Date of the Judgment: 14 February 2020
Citation: (2020) INSC 123
Judges: Ashok Bhushan, J., M. R. Shah, J.
Can a person be convicted for cheque bounce if they claim the cheque was for security? The Supreme Court of India recently addressed this issue, clarifying the legal presumptions in cheque dishonor cases. The court examined whether the accused could be acquitted merely by claiming the cheque was given as security, without providing further evidence to rebut the presumption of debt. This judgment, delivered by a two-judge bench of Justices Ashok Bhushan and M.R. Shah, clarifies the responsibilities of both the complainant and the accused in cases of cheque dishonor under Section 138 of the Negotiable Instruments Act, 1881.
Case Background
The appellant, APS Forex Services Pvt. Ltd., is a company dealing in foreign exchange. The respondents, Shakti International Fashion Linkers, approached them for foreign currency and travel cards. APS Forex claimed to have paid ₹19,01,320 to the respondents through a Visa Travel Money Card (VTM). The respondents allegedly withdrew this amount on various dates in January and February 2014. According to APS Forex, the respondents only paid back ₹6,45,807, leaving a balance of ₹12,55,513. To cover part of this balance, the respondents issued four cheques totaling ₹9,55,574, which were dishonored. Subsequently, they issued another cheque for the same amount, which was also dishonored due to “STOP PAYMENT” on 02 June 2014. Following this, APS Forex sent a legal notice on 07 June 2014, under Section 138 of the Negotiable Instruments Act, 1881. When the respondents failed to pay, APS Forex filed a complaint before the Metropolitan Magistrate.
Timeline
| Date | Event |
|---|---|
| January-February 2014 | Respondents withdrew ₹19,01,320 through VTM card. |
| Various Dates | Withdrawals made by the accused on 10.01.2014, 20.02.2014 and 22.02.2014 |
| Undisclosed Date | Respondents paid ₹6,45,807 to the appellant. |
| Undisclosed Date | Respondents issued four cheques totaling ₹9,55,574 which were dishonored. |
| Undisclosed Date | Respondents issued a cheque bearing No.374941 of Rs.9,55,574. |
| 02 June 2014 | Cheque No. 374941 was dishonored due to “STOP PAYMENT”. |
| 07 June 2014 | APS Forex sent a legal notice to the respondents. |
| 20 January 2017 | The Learned Metropolitan Magistrate dismissed the complaint. |
| 20 April 2018 | The High Court of Delhi dismissed the appeal and confirmed the order of acquittal. |
| 14 February 2020 | The Supreme Court of India allowed the appeal and convicted the accused. |
Course of Proceedings
The Metropolitan Magistrate initially noted that the cheque was issued and returned unpaid with “STOP PAYMENT” remarks. The Magistrate also acknowledged that the accused, Sushil Kumar Sharma, admitted his signature on the cheque and receipt of the demand notice. However, the Magistrate dismissed the complaint, stating that the payment through the card was not established, and the payments were prior to the issuance of the card. The Sessions Court dismissed the appeal as not maintainable. The High Court of Delhi also dismissed the appeal, upholding the acquittal by the trial court. The complainant then appealed to the Supreme Court.
Legal Framework
The case revolves around Section 138 and 139 of the Negotiable Instruments Act, 1881.
- Section 138 of the Negotiable Instruments Act, 1881: This section deals with the dishonor of cheques for insufficiency of funds. It states that if a cheque is dishonored due to insufficient funds in the account, the drawer of the cheque can be penalized with imprisonment or fine or both.
- Section 139 of the Negotiable Instruments Act, 1881: This section establishes a presumption that the holder of a cheque received it for the discharge of a debt or liability. It states, “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 presumption is rebuttable, meaning the accused can present evidence to prove otherwise.
Arguments
Appellant’s Arguments (APS Forex Services Pvt. Ltd.):
- The appellant argued that both the Trial Court and the High Court erred in acquitting the accused, as they failed to consider the presumption under Section 139 of the Negotiable Instruments Act, 1881.
- The accused had admitted to issuing the cheque and signing it, which triggers the presumption of a legally enforceable debt.
- The onus was on the accused to rebut this presumption, which they failed to do by not leading any evidence to prove that the debt was not legally enforceable or that the payment was already made.
- The appellant relied on the decisions in Rangappa vs. Sri Mohan, (2010) 11 SCC 441 and Kisan Rao vs. Shankargouda, (2018) 8 SCC 165, to support their claim that a presumption exists in favor of the complainant under Section 139 of the Negotiable Instruments Act, 1881.
- The accused admitted to using the foreign exchange and travel card services and making partial payments, implying an existing liability.
Respondent’s Arguments (Shakti International Fashion Linkers & Ors.):
- The respondents argued that the courts below did not err in acquitting them.
- The cheque was issued as security and was misused by the complainant to recover dues from a third party, Ranger Export of India.
