Supreme Court Reverses Conviction in Cheque Dishonor Case: Basalingappa vs. Mudibasappa (2019)

Introduction

Date of the Judgment: April 09, 2019
Citation: 2019 INSC 348
Judges: Ashok Bhushan, J., K.M. Joseph, J.

Can a conviction for cheque dishonor under Section 138 of the Negotiable Instruments Act, 1881 be overturned if the accused raises a probable defense? The Supreme Court of India recently addressed this question in a case where the High Court had convicted the accused, reversing the trial court’s acquittal. The core issue revolved around whether the accused had successfully rebutted the presumption that a cheque was issued for a legally enforceable debt, and whether the complainant had sufficiently proven their financial capacity to lend the amount in question. This judgment, delivered by a two-judge bench comprising Justices Ashok Bhushan and K.M. Joseph, ultimately favored the accused, setting aside the High Court’s decision.

Case Background

The complainant claimed to have lent Rs. 6,00,000 to the accused, a friend, to meet urgent family needs. In return, the accused issued a cheque dated 27.02.2012 for the same amount. When presented, the cheque was dishonored due to insufficient funds on 01.03.2012. The complainant then issued a notice to the accused on 12.03.2012, which was served on 13.03.2012. After the accused failed to pay, the complainant filed a case under Section 138 of the Negotiable Instruments Act, 1881 on 25.04.2012. The complainant presented the original cheque, the bank’s return memo, the notice copy, postal receipts, and acknowledgment letters as evidence.

The accused, in his defense, submitted a certified copy of a plaint in O.S. No. 148 of 2011, a certified copy of a private complaint No. 119/2012, and a certified copy of a registered sale agreement. The trial court initially acquitted the accused, but the High Court reversed this decision, leading to the Supreme Court appeal.

Timeline:

Course of Proceedings

The trial court framed two key questions: whether the complainant proved beyond reasonable doubt that the accused issued the cheque for a legally enforceable debt, and what order should be passed. The trial court held that if the accused raised a probable defense creating doubts about the existence of a legally enforceable debt, the prosecution could fail. Consequently, the trial court acquitted the accused on 20.02.2015.

The complainant appealed to the High Court, which reversed the trial court’s decision and convicted the accused under Section 138 of the Negotiable Instruments Act, 1881. The High Court sentenced the accused to a fine of Rs. 8,00,000, with a three-month simple imprisonment in default. Aggrieved by this, the accused appealed to the Supreme Court.

Legal Framework

The case primarily revolves around Sections 118 and 139 of the Negotiable Instruments Act, 1881.

Section 118 of the Negotiable Instruments Act, 1881, titled “Presumptions as to negotiable instruments,” states:
“118. Presumptions as to negotiable instruments. —Until the contrary is proved, the following presumptions shall be made:—
(a) of consideration —that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration;
(b) as to date —that every negotiable instrument bearing a date was made or drawn on such date;”

Section 139 of the Negotiable Instruments Act, 1881, titled “Presumption in favour of holder,” states:
“139. Presumption in favour of holder. —It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.”

These sections establish presumptions that a negotiable instrument, such as a cheque, was issued for consideration and in discharge of a debt or liability. However, these presumptions are rebuttable, meaning the accused can present evidence to prove otherwise.

Arguments

Appellant’s (Accused) Submissions:

• The accused argued that he had successfully rebutted the presumption under Section 139 of the Negotiable Instruments Act, 1881 by raising a probable defense, which was initially accepted by the trial court.
• The accused contended that the High Court erred in overturning the acquittal order, especially without sufficient proof of the complainant’s financial capacity to lend Rs. 6,00,000.
• The accused questioned the complainant’s financial capacity, noting that the complainant was a retired employee who had encashed his retirement benefits of Rs. 8,00,000 in 1997.
• The accused highlighted that the complainant had filed cases under Section 138 of the Negotiable Instruments Act, 1881 against other individuals and had also made a payment of Rs. 4,50,000 for a sale agreement.
• The accused also pointed out that the complainant was a witness to a sale agreement where the accused received Rs. 15 lakhs as consideration, suggesting that the accused had other means and the loan was not probable.

Respondent’s (Complainant) Submissions:

• The complainant argued that since the accused admitted the signature on the cheque, a presumption was rightly raised that the cheque was given in discharge of a debt or liability.
• The complainant contended that the accused had not presented any probable defense, and therefore, the High Court was correct in convicting the accused.
• The complainant relied on the Supreme Court’s judgment in Kishan Rao Vs. Shankargouda, (2018) 8 SCC 165, to support the argument that the presumption under Section 139 should be upheld unless a probable defense is proven.
• The complainant argued that the accused did not prove that the complainant had no other source of income.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the accused had successfully rebutted the presumption under Section 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for a legally enforceable debt or liability.
2. Whether the High Court was correct in reversing the trial court’s acquittal of the accused.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court analyzed the evidence and arguments, focusing on whether the accused had raised a probable defense to rebut the presumption under Section 139 of the Negotiable Instruments Act, 1881. The court noted that the accused had questioned the complainant’s financial capacity, highlighting that the complainant was a retired employee who had encashed his retirement benefits in 1997. The court also noted that the complainant had made other significant payments around the same time, which raised doubts about his ability to lend Rs. 6,00,000. The court found that this constituted a probable defense, shifting the burden back to the complainant to prove his financial capacity, which he failed to do.

