Appeals dismissed in cheque dishonour case under Section 138 as accused successfully rebutted statutory presumptions

Delhi HC dismissed appeals challenging acquittal in cheque dishonour case under Section 138 NI Act. Court found accused successfully rebutted statutory presumptions under Sections 118 and 139. Trial court correctly observed property sale price of Rs. 4.5 lakhs was unrealistic, mortgage arrangement seemed more credible. Complainant failed to explain receipt of Rs. 3 lakhs payments or why cheques totaled Rs. 6.5 lakhs against alleged debt of Rs. 4.5 lakhs. Settlement between parties during trial did not constitute admission of debt; complainant still required to prove foundational facts. No perversity found in acquittal order warranting interference.

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The core legal questions considered in this judgment are as follows:

1. Whether the learned Trial Court erred in acquitting the accused respondents in complaints filed under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), despite the presumption of liability arising from dishonour of cheques.

2. Whether the accused persons successfully rebutted the statutory presumptions under Sections 118 and 139 of the NI Act regarding the issuance of cheques in discharge of a legally enforceable debt or liability.

3. The legal effect and implications of a settlement entered into between the parties during trial, especially in the context of subsequent non-compliance and continuation of proceedings.

4. The scope of interference by the appellate court in an order of acquittal in cases under Section 138 of the NI Act.

Issue-wise Detailed Analysis:

1. Scope of appellate interference in acquittal under Section 138 NI Act

The Court referred to established legal principles governing appellate interference in acquittals, emphasizing that ordinarily, an appellate court should be slow to overturn a trial court's judgment unless it is perverse or wholly unsustainable in law. This principle was drawn from precedents which caution against disturbing acquittals where two views are possible, especially in regular criminal offences.

However, the Court distinguished cases under Section 138 NI Act, noting that the statutory presumptions under Sections 118 and 139 alter the evidentiary landscape. The Supreme Court's ruling in Rohitbhai Jivanlal Patel v. State of Gujarat was cited to highlight that the appellate court has wider latitude to examine the evidence and determine whether the accused has successfully rebutted the presumption of discharge of debt/liability by the cheque. The Court underscored that the appellate court can scrutinize the evidence to see if the preponderance of probabilities favors the accused's defense, thus justifying interference with an acquittal.

2. Presumptions under Sections 118 and 139 of the NI Act and their rebuttal

The Court noted that the signatures on the cheques were undisputed, thereby attracting the presumption under Section 118 that the cheques were drawn for consideration, and under Section 139 that the cheques were issued in discharge of a legally enforceable debt or liability. These presumptions shift the burden onto the accused to rebut them by adducing a probable defense.

It was clarified that the accused need not conclusively disprove the existence of debt/liability beyond reasonable doubt but must establish on a preponderance of probabilities that the cheques were not issued in discharge of such debt. The Court extensively relied on the recent Supreme Court exposition in Rajesh Jain v. Ajay Singh, which elaborated that the accused may discharge this burden through direct or circumstantial evidence, or by invoking presumptions under the Evidence Act. Once the accused meets this burden, the presumption disappears and the complainant must prove the existence of debt/liability as a matter of fact.

3. Application of law to facts regarding existence of debt/liability

The respondents contended that the transaction was not a sale of property but a mortgage loan of Rs. 4.5 lakhs, which had been repaid. They produced seventeen receipts and bank statements evidencing payments totaling approximately Rs. 3,34,820/- towards the loan. The Trial Court accepted this defense as plausible and noted the absence of the original agreement to sell the property, as well as the improbability of the property being sold for the low price of Rs. 4.5 lakhs.

The petitioner denied the loan transaction and claimed the receipts pertained to separate transactions, but failed to provide a cogent explanation for the payments or produce the original sale agreement. The Court observed that the petitioner's own admissions and documentary evidence supported the accused's version, thereby satisfying the preponderance of probabilities test in favor of the accused.

Additionally, the Court noted the peculiarity that the cheques in question totaled Rs. 6.5 lakhs, exceeding the alleged debt of Rs. 4.5 lakhs, without any explanation from the petitioner.

4. Effect of settlement entered during trial

The petitioner argued that the accused had admitted the debt by entering into a settlement before the Trial Court and had failed to comply with the payment terms, thus entitling the complainant to maintain the complaints. The accused denied knowledge of the settlement or claimed it was signed without reading.

The Court observed that a settlement subsumes the original complaint and once entered, the complainant can either pursue a fresh cause of action for breach of settlement or proceed with the original complaint. However, the complainant must prove the foundational facts of the complaint independently. The Court noted that the Trial Court had kept the matter pending for compliance with the settlement and only proceeded on merits after the accused failed to comply.

The petitioner had not taken steps to enforce the settlement, and the Court held that mere entry into a settlement does not constitute an admission of debt. Therefore, the complainant was still required to prove the existence of a legally enforceable debt/liability as per the NI Act provisions.

5. Treatment of competing arguments and evidentiary findings

The Court found that the Trial Court had carefully considered the evidence, including the documentary proof and the parties' statements. The petitioner's failure to produce the original sale agreement, the improbability of the sale price, and the credible documentary evidence produced by the accused weighed in favor of the accused's defense.

The Court also took note of a police complaint filed by the accused against the petitioner alleging threats and misuse of blank cheques, lending further credence to the accused's defense.

The petitioner's arguments were found to be based on surmises and conjectures without sufficient evidentiary support. The Court concluded that the Trial Court's appreciation of evidence was neither perverse nor unsustainable.

Significant Holdings:

"The restriction on the power of Appellate Court in regard to other offence does not apply with same vigour in the offence under NI Act which entails presumption against the accused."

"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 received the cheque in discharge of a legally enforceable debt or liability are raised against the accused."

"The accused is not expected to prove the non-existence of the presumed fact beyond reasonable doubt. The accused must meet the standard of 'preponderance of probabilities', similar to a defendant in a civil proceeding."

"Once the accused adduces evidence to the satisfaction of the Court that on a preponderance of probabilities there exists no debt/liability in the manner pleaded in the complaint or the demand notice or the affidavit-evidence, the burden shifts to the complainant and the presumption 'disappears' and does not haunt the accused any longer."

"The mere fact that the accused had entered into a settlement cannot be construed to be an admission of debt and the complainant was still required to establish the foundational facts in the present case."

"This Court finds no such perversity in the impugned judgments so as to merit an interference in the findings of acquittal."

The Court dismissed the appeals, upholding the acquittal of the accused respondents. The principles reaffirmed include the nature and effect of statutory presumptions under the NI Act, the evidentiary burden on the accused to rebut such presumptions on a preponderance of probabilities, and the limited scope of appellate interference in acquittals unless the trial court's findings are perverse or wholly unsustainable. The judgment also clarifies the legal effect of settlements in such proceedings and underscores the necessity for the complainant to prove the foundational facts of debt/liability notwithstanding any interim settlements.

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