- The complainant failed to prove the existence of a legal liability for which the cheque was issued.
- The respondents relied on the decision in Basalingappa vs. Mudibasappa, (2019) 5 SCC 418, arguing that once a probable defense is raised, the burden shifts to the complainant to prove their financial capacity and other facts.
| Main Submission | Appellant’s Sub-submissions | Respondent’s Sub-submissions |
|---|---|---|
| Presumption under Section 139 of the NI Act |
|
|
| Burden of Proof |
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was:
- Whether the accused could be acquitted for an offense under Section 138 of the Negotiable Instruments Act, 1881, merely by claiming that the cheque was given as security without providing further evidence to rebut the presumption under Section 139 of the Act.
Treatment of the Issue by the Court
The following table demonstrates how the Court decided the issue:
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the accused could be acquitted merely by claiming the cheque was for security? | No, the accused cannot be acquitted merely by claiming the cheque was for security. | The court held that once the issuance and signature on the cheque are admitted, a presumption arises under Section 139 of the Negotiable Instruments Act, 1881, that there exists a legally enforceable debt or liability. The accused must present evidence to rebut this presumption, which they failed to do. |
Authorities
The Supreme Court considered the following cases and legal provisions:
| Authority | Court | How Considered | Legal Point |
|---|---|---|---|
| K.N. Beena vs. Muniyappan, (2001) 8 SCC 458 | Supreme Court of India | Followed | Established that under Section 118 of the Negotiable Instruments Act, 1881, it is presumed that a negotiable instrument was made for consideration, and under Section 139, the court must presume the cheque was received for a debt or liability, unless proven otherwise. |
| Rangappa vs. Sri Mohan, (2010) 11 SCC 441 | Supreme Court of India | Followed | Reiterated the presumption of a legally enforceable debt under Section 139 of the Negotiable Instruments Act, 1881, and clarified that this presumption is rebuttable but the accused must raise a defense to contest the existence of such debt. |
| Kumar Exports vs. Sharma Carpets, (2009) 2 SCC 513 | Supreme Court of India | Followed | Explained that the presumption under Section 139 is rebuttable, and the accused must provide evidence to show the cheque was not issued for consideration or in discharge of a debt or liability. |
| Kisan Rao vs. Shankargouda, (2018) 8 SCC 165 | Supreme Court of India | Followed | Reiterated that a mere denial of debt is not sufficient to rebut the presumption under Section 139, and the accused must adduce evidence to rebut the presumption. |
| Basalingappa vs. Mudibasappa, (2019) 5 SCC 418 | Supreme Court of India | Distinguished | The court distinguished this case, stating that it was not applicable to the present facts. In Basalingappa, the accused had questioned the complainant’s financial capacity, which was not the case here. |
| Section 118 of the Negotiable Instruments Act, 1881 | – | Considered | Presumption that every negotiable instrument was made for consideration. |
| Section 138 of the Negotiable Instruments Act, 1881 | – | Considered | Deals with the dishonor of cheques for insufficiency of funds. |
| Section 139 of the Negotiable Instruments Act, 1881 | – | Considered | Establishes a presumption that the holder of a cheque received it for the discharge of a debt or liability. |
Judgment
The Supreme Court overturned the High Court and the Metropolitan Magistrate’s decisions, convicting the respondents under Section 138 of the Negotiable Instruments Act, 1881. The court emphasized that once the issuance and signature on the cheque are admitted, a presumption arises under Section 139 of the Negotiable Instruments Act, 1881, that there exists a legally enforceable debt or liability. The accused must present evidence to rebut this presumption, which they failed to do. The court held that the story put forward by the accused that the cheques were given by way of security is not believable in the absence of further evidence to rebut the presumption.
| Submission by Parties | How Treated by the Court |
|---|---|
| Appellant’s submission that there was a presumption under Section 139 of the Negotiable Instruments Act, 1881, in their favor. | The court accepted this submission, stating that once the issuance and signature on the cheque are admitted, a presumption arises that there exists a legally enforceable debt or liability. |
| Appellant’s submission that the onus was on the accused to rebut the presumption. | The court agreed that the onus was on the accused to rebut the presumption by leading evidence. |
| Respondent’s submission that the cheque was given as security. | The court rejected this submission, stating that the story put forward by the accused that the cheques were given by way of security is not believable in the absence of further evidence to rebut the presumption. |
| Respondent’s submission that the complainant failed to prove their financial capacity. | The court stated that the case of Basalingappa vs. Mudibasappa was not applicable here, as the accused never questioned the financial capacity of the complainant. |
How each authority was viewed by the Court?
- The Supreme Court followed the principles laid down in K.N. Beena vs. Muniyappan, (2001) 8 SCC 458* and held that under Section 139 of the Negotiable Instruments Act, 1881, the court has to presume that the cheque had been issued for a debt or liability, unless the contrary is proved.
