2006 (7) TMI 576 - SC - Companies Law

Appeal allowed; appellant met Section 118 burden, respondent failed to rebut; acquittal restored, bail discharged, Rs.10,000 costs

SC held that the appellant discharged the initial burden under Section 118 and the burden shifted to the second respondent, who failed to prove his case. ... Presumption under Section 139 of the Negotiable Instruments Act - Presumption under Section 118(a) of the Negotiable Instruments Act - Rebuttal of statutory presumption on preponderance of probabilities - Burden shifting once initial onus discharged - Probative value and admissibility of books of account and adverse inference for non-production - Obligation of stock-exchange members to maintain statutory records - Cheque issued as security not attracting penal liability under Section 138 - Appellate interference with an order of acquittal where two views are possiblePresumption under Section 139 of the Negotiable Instruments Act - Rebuttal of statutory presumption on preponderance of probabilities - Burden shifting once initial onus discharged - Whether the accused/appellant rebutted the statutory presumption arising under Section 139 and was entitled to acquittal. - HELD THAT: - The Court examined the statutory presumption in Section 139 (read with Section 118(a)) and the standard required to rebut it. A statutory presumption is rebuttable and, when rebuttal is sought, the standard is that of preponderance of probabilities, not proof beyond reasonable doubt. If the accused adduces evidence that makes the non-existence of the presumed fact probable, the initial evidential onus shifts back to the prosecution. Applying these principles to the evidence, the Court found that the appellant had discharged the initial onus by giving a plausible explanation (that the cheque was given as security and that accounts were not correct) supported by surrounding circumstances, and therefore the burden shifted to the complainant who failed to prove the presumed fact to the requisite degree.Appellant successfully rebutted the presumption under Section 139 on the basis of preponderance of probabilities and was entitled to acquittal.Probative value and admissibility of books of account and adverse inference for non-production - Obligation of stock-exchange members to maintain statutory records - Whether the complainant's books of account and statements had sufficient probative value to establish the liability when statutory/official records were discrepant and original contract notes were not produced. - HELD THAT: - The Court considered the statutory regime governing stock-exchange transactions and the mandatory requirement for members to maintain prescribed books and registers. The complainant failed to produce original contract notes and the accounts he relied upon (Ex. P10 series) materially diverged from the officially maintained D11 series to the extent of a large sum, and several statutory books were not maintained. The non-production and discrepancies materially diminished the evidentiary value of the complainant's account statements; adverse inferences could be drawn from withholding or failing to maintain required records. On the facts, the prosecution could not satisfactorily explain the discrepancies and therefore failed to sustain its case after the appellant discharged the initial evidentiary burden.The books and statements produced by the complainant lacked requisite probative value in view of material discrepancies and non-production of statutory records; they did not sustain the prosecution case.Cheque issued as security not attracting penal liability under Section 138 - Whether a cheque issued by the appellant as security falls within the scope of Section 138 of the Negotiable Instruments Act. - HELD THAT: - The Court reiterated that Section 138 punishes issuance of a cheque in discharge, in whole or in part, of any debt or other liability. If a cheque is issued by way of security or for a purpose other than discharging a debt or liability, it does not attract penal liability under Section 138. On the facts, the appellant's defence that the cheque was given as security was found to be a probable and acceptable explanation on the evidence, and therefore the cheque could not be treated as issued for discharge of a debt within Section 138.Where a cheque is issued as security and that defence is accepted as probable on the evidence, Section 138 does not apply and penal liability cannot be fastened.Appellate interference with an order of acquittal where two views are possible - Whether the High Court was justified in reversing the appellate court's order of acquittal. - HELD THAT: - The Court noted the well-settled principle that an appellate court ought not to disturb an acquittal if two reasonable views are possible on the evidence. The High Court failed to engage with the appellate court's detailed factual analysis regarding discrepancies in accounts and non-production of required records, and improperly proceeded on a basis that ignored those findings. Given that the appellate court's conclusion of probability in favour of the accused was tenable, interference by the High Court was not warranted.The High Court erred in reversing the acquittal; its interference was unjustified where two views were possible and the appellate court's factual conclusion was tenable.Final Conclusion: Impugned judgment of the High Court reversing acquittal is set aside; appeal allowed, appellant acquitted and discharged from bail bonds, and the complainant ordered to pay appellant's costs. Issues Involved:1. Validity of the cheque issued by the Appellant.2. Interpretation and application of Section 139 of the Negotiable Instruments Act.3. Burden of proof and presumption under Sections 118(a) and 139 of the Act.4. Admissibility and credibility of the books of accounts maintained by the Second Respondent.5. Reversal of the appellate court's judgment by the High Court.Issue-wise Detailed Analysis:1. Validity of the Cheque Issued by the Appellant:The Second Respondent, a member of the Cochin Stock Exchange, accused the Appellant of issuing a cheque dated 17.8.1992, which was dishonored due to insufficient funds. The Appellant contended that the cheque was given as security and not for discharging any debt. The trial court found the Appellant guilty under Section 138 of the Negotiable Instruments Act, but the appellate court reversed this, finding the Appellant's explanation more probable. The High Court later reinstated the conviction, which was contested in this judgment.2. Interpretation and Application of Section 139 of the Negotiable Instruments Act:The Appellant argued that the trial court and the High Court misconstrued Section 139, which presumes that the cheque was issued for discharging a debt unless proven otherwise. The High Court erred by requiring the Appellant to prove his innocence beyond a reasonable doubt, instead of merely raising a probable defense.3. Burden of Proof and Presumption under Sections 118(a) and 139 of the Act:The court reiterated that the presumptions under Sections 118(a) and 139 are rebuttable. The Appellant only needed to raise a probable defense to shift the burden back to the prosecution. The appellate court found that the Appellant had successfully rebutted the presumption by demonstrating discrepancies in the Second Respondent's accounts and the lack of proper documentation.4. Admissibility and Credibility of the Books of Accounts Maintained by the Second Respondent:The Second Respondent's failure to produce original books of accounts and maintain statutory records as required by the Cochin Stock Exchange's bye-laws significantly weakened his case. The appellate court noted discrepancies amounting to Rs. 14,63,555/- between the Second Respondent's accounts and those maintained by the Stock Exchange, undermining the credibility of the claim against the Appellant.5. Reversal of the Appellate Court's Judgment by the High Court:The High Court's decision to reverse the appellate court's judgment was based on an incorrect interpretation of the burden of proof and the presumption under Section 139. The High Court failed to address the discrepancies in the Second Respondent's accounts and erroneously concluded that the Appellant had acknowledged the correctness of the statements of accounts. The Supreme Court found that the High Court committed a manifest error in reversing the appellate court's judgment, which had rightly acquitted the Appellant based on the evidence presented.Conclusion:The Supreme Court set aside the High Court's judgment, reinstating the appellate court's decision to acquit the Appellant. The Appellant was discharged from the bail bonds, and the Second Respondent was ordered to bear the costs of the Appellant, including counsels' fees assessed at Rs. 10,000/-.