How each authority was viewed by the Court:

✓ The Court relied on Kali Ram Vs. State of Himachal Pradesh, (1973) 2 SCC 808 to reiterate that the burden of proof is on the prosecution.
✓ The Court used Bharat Barrel & Drum Manufacturing Company Vs. Amin Chand Pyarelal, (1999) 3 SCC 35 to reinforce that the presumption under Section 118(a) is rebuttable.
✓ The Court referred to M.S. Narayana Menon Alias Mani Vs. State of Kerala and Another, (2006) 6 SCC 39 to clarify that the presumption under Section 139 is also rebuttable.
✓ The Court used Krishna Janardhan Bhat Vs. Dattatraya G. Hegde, (2008) 4 SCC 54 to highlight that an accused can discharge the burden of proof without examining himself.
✓ The Court used Kumar Exports Vs. Sharma Carpets, (2009) 2 SCC 513 to explain when the burden shifts to the accused and the standard of proof required.
✓ The Court relied on Rangappa Vs. Sri Mohan, (2010) 11 SCC 441 to emphasize that the presumption under Section 139 includes the existence of a legally enforceable debt but is rebuttable, and the standard of proof for the accused is “preponderance of probabilities.”
✓ The Court distinguished the facts from Kishan Rao Vs. Shankargouda, (2018) 8 SCC 165, noting that in the present case, a probable defense was raised, unlike in that case.
✓ The Court used Gamini Bala Koteswara Rao and others Vs. State of Andhra Pradesh through Secretary, (2009) 10 SCC 636 to define “perverse” as “against the weight of evidence” and to explain when a High Court can interfere with a trial court’s judgment.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• Doubt on Complainant’s Financial Capacity: The court noted that the complainant’s financial capacity to lend Rs. 6,00,000 was doubtful, given his retirement in 1997 with limited retirement benefits and other significant expenses around the time of the alleged loan.
• Contradictions in Complainant’s Statements: The court highlighted contradictions in the complainant’s statements regarding the date of the loan, which further weakened the complainant’s case.
• Accused’s Probable Defense: The court emphasized that the accused had raised a probable defense by questioning the complainant’s financial capacity, which the High Court failed to properly consider.
• Burden of Proof: The court reiterated that the burden of proof lies with the prosecution, and the accused only needs to raise a probable defense to shift the burden back to the complainant.

Fact:Law Ratio:

The Supreme Court’s decision was influenced by both factual and legal considerations. The factual aspects, such as the complainant’s financial capacity and the contradictions in his statements, played a significant role. However, the legal principles regarding the burden of proof and the presumption under Section 139 were also crucial.

Logical Reasoning

Issue 1: Whether the accused successfully rebutted the presumption under Section 139

Issue 2: Whether the High Court was correct in reversing the trial court’s acquittal

Key Takeaways

• Burden of Proof: In cases of cheque dishonor, while a presumption exists that the cheque was issued for a legally enforceable debt, the accused can rebut this presumption by raising a probable defense. The burden then shifts to the complainant to prove their case.
• Financial Capacity: The financial capacity of the complainant to lend the amount in question can be a crucial factor in determining the outcome of a cheque dishonor case. If the complainant’s financial capacity is doubtful, the accused can use this as a defense.
• Standard of Proof: The standard of proof for the accused to rebut the presumption is “preponderance of probabilities,” which is lower than the standard of “beyond reasonable doubt” required for the prosecution.
• High Court Interference: The High Court should not interfere with a trial court’s judgment of acquittal unless the findings are clearly against the weight of evidence.

Directions

The Supreme Court did not provide any specific directions in this judgment.

Specific Amendments Analysis

There was no discussion of any specific amendments in the judgment.

Development of Law

The ratio decidendi of this case is that an accused can rebut the presumption under Section 139 of the Negotiable Instruments Act, 1881 by raising a probable defense, such as questioning the complainant’s financial capacity. This judgment reinforces the principle that the burden of proof shifts to the complainant if the accused provides a plausible defense. This case also clarifies that the High Court should not interfere with a trial court’s acquittal unless it is clearly against the weight of the evidence.

Conclusion

In Basalingappa vs. Mudibasappa, the Supreme Court reversed the High Court’s conviction, reinforcing the importance of the accused’s ability to raise a probable defense in cheque dishonor cases. The court emphasized that the complainant must prove their financial capacity if challenged by the accused. This judgment serves as a reminder that the presumption under Section 139 of the Negotiable Instruments Act, 1881 is rebuttable and that the accused is not required to prove their innocence beyond a reasonable doubt but only raise a probable defense. The Supreme Court restored the trial court’s acquittal, highlighting the need for a balanced approach in such cases.