2025 (7) TMI 208 - HC - Indian Laws

Dishonour of Cheque - admitted issuance of the cheques bearing the signatures of Respondent No.3 - statutory presumption under Section 139 N.I. Act stands attracted or not. HELD THAT - The conduct of the parties needs to be considered from the yardstick of a prudent man. The Complainant has asserted that the Respondents had sought Rs.12, 00, 000/- for the purpose of business expansion. It does not appeal to prudence that the money so taken for expansion of business could be returned within one month - The entire transaction also becomes suspicious from the fact that while according to the Complainant at the time of giving the loan on 07.11.2014 he got the Samjhauta /Pronote executed on the same day. However this Pronote is dated 07.11.2014 reflecting that the Loan was given in November 2014 and not in June/July 2014 as claimed by the Complainant in his testimony. It does not seem reasonable that while the loan is allegedly given in June July the document/ Samjhauta /Pronote got prepared on 07.11.2014. Another significant fact to be noted is the inconsistency regarding execution of the Cheque. The Complainant had asserted in his testimony that the entire details on the cheque was filled by Mr. Surjit Singh Respondent No. 2 but he contradicted himself by stating that the payee name and the amount had been filled by him. He in his cross examination again denied that he had filled the name and amount details. No person who has taken a loan for a fixed period of one month of Rs.12, 00, 000/- would not fill at least the amount and the date while handing over the signed blank cheque. If so was the transaction for one month there was nothing which would have prevented the Respondent No. 2 to have also filled the date on which the cheque may be presented along with the amount - Pertinently it was also agreed as per the Samjhauta that the interest @2% per month would be payable. If it was a Loan amount given only for one month then there was no reason for an interest Clause of interest payable @2 % per month being incorporated in the alleged Samjhauta document. The entire transaction as alleged by the Complainant does not stand to reason and does not prove of him having given loan in the sum of Rs.12, 00, 000/- for one month to the Respondents on 07.11.2014. The learned Metropolitan Magistrate has rightly dismissed the Complaint and acquitted the Respondents - There is no merit in the present Appeal which is hereby dismissed.

Summary

The core legal questions considered in this judgment revolve around the applicability of the statutory presumption under Section 139 of the Negotiable Instruments Act, 1881, in the context of a cheque dishonour complaint under Section 138 of the said Act. Specifically, the Court examined whether the complainant had established the existence of a debt or liability corresponding to the cheque in question, the authenticity and evidentiary value of the loan transaction and related documents, and the financial capacity of the complainant to have advanced the alleged loan. Additionally, the Court addressed the scope and rebuttal of legal presumptions under the Negotiable Instruments Act and the Indian Evidence Act, and the evidentiary burden on the accused/respondents to disprove the existence of debt or liability.

The first issue considered was the existence and authenticity of the loan transaction alleged by the complainant. The complainant asserted that the respondents had approached him for a loan of Rs. 12,00,000/- in November 2014, which was evidenced by a cheque dated 07.11.2014 and a pronote (termed 'Samjhauta') dated the same day. The respondents denied any loan transaction and claimed false implication. The Court scrutinized the complainant's testimony and documentary evidence, noting discrepancies in the date of loan disbursement. While the complainant initially stated the loan was given on 07.11.2014, he later admitted in cross-examination that it was advanced in June or July 2014. This inconsistency was held to be improbable given the substantial loan amount. The pronote, a typed standard form with handwritten insertions, was witnessed by a third party (CW-2) who admitted signing a blank document and could not identify the handwriting or verify the contents filled later. The Court emphasized that a witness to a document must prove not only signatures but also the contents to establish authenticity. This failure weakened the evidentiary value of the pronote.

The second issue was the complainant's financial capacity to advance the alleged loan. The complainant claimed the loan amount was derived from his and his wife's savings and proceeds from the sale of his father's gold. However, he failed to produce any corroborative evidence such as bank statements, income tax returns, sale receipts, or other financial documents. The Court referred to authoritative precedents establishing that the complainant must prove the existence of debt and his capacity to advance the loan to attract the presumption under Section 139 of the Negotiable Instruments Act. The absence of such proof led the Court to doubt the existence of the loan itself.

