Supreme Court settles liability of drawer in cheque bounce cases: Oriental Bank of Commerce vs. Prabodh Kumar Tewari (2022)

Date of the Judgment: August 16, 2022

Citation: 2022 INSC 710

Judges: Dr. Justice Dhananjaya Y Chandrachud, J and A S Bopanna, J.

Can a person avoid liability for a bounced cheque by claiming they didn’t fill in the details, even if they signed it? The Supreme Court of India recently addressed this crucial question in a case concerning the Negotiable Instruments Act, 1881. The court clarified that the liability of the drawer of a cheque is not diminished even if the details on the cheque were filled by someone else. This judgment emphasizes the presumption of liability when a signed cheque is issued.

Case Background:

The Oriental Bank of Commerce (the appellant) had provided credit facilities to a consortium of five companies. The total outstanding dues were allegedly over Rs 1200 crores. Prabodh Kumar Tewari (the respondent), a director in all five companies, allegedly issued a cheque for Rs 5.57 crores from the account of Century Communications Ltd, dated 26 December 2011, towards the dues of these companies. The cheque was presented for encashment, but was returned on 25 May 2012 with the remarks “insufficient funds”.

Following this, the bank issued a legal notice on 5 June 2012 and filed a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. During the trial, the respondent admitted to signing the cheque but claimed it was a blank cheque given as security. He sought to have a handwriting expert examine the cheque to prove that he did not fill in the details.

Timeline:

Course of Proceedings:

The Metropolitan Magistrate dismissed the respondents’ application to have the cheque examined by a handwriting expert on 21 February 2019. The respondents then appealed to the High Court. The High Court initially refused to allow a government handwriting expert but permitted the respondents to engage their own handwriting expert to examine the disputed writings.

Legal Framework:

The case revolves around Section 138 and Section 139 of the Negotiable Instruments Act, 1881.

Section 138 of the Negotiable Instruments Act, 1881 deals with the dishonour of cheques for insufficiency of funds in the account. It states that if a cheque is returned unpaid due to insufficient funds, the drawer is deemed to have committed an offense.

Section 139 of the Negotiable Instruments Act, 1881 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.”

This section establishes a presumption that a cheque is issued for the discharge of a debt or liability, unless proven otherwise.

Arguments:

Appellant’s Arguments:

• The appellant argued that the respondent admitted to signing the cheque, and therefore, the respondent is liable regardless of who filled in the details.
• The appellant relied on Section 139 of the Negotiable Instruments Act, 1881, which creates a presumption that a cheque is issued for the discharge of a debt or liability.
• The appellant cited the Supreme Court’s judgments in Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197] and Kalamani Tex v. P. Balasubramanian [(2021) 5 SCC 283], which held that the drawer of a signed cheque is liable even if the details are filled in by someone else.

Respondent’s Arguments:

• The respondent argued that the cheque was a blank cheque given as security and that he did not fill in the details.
• The respondent sought to have a handwriting expert examine the cheque to prove that he did not fill in the details, hoping this would negate his liability.

Submissions of the Parties:

Issues Framed by the Supreme Court:

The main issue before the Supreme Court was:

1. Whether the High Court was correct in permitting the respondent to engage a hand-writing expert to determine if the details filled in the cheque were in the hand of the respondent.

Treatment of the Issue by the Court:

Authorities:

The Supreme Court relied on the following authorities:

Cases:

• Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197] – The Supreme Court held that a person who signs a cheque and hands it to the payee remains liable unless they prove that the cheque was not issued for payment of a debt or in discharge of a liability. The court stated that it is immaterial if the cheque was filled in by someone other than the drawer.
• Kalamani Tex v. P. Balasubramanian [(2021) 5 SCC 283] – A three-judge bench of the Supreme Court reiterated the view in Bir Singh v. Mukesh Kumar.
• Anss Raja shekar v. Augustus Jeba Ananth [(2020) 15 SCC 348] – The Supreme Court reiterated the decision in Rangappa v. Sri Mohan on the presumption under Section 139 of the NI Act.
• Rangappa v. Sri Mohan [(2010) 11 SCC 441] – The Supreme Court discussed the presumption under Section 139 of the NI Act and held that the standard of proof for rebuttal is preponderance of probabilities.

Statutes:

• Section 138 of the Negotiable Instruments Act, 1881 – Deals with the dishonour of cheques for insufficiency of funds.
• Section 139 of the Negotiable Instruments Act, 1881 – Establishes a presumption that a cheque is issued for the discharge of a debt or liability.

Authorities and their Treatment by the Court:

Judgment:

How each authority was viewed by the Court?

• The Supreme Court followed the ratio in Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197]* and Kalamani Tex v. P. Balasubramanian [(2021) 5 SCC 283]*, stating that the drawer of a signed cheque is liable even if the details are filled in by someone else.
• The Supreme Court reiterated the decision in Anss Raja shekar v. Augustus Jeba Ananth [(2020) 15 SCC 348]* which followed Rangappa v. Sri Mohan [(2010) 11 SCC 441]* on the presumption under Section 139 of the NI Act.
• The Court explained the relevance of Section 138 of the Negotiable Instruments Act, 1881* and Section 139 of the Negotiable Instruments Act, 1881* to the case.