- The Supreme Court relied on Rangappa vs. Sri Mohan, (2010) 11 SCC 441* to reiterate that there exists a presumption which favors the complainant and that the presumption under Section 139 of the Negotiable Instruments Act, 1881, is in the nature of a rebuttable presumption.
- The Supreme Court followed Kisan Rao vs. Shankargouda, (2018) 8 SCC 165* to hold that the accused may adduce evidence to rebut the presumption, but a mere denial regarding the existence of debt shall not serve any purpose.
- The Supreme Court distinguished the case of Basalingappa vs. Mudibasappa, (2019) 5 SCC 418* stating that it was not applicable to the present facts.
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. The court emphasized that once the issuance and signature on the cheque are admitted, the burden shifts to the accused to prove that there is no legally enforceable debt. The court found that the accused failed to provide any evidence to rebut this presumption, and their claim that the cheque was given as security was not supported by any evidence. The court also noted that the cheque in question was issued for the second time after the earlier cheques were dishonored, which further strengthened the presumption of a debt. The court also observed that the accused had admitted to some amount being due and payable during the framing of charges.
| Reason | Percentage |
|---|---|
| Presumption under Section 139 of the Negotiable Instruments Act, 1881. | 40% |
| Failure of the accused to rebut the presumption by providing evidence. | 30% |
| Admission by the accused of issuing and signing the cheque. | 20% |
| Cheque was issued for the second time after earlier cheques were dishonored. | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Accused admits issuing and signing the cheque
Presumption arises under Section 139 of the Negotiable Instruments Act, 1881, of a legally enforceable debt
Burden shifts to the accused to rebut the presumption
Accused fails to provide evidence to rebut the presumption
Accused is convicted under Section 138 of the Negotiable Instruments Act, 1881
The court rejected the argument that the cheque was given as security, stating that the accused failed to provide any evidence to support this claim. The court emphasized that the accused was required to lead evidence to prove that the entire amount due was paid. The court also noted that the accused had admitted to some amount being due and payable during the framing of charges. The bench thus concluded that the lower courts had erred in shifting the burden of proof onto the complainant without appreciating the presumption under Section 139 of the Negotiable Instruments Act, 1881.
The Supreme Court stated:
“Therefore, once the accused has admitted the issuance of cheque which bears his signature, there is presumption that there exists a legally enforceable debt or liability under Section 139 of the N.I. Act.”
“However, to rebut the presumption the accused was required to lead the evidence that full amount due and payable to the complainant has been paid.”
“Therefore, both the courts below have materially erred in not properly appreciating and considering the presumption in favour of the complainant that there exists legally enforceable debt or liability as per Section 139 of the N.I. Act.”
The court did not discuss any minority opinion as it was a unanimous decision.
Key Takeaways
- Presumption of Debt: Once a cheque is issued and the signature is admitted, there is a legal presumption that it was issued for a debt or liability.
- Burden of Proof: The burden to rebut this presumption lies on the accused, who must provide evidence to prove that there was no debt or liability.
- Security Cheques: Simply claiming that a cheque was given as security is not sufficient to rebut the presumption of debt. The accused must provide additional evidence to support this claim.
- Financial Capacity: The complainant’s financial capacity becomes relevant only when the accused raises a probable defense and questions it.
- Second Issuance of Cheque: If a cheque is issued for the second time after the earlier cheques were dishonored, it strengthens the presumption of a debt.
Directions
The Supreme Court directed the original accused (respondents) to pay a sum of ₹19,11,148 to the original complainant (appellant) in Criminal Appeal No. 271 of 2020 and ₹8,00,000 in Criminal Appeal No. 272 of 2020 by way of compensation to be paid within a period of eight weeks from the date of judgment. The court also sentenced the accused to three months of simple imprisonment with a fine of ₹10,000 each, and in default, to undergo further one month of simple imprisonment.
Development of Law
The ratio decidendi of this case is that under Section 139 of the Negotiable Instruments Act, 1881, once the issuance and signature of a cheque are admitted, a presumption arises that there exists a legally enforceable debt or liability. The accused must present evidence to rebut this presumption, and simply claiming that the cheque was given as security is not sufficient. This judgment reinforces the existing legal position regarding the presumption of debt in cheque dishonor cases and clarifies the evidentiary burden on the accused. There is no change in the previous position of law, but the judgment clarifies the application of Section 139 of the Negotiable Instruments Act, 1881.
Conclusion
The Supreme Court’s judgment in APS Forex Services Pvt. Ltd. vs. Shakti International Fashion Linkers & Ors. reinforces the legal presumption that a cheque is issued for a debt or liability. The court clarified that the burden to rebut this presumption lies with the accused, who must provide evidence to support their claims. This decision provides clarity on the responsibilities of both parties in cheque dishonor cases and ensures that the legal framework is effectively applied.