or ITRs should not result in dismissal, especially given the friendly relations between the parties and the presumptions under the NI Act. The petitioner contended that the respondents failed to rebut the presumption effectively.

The respondents countered that the petitioner's inability to specify the date, mode, or purpose of the loan, absence of witnesses, and failure to prove financial capacity raised serious doubts about the existence of the loan. They submitted that these factors constituted a probable defence sufficient to discharge their burden under Section 139.

The Court accepted the respondents' arguments, emphasizing that the petitioner's failure to produce any independent evidence or witnesses to prove the loan's existence and the financial capacity to advance Rs. 75 lakhs in cash was fatal to the petitioner's case. The Court held that the respondents' probable defence was sufficient to rebut the statutory presumptions.

3. SIGNIFICANT HOLDINGS

- "The presumption under Section 139 of the NI Act is not absolute, and may be controverted by the accused. In doing so, the accused only ought to raise a probable defence on a preponderance of probabilities to show that there existed no debt in the manner so pleaded by the complainant."

- "Once the accused successfully raises a probable defence to the satisfaction of the Court, his burden is discharged, and the presumption 'disappears.' The burden then shifts upon the complainant, who then has to prove the existence of such debt as a matter of fact."

- "The appellate court should be very slow in setting aside a judgment of acquittal particularly in a case where two views are possible. The trial court judgment cannot be set aside because the appellate court's view is more probable. The appellate court would not be justified in setting aside the trial court judgment unless it arrives at a clear finding on marshalling the entire evidence on record that the judgment of the trial court is either perverse or wholly unsustainable in law."

- "The rationale behind the order of acquittal in the present case was not based on the observation whether the ITR was produced per se or not but the fact that the petitioner had failed to prove that there existed any debt/liability on date, or show the mode, manner, purpose or the capacity of the petitioner to advance the said loan, or lead any evidence/documentary proof so as to establish how the sum of Rs. 75,00,000/- was advanced."

- "A decision of acquittal fortifies the presumption of innocence of the accused, and the said decision must not be upset until the appreciation of evidence is perverse."

- The final determination was that the impugned acquittal judgments were neither perverse nor unsustainable, and the petitioner failed to discharge the burden of proving the existence of a legally enforceable debt or liability. Consequently, the leave to appeal was dismissed, upholding the acquittal of the respondents under Section 138 of the NI Act.