What weighed in the mind of the Court?:

The Supreme Court’s decision was primarily influenced by the legal presumption under Section 139 of the Negotiable Instruments Act, 1881, which states that a cheque is presumed to be issued for the discharge of a debt or liability. The court emphasized that the liability of the drawer arises from signing the cheque, not from filling in the details. The court also relied on precedent, particularly the judgments in Bir Singh v. Mukesh Kumar and Kalamani Tex v. P. Balasubramanian, which clarified that the drawer remains liable even if the details are filled in by someone else. The court found that allowing a handwriting expert to examine the cheque would be immaterial to determining the purpose for which the cheque was handed over.

Logical Reasoning:

The court’s reasoning was based on a strict interpretation of Section 139 of the Negotiable Instruments Act, 1881, which places the burden on the drawer to prove that the cheque was not issued in discharge of a debt or liability. The court rejected the argument that the respondent could avoid liability by claiming that he did not fill in the details of the cheque, emphasizing that the liability arises from the act of signing the cheque. The court also considered the established legal precedent, which supported the view that a drawer is liable even if the details are filled in by someone else.

The court considered the argument that the cheque was a blank cheque given as security, but rejected it as insufficient to rebut the presumption under Section 139 of the NI Act. The court held that the respondent must adduce evidence to prove that the cheque was not issued in discharge of a debt or liability.

The Supreme Court stated:

• “A drawer who signs a cheque and hands it over to the payee, is presumed to be liable unless the drawer adduces evidence to rebut the presumption that the cheque has been issued towards payment of a debt or in discharge of a liability.”
• “For such a determination, the fact that the details in the cheque have been filled up not by the drawer, but by some other person would be immaterial.”
• “The presumption which arises on the signing of the cheque cannot be rebutted merely by the report of a hand-writing expert.”

There were no dissenting opinions in this case. The bench consisted of two judges, both of whom agreed with the final decision.

The judgment clarifies that the focus should be on whether the cheque was issued for a debt or liability, not on who filled in the details. This ruling reinforces the legal principle that the drawer of a signed cheque is responsible for its payment unless they can prove otherwise. The ruling will likely impact future cases by preventing drawers from using the defense that they did not fill in the details of a cheque to avoid liability.

Key Takeaways:

• The drawer of a signed cheque is liable even if the details are filled in by someone else.
• The presumption under Section 139 of the Negotiable Instruments Act, 1881, is that a cheque is issued for the discharge of a debt or liability.
• The report of a handwriting expert is not sufficient to rebut the presumption under Section 139 of the NI Act.
• The drawer must adduce evidence to prove that the cheque was not issued in discharge of a debt or liability.

Directions:

The Supreme Court set aside the order of the High Court and dismissed the application filed by the respondent for the examination of a handwriting expert. The court clarified that the report received in pursuance of the High Court’s order should not be taken into consideration during the course of the trial.

Development of Law:

The ratio decidendi of this case is that the liability of the drawer of a cheque arises from the act of signing the cheque, and not from filling in the details. This judgment reinforces the existing legal position under Section 139 of the Negotiable Instruments Act, 1881, and clarifies that the presumption of liability cannot be rebutted merely by claiming that the details were filled in by someone else. There is no change in the previous position of law, but the judgment reiterates and clarifies the existing legal principles.

Conclusion:

The Supreme Court’s judgment in Oriental Bank of Commerce vs. Prabodh Kumar Tewari clarifies that the liability of a cheque drawer is not diminished if they did not fill in the details on the cheque. The court emphasized that the act of signing a cheque creates a presumption of liability, and this presumption cannot be rebutted merely by claiming that the details were filled in by someone else. This ruling reinforces the importance of due diligence when issuing signed cheques and upholds the integrity of financial transactions under the Negotiable Instruments Act, 1881.

Category:

• Negotiable Instruments Act, 1881
  • Section 138, Negotiable Instruments Act, 1881
  • Section 139, Negotiable Instruments Act, 1881
  • Cheque Dishonour
  • Liability of Drawer
  • Presumption of Debt
• Criminal Law
  • Criminal Procedure Code, 1973
  • Evidence

FAQ:

Q: What does this judgment mean for someone who issues a cheque?

A: This judgment means that if you sign a cheque, you are responsible for it, even if you don’t fill in the details. You cannot avoid liability by claiming someone else filled in the amount or other information.

Q: If I give a blank signed cheque as security, am I still liable?

A: Yes, you are still liable. The court presumes that the cheque was issued for a debt or liability. You must provide evidence to prove otherwise.

Q: Can I use a handwriting expert to prove I didn’t fill in the details?

A: No, the Supreme Court has clarified that a handwriting expert’s report is not relevant to determining your liability. The focus is on whether the cheque was issued for a debt or liability, not who filled in the details.

Q: What is Section 139 of the Negotiable Instruments Act, 1881?

A: Section 139 of the Negotiable Instruments Act, 1881, states that it is presumed that a cheque is issued for the discharge of a debt or liability, unless proven otherwise. This means the burden is on the person who signed the cheque to prove it was not for a debt.