2025 (5) TMI 796 - HC - Indian Laws

Accused need not prove defence beyond reasonable doubt to rebut statutory presumptions under Sections 118 and 139 of NI Act

Jagdish Raj Gupta Versus Parshotam Gupta

The HC dismissed an appeal against acquittal in a cheque dishonour case. The court held that accused need not prove defence beyond reasonable doubt to ... Dishonour of Cheque - funds insufficient - rebuttal of presumptions u/s 118 and 139 of the Negotiable Instruments Act, 1881 (NI Act) - nature of presumption - mode of rebuttal - Source of income. Nature of presumption - HELD THAT:- True it is, that when a cheque is admitted to have been issued and duly signed by a person, the complainant reasonably succeeds to discharge the initial burden that it has been issued towards a lawful payment and once this burden is discharged, it is for the accused to prove that said cheque had not been issued towards discharge of a legal debt but was issued on account of some business transaction or for any other reason. It is trite that to rebut a statutory presumption, an accused is not obliged to prove his defence beyond reasonable doubt, as expected of a complainant in a criminal trial and he need not enter the witness box to discharge the burden of proof - the pristine question which begs consideration is the manner in which accused can rebut the statutory presumption. Mode of rebutal - HELD THAT:- The case in hand, contrary to Rohitbhai Jivanbhai Patel [2019 (3) TMI 769 - SUPREME COURT], is not a case of mere denial of liability, but the respondent accused adduced evidence in support of his line of defence that cheque, in question, was issued by him to the appellant/complainant in connection of purchase of land. Therefore, the date of advancement of loan and the source of funds assume significance in this case - the failure on the part of complainant to specify the date of advancement of loan, goes to the root of the complainant’s case. Source of income - HELD THAT:- Hon’ble Supreme Court in M/s Kumar Exports [2008 (12) TMI 682 - SUPREME COURT] has ruled that when an accused has to rebut the presumption under Section 139 of NI Act, the standard of proof is “preponderance of probabilities and if he succeeds to raise a probable defence which creates a doubt about the existence of legally enforceable debt, the prosecution fails.” It was clarified by the Apex Court that to rebut the said presumption, accused need not appear in the trial and necessarily lead direct evidence in order to prove that negotiable instrument was not supported by consideration and there was no debt or liability to be discharged by him. He may bring on record facts and circumstances or rely upon the circumstantial evidence or rely upon case of the complainant or the evidence adduced by the complainant. Hon’ble Supreme Court in Basalingappa [2019 (4) TMI 660 - SUPREME COURT] has clearly held that when evidence was laid before the court to indicate that apart from the loan of Rs. 6.00 lacs given to the accused, within two years, amount of Rs.18 lacs in question was given by the complainant and his financial capacity was questioned, it was incumbent upon on the complainant to have explained his financial capacity. Conclusion - The accused need not enter the witness box to rebut the statutory presumptions under Sections 118 and 139 of NI Act and prove his defence beyond reasonable doubt. The standard of proof on the accused, in such cases, is mere “preponderance of probabilities”. An accused can show the preponderance of probabilities by way of direct evidence or circumstantial evidence or presumption of facts under Section 114 of Evidence Act or he may choose to rely upon the case set out by the complainant or the evidence adduced by him during the trial. Prosecution fails, if accused succeeds to raise the defence, sufficient to create a doubt about the existence of legally enforceable debt. It is also incumbent upon the accused to prove his source of income, in case it is questioned by the accused during the trial. There are no illegality or impropriety much-less perversity in the impugned judgment of acquittal recorded by learned trial court. Hence, present appeal being devoid of merit is dismissed and impugned judgment is upheld. The core legal questions considered in this judgment revolve around the applicability and interpretation of Sections 118 and 139 of the Negotiable Instruments Act, 1881 (NI Act), specifically:(a) Whether the issuance and signing of a cheque by the accused gives rise to a statutory presumption that it was drawn for consideration and in discharge of a legally enforceable debt or liability;(b) The nature and extent of the burden on the accused to rebut the presumption under Sections 118 and 139 of the NI Act;(c) The mode and standard of proof required by the accused to rebut the statutory presumption;(d) The evidentiary value of the complainant's failure to specify the date of advancement of loan and source of income in a complaint under Section 138 NI Act;(e) The legal consequences of the accused issuing a cheque in the name of a firm but in his individual capacity;(f) The treatment of competing arguments regarding the sufficiency of evidence to prove existence of debt and liability and the adequacy of defence evidence;(g) The relevance of the complainant's financial capacity and production of income tax returns in establishing the existence of debt.Issue-wise Detailed Analysis:1. Statutory Presumption under Sections 118 and 139 of the NI ActThe Court reaffirmed the settled legal position that admission of issuance and signing of a cheque by the accused creates a statutory presumption that the cheque was drawn for consideration and that the holder received it in discharge of a legally enforceable debt or liability. Sections 118 and 139 of the NI Act codify these presumptions, which operate 'until the contrary is proved.' Section 118 presumes every negotiable instrument was made or drawn for consideration, while Section 139 presumes that the holder received the cheque for discharge of debt or liability.The Court emphasized that these presumptions shift the initial burden of proof onto the accused, who must rebut them by adducing evidence or facts that render the existence of debt or consideration improbable.2. Nature and Standard of Proof to Rebut PresumptionThe