The third issue related to the statutory presumption under Section 139 of the Negotiable Instruments Act and its rebuttal. The Court analyzed the nature and scope of legal presumptions, citing that presumptions under Sections 118 and 139 are rebuttable and not conclusive proof. The Court referred to the Indian Evidence Act's Section 4, explaining that 'shall presume' means the fact shall be regarded as proved unless disproved. The Court relied on precedents that the accused/respondents must adduce evidence to rebut the presumption, but mere denial is insufficient. The respondents filed applications under Section 145(2) of the Negotiable Instruments Act, claiming the cheque was issued as security, but these claims were inconsistent and raised for the first time during proceedings, which diminished their credibility. The Court held that possession of a duly signed cheque prima facie indicates a debt or liability unless rebutted by cogent evidence.

The fourth issue concerned the contradictions and improbabilities in the transaction's terms and conduct of parties. The complainant's testimony was inconsistent regarding who filled the cheque details and the timing of the loan and cheque presentation. The Court noted that if the loan was for one month, as claimed, the cheque dated 07.11.2014 could not have been presented on 24.11.2014, only 15 days later. The inclusion of an interest clause at 2% per month in the pronote was also inconsistent with a purported one-month loan. These discrepancies cast doubt on the genuineness of the transaction.

In applying the law to the facts, the Court found that the complainant failed to establish the existence of a debt or liability corresponding to the cheque. The discrepancies in the date of loan, the inability of the witness to prove the pronote's contents, the absence of financial evidence to show the complainant's capacity to lend, and the inconsistent conduct of parties collectively undermined the complainant's case. The Court held that the presumption under Section 139 could not be attracted in favor of the complainant in the absence of cogent proof. The respondents' denial and the lack of credible rebuttal evidence did not suffice to establish the complainant's case beyond reasonable doubt.

Regarding competing arguments, the complainant relied on precedents affirming that non-reporting of loan transactions in income tax returns or absence of sale receipts does not render the loan void or unrecoverable, and that a signed blank cheque filled by the payee does not invalidate the cheque. The Court acknowledged these principles but emphasized that such legal tenets do not substitute the basic requirement of establishing the underlying debt or liability. The respondents' contention that the cheque was issued as security was not substantiated with consistent or credible evidence, and was raised belatedly, thus given limited weight.

The Court concluded that the learned Metropolitan Magistrate rightly dismissed the complaint under Section 138 of the Negotiable Instruments Act and acquitted the respondents. The appeal was dismissed for lack of merit.

Significant holdings include the following verbatim excerpts capturing crucial legal reasoning:

"The possession of a duly executed cheque in the hands of its holder in itself, is suggestive of a liability/debt of the account holder of the cheque unless the contrary is proved."

"Presumptions filed under Sections 118 and 139 N.I. Act, are rebuttable in nature... the expression 'shall presume' cannot be held to be synonymous with 'conclusive proof'."

"Where Defendant is able to discharge the initial onus of proof showing that the existence of consideration was improbable or doubtful, the onus would shift on the Plaintiff to prove it as a matter of fact and his failure would disentitle him to any relief on the basis of Negotiable Instrument."

"It is for the Complainant to first establish the existence of a debt for which the impugned cheques are issued in order to be successful in a complaint under Section 138 N.I. Act. If the existence of debt in respect of large part of the amount is not proved, then the presumption cannot be drawn and the Complaint under Section 138 N.I. Act is liable to be dismissed."

Core principles established include the requirement that the complainant must establish the existence of a debt or liability to attract the statutory presumption under Section 139 of the Negotiable Instruments Act; the presumption is rebuttable and not conclusive; mere denial by the accused is insufficient to rebut the presumption; and the complainant must demonstrate financial capacity and authenticity of the loan transaction through cogent evidence. The Court reaffirmed that discrepancies and contradictions in testimony and documents, as well as failure to produce corroborative financial evidence, undermine the complainant's case and justify dismissal of the complaint.

In final determinations, the Court found that the complainant failed to prove the existence of the loan and the associated debt or liability; the pronote was not duly proved; the complainant did not establish financial capacity; the statutory presumption under Section 139 was not attracted; and the respondents' denial was credible and unrebutted by cogent evidence. Consequently, the complaint under Section 138 of the Negotiable Instruments Act was rightly dismissed and the respondents acquitted. The appeal was accordingly dismissed.