2025 (12) TMI 1376 - HC - Indian Laws

Cheque dishonour for 'funds insufficient': accused failed to rebut ss.118/139 debt presumption; conviction upheld in revision

In a revision against conviction under s.138 NI Act, the dominant issue was whether the statutory presumptions under ss.118 and 139 stood rebutted. The HC ... Dishonour of Cheque - funds insufficient - rebuttal of presumptions u/s 139 of NI Act - misappreciation of the evidence - rebuttal of presumptions - HELD THAT:- It is a settled proposition of law that presumption under Section 139 of NI Act is a presumption of law, as distinguished from a presumption of fact, such a presumption is a rebuttable presumption and the drawer of the cheque may dispel the same. The rebuttal does not have to be conclusively established, but such evidence must be adduced in support of the defence that the Court must either believe the defence to exist or consider its existence to be reasonably probable; the standard of reasonability being that of a 'prudent man'. The aforesaid position in law stands settled in the judgment of the Hon'ble Supreme Court in the matter of Hiten P. Dalal Vs. Bratindranath Banerjee [2001 (7) TMI 1172 - SUPREME COURT]. While dealing with the aspect of presumption in terms of Section 139 of NI Act, the Hon'ble Supreme Court observed that 'The words 'unless the contrary is proved' which occur in this provision make it clear that the presumption has to be rebutted by 'proof' and not by a bare explanation which is merely plausible. A fact is said to be proved when its existence is directly established or when upon the material before it the Court finds its existence to be so probable that a reasonable man would act on the supposition that it exists. Unless, therefore, the explanation is supported by proof, the presumption created by the provision cannot be said to be rebutted.' In the matter of Kumar Exports Vs. Sharma Carpets [2008 (12) TMI 682 - SUPREME COURT], it has been held by the Hon'ble Supreme Court that Section 118 of the NI Act inter alia directs that it shall be presumed, until the contrary is proved, that every negotiable instrument was made or drawn for consideration. In the instant case, perusal of the record reveals that the cheque Ext. CW2/A was dishonoured by the banker of the accused due to ‘funds insufficient’ in the bank account of the accused, vide memo Ext.CW2/B. In the light of the evidence on record, the complainant has discharged his initial burden and it is required to be presumed that the cheque in question was drawn for consideration and the complainant received the same in discharge of the existing debt. The onus, therefore, shifts upon the accused to establish probable defence so as to rebut such presumption. The law is well settled that in order to rebut the statutory presumption, the accused is not expected to prove his defence beyond reasonable doubt as is expected of the prosecution in a criminal trial. The accused may adduce direct evidence to prove that the cheque in question was not supported by consideration and that there was no debt or liability to be discharged by him - In Rohitbhai Jivanial Patel’s case [2019 (3) TMI 769 - SUPREME COURT], it has been held by the Hon'ble Supreme Court that once the accused could not deny his signatures on the cheque in question that had been drawn in favour of the complainant, therefore, it is required to be presumed that the cheque in question was drawn for consideration and the holder of the cheque i.e. the complainant received the same in discharge of an existing debt. The law does not require the complainant to prove/to initially lead evidence to show that he had the financial capacity, unless a case is set up in the reply to the statutory notice sent averring that such a complainant did not have the wherewithal. As a corollary, it is only when an accused puts up a defence of lack of financial capacity on the part of such complainant, it becomes obligatory on the complainant to demonstrate his financial soundness to lend the amount or to encumber an accused with debt or liability as asserted under his complaint. However, as afore-noted, in the instant case, it is noted form the material placed on record that the petitioner nowhere before the learned Trial Court, challenged the financial capacity of the complainant by issuing any reply to legal demand notice, as such the complainant was not required to prove his financial capacity. It is well settled that when notice sent by registered post by correctly addressing the drawer of the cheque, the mandatory requirement of issuance of notice in terms of clause (b) of proviso to Section 138 of NI Act stands complied with. It is well-settled that the object of enacting Section 138 of the N.I. Act, is to enhance the credibility of commercial transactions by attaching penal consequences to the dishonour of cheques issued in discharge of legally enforceable debts or liabilities. The provision is not merely punitive in nature. By virtue of Section 138 of the Act, the Court is empowered to award compensation to the complainant which may extend to twice the cheque amount - Technical defects cannot be permitted to nullify the proceedings. To acquit the petitioner on technical grounds would frustrate the very object of Section 138 of N.I. Act, which is to promote the efficacy of banking transactions, safeguard the sanctity of commercial dealings, and ensure that honest creditors are not left remediless. The present revision petition is dismissed and the impugned judgment dated 24.08.2022, passed by the learned Sessions Judge, Hamirpur, H.P., in Criminal Appeal No.17 of 2021, affirming the judgment of conviction dated 15.03.2021 and order of sentence dated 18.03.2021, passed by the learned Additional Chief Judicial Magistrate, Court No.1, Hamirpur, H.P., in Complaint No.49-III-15, titled Bhagwan Dass vs. Amarjeet Mankotia, is upheld. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, upon proof of dishonour of the cheque for 'funds insufficient' and the accused not disputing signatures, the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act operated in favour of the complainant, and whether the accused rebutted them by a probable defence. (ii) Whether the defence that the complainant lacked financial capacity to advance the cheque amount was available and sustainable when no basic foundation was laid at the first available opportunity by replying to the demand notice. (iii) Whether the mandatory requirement of issuance/service of demand notice under clause (b) of the proviso to Section 138 was complied with, despite the notice/receipt not being exhibited during complainant's evidence, and whether the accused could still resist the complaint on the plea of non-service. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Operation and rebuttal of presumptions under Sections 118 and 139 Legal framework (as discussed by the Court): The Court treated presumptions under Sections 118 and 139 as mandatory presumptions of law once foundational facts are shown; they are rebuttable, and the accused's burden is to raise a probable defence on the standard of preponderance of probabilities. Mere denial is insufficient; rebuttal requires material that makes non-existence of liability reasonably probable. Interpretation and reasoning: The Court found the foundational facts established: the cheque was presented within validity and dishonoured for 'funds insufficient'. In the accused's statement, issuance was denied but signatures were not denied. From this, the Court held that the cheque had to be presumed to have been drawn for consideration and received in discharge of a legally enforceable debt, shifting the onus to the accused. The Court noted the accused produced no cogent or convincing evidence to show that the cheque was not issued towards a legally recoverable liability and, therefore, failed to rebut the presumption. Conclusion: The statutory presumptions applied, remained unrebutted, and the ingredients of Section 138 stood proved; conviction was sustained. Issue (ii): Financial capacity of complainant-necessity of foundational challenge Legal framework (as applied by the Court): The Court held there is no requirement that the complainant must initially lead evidence of financial capacity in a prosecution under Section 138 unless the accused first lays a basic foundation by raising such challenge at the first available opportunity (including in response to the demand notice). Interpretation and reasoning: The Court rejected the contention that absence of proof of financial capacity negated legally enforceable liability. It reasoned that the accused neither replied to the demand notice nor raised a foundational challenge to the complainant's capacity at the earliest stage. In such circumstances, the complainant was not obliged to produce evidence of financial capacity, and the accused's belated assertion could not, by itself, displace the statutory presumptions. Conclusion: The defence based on alleged lack of financial capacity was held legally unsustainable on the facts, and did not rebut the presumptions. Issue (iii): Compliance with demand notice requirement-effect of annexed notice/acknowledgment and post-summons opportunity Legal framework (as discussed by the Court): The Court held that when notice is sent by registered post to the correct address, the requirement of issuance of notice under clause (b) of the proviso to Section 138 is satisfied. It further applied the principle that a drawer who does not pay within 15 days of receiving summons along with a copy of the complaint cannot successfully contend absence of proper service of notice. Interpretation and reasoning: The Court accepted the complaint averment that a legal notice was sent by registered post to the last known address and was acknowledged. Although the notice and receipt were not exhibited during the complainant's statement, the Court treated them as part of the record because they were annexed with the complaint, and considered the acknowledgment bearing signatures as showing due receipt. The Court further held that, in any event, after receiving summons with the complaint copy, the accused could not maintain the plea of no opportunity to pay, as payment could have been made within 15 days of summons receipt. Conclusion: The statutory notice requirement was held duly complied with; the non-exhibition during oral evidence did not vitiate the proceedings, and the plea of non-service/opportunity was rejected.