Court examined authoritative precedents clarifying that the accused is not required to prove his defence beyond reasonable doubt, unlike the prosecution's burden. The accused's burden is one of 'preponderance of probabilities,' meaning he must bring forth something probable to rebut the presumption. The accused need not necessarily enter the witness box or lead direct evidence; reliance on circumstantial evidence, presumptions under Section 114 of the Evidence Act, or the complainant's own case and evidence may suffice.Relevant Supreme Court rulings were cited, including that the accused may rely upon facts and circumstances to convince the Court that the cheque was not issued for discharge of a debt, and mere denial without supporting evidence is insufficient.3. Mode of Rebuttal of PresumptionThe Court outlined multiple permissible modes for rebuttal, including:Direct evidence disproving existence of debt or consideration;Circumstantial evidence;Probable facts or circumstances;Presumptions under Section 114 of the Evidence Act;Evidence or case set out by the complainant;Averments in the statutory demand notice;Evidence adduced by the complainant during trial.The Court held that the accused in this case successfully raised a probable defence by asserting that the cheque was issued in connection with a land transaction that did not materialize, supported by defence witnesses. This created a preponderance of probabilities that the cheque was not issued for discharge of a legally enforceable debt.4. Legal Effect of Issuance of Cheque in the Name of a FirmThe trial Court had observed that since the cheque was issued in the name of a firm and not the accused personally, the complaint was defective for non-joinder of the firm. This Court rejected that reasoning, holding that since the accused was a sole proprietor of the firm, the firm was not a separate legal entity and its joinder was immaterial. The admission of issuance and signing by the accused sufficed to maintain the complaint.5. Failure of Complainant to Specify Date of Loan Advancement and Source of IncomeThe Court discussed the significance of the complainant's failure to disclose the date on which the loan amount was advanced and to produce evidence of his financial capacity, including income tax returns. The Court relied on precedents holding that such omissions create serious lacunae in the complainant's case and go to the root of the claim.It was noted that the complainant initially claimed to have given Rs. 20 lacs in cash in the presence of witnesses but failed to examine any of them. Later, in re-examination, the complainant altered his story regarding the circumstances of the loan and claimed to have borrowed money from relatives, facts not disclosed earlier. The Court found these inconsistencies and lack of credible proof of source of funds significant.The Court cited precedents where failure to establish financial capacity or date of loan advancement weakened the complainant's case and shifted evidentiary burden back to the complainant.6. Treatment of Defence Evidence and Competing ArgumentsThe respondent accused consistently maintained that the cheque was issued in relation to a land deal, which did not materialize, and that the complainant refused to return the cheque or refund amounts paid. The accused examined four defence witnesses supporting this plea.The Court found that this line of defence was sufficient to rebut the presumption under Sections 118 and 139 of the NI Act. The complainant failed to prove the existence of a legally enforceable debt beyond the initial presumption. The Court distinguished the present case from precedents where the accused merely denied liability without adducing evidence.The Court also rejected the appellant's contention that the accused's failure to appear in the witness box amounted to failure to rebut the presumption, reiterating that the accused is not obliged to lead evidence personally.7. Burden of Proof and Standard in Section 138 NI Act ProceedingsThe Court reiterated that the standard of proof for the prosecution is proof beyond reasonable doubt, whereas the accused's burden to rebut statutory presumptions is by preponderance of probabilities. This distinction was emphasized to clarify the evidentiary dynamics in cheque dishonour cases.Conclusions on the Issues:The Court concluded that the trial Court correctly dismissed the complaint due to the complainant's failure to establish that the cheque was issued in discharge of a legally enforceable debt or liability. The accused successfully rebutted the statutory presumption by adducing probable defence evidence and raising a preponderance of probabilities against the existence of debt.The Court held that the absence of joinder of the firm was immaterial, the complainant's failure to specify the date of loan and prove source of funds was a significant lacuna, and the accused's defence evidence was cogent enough to shift the evidentiary burden back to the complainant, who failed to discharge it.Significant Holdings:'Once a cheque is admitted to have been issued and signed by an accused, there is a presumption that said cheque was made and drawn for consideration and that the holder of the cheque had received it for discharge in whole or in part of a legally enforceable debt or liability, within the meaning of Sections 118 and 139 of the NI Act.''The accused need not enter the witness box to discharge the burden of proof in terms of the aforementioned provision. It is furthermore not in doubt or dispute that whereas the standard of proof so far as the prosecution is concerned is proof of guilt beyond all reasonable doubt; the one on the accused is only mere preponderance of probability.''The accused may rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant.''Failure on the part of the complainant to specify the date of advancement of loan goes to the root of the complainant's case.''It is incumbent upon the complainant to prove his financial capacity to advance the loan amount, particularly when questioned during cross-examination.''The complaint is not bad for non-joinder of the firm when the accused is the sole proprietor and has admitted issuance and signing of the cheque.'The Court thus upheld the trial Court's acquittal of the accused, dismissing the appeal as devoid of merit.