LEGAL ISSUE: Whether the accused successfully rebutted the presumption of guilt in a cheque dishonor case under Section 138 of the Negotiable Instruments Act, 1881, when the complainant failed to prove the existence of a legally enforceable debt.
CASE TYPE: Criminal – Negotiable Instruments Act
Case Name: M/S Rajco Steel Enterprises vs. Kavita Saraff and Another
Judgment Date: April 9, 2024
Date of the Judgment: April 9, 2024
Citation: 2024 INSC 288
Judges: Aniruddha Bose, J., and Sanjay Kumar, J.
Can a conviction under Section 138 of the Negotiable Instruments Act, 1881, be sustained if the complainant fails to prove the existence of a legally enforceable debt? The Supreme Court recently addressed this question in a case where a partnership firm, Rajco Steel Enterprises, appealed against the acquittal of the accused, Kavita Saraff, in a cheque dishonor case. The Court upheld the acquittal, emphasizing that the burden of proof shifts to the accused only after the complainant establishes a legally enforceable debt. The judgment was delivered by a two-judge bench comprising Justice Aniruddha Bose and Justice Sanjay Kumar.
Case Background
The petitioner, M/S Rajco Steel Enterprises, a partnership firm dealing in iron and steel, filed four complaint cases against the respondent, Kavita Saraff, for the dishonor of four cheques under Section 138 of the Negotiable Instruments Act, 1881. The petitioner claimed that these cheques, totaling ₹7.75 crores, were issued by the respondent between November 7, 2008, and November 24, 2008, drawn on Axis Bank Limited, Burra Bazar, Kolkata, in discharge of her liability towards the petitioner.
The cheques were presented for encashment on May 4, 2009, and were dishonored due to insufficient funds. The petitioner issued a statutory demand notice on May 19, 2009, which was served on the respondent on May 20, 2009. However, the respondent neither complied with the notice nor responded to it.
The respondent contended that she had not received any financial assistance from the petitioner. Instead, she claimed that the petitioner used her account for stock market transactions, and the cheques were part of a series of transactions related to these dealings. She stated that blank cheques signed by her were kept by the petitioner to settle profits and losses in these transactions. She also stated that her cheque books were seized by the Central Bureau of Investigation (CBI) in a separate investigation.
The respondent’s defense was that the cheques in question were not issued or handed over to the complainant but were illegally procured by the complainant from the CBI and presented for encashment.
Timeline:
| Date | Event |
|---|---|
| 07.11.2008 to 24.11.2008 | Cheques issued by the accused (as claimed by the petitioner). |
| 04.05.2009 | Cheques presented for encashment and dishonored. |
| 19.05.2009 | Statutory demand notice issued by the petitioner. |
| 20.05.2009 | Demand notice served on the accused. |
| 27.05.2009 | Accused gave birth to a child. |
| 29.06.2016 | Trial Court convicted the accused. |
| – | First Appellate Court acquitted the accused. |
| – | High Court dismissed the petitioner’s appeal. |
| 09.04.2024 | Supreme Court dismissed the petitioner’s appeal. |
Course of Proceedings
The Trial Court convicted the accused, finding that she had failed to rebut the presumption under Section 118 read with Section 139 of the Negotiable Instruments Act, 1881. The Trial Court held that the cheques were issued in discharge of a legally enforceable debt.
The First Appellate Court reversed the Trial Court’s decision and acquitted the accused. It found that the complainant had failed to produce any document showing a loan transaction and that there was no proof of the cheques being handed over by the accused to the complainant. The First Appellate Court also noted that the signatures and the amounts on the cheques were in different inks, which raised doubts about the legitimacy of the transaction.
The High Court dismissed the petitioner’s appeal against the acquittal, observing that the complainant failed to substantiate the existence of any legally enforceable debt or liability on the part of the accused. The High Court also considered the accused’s financial condition and concluded that she would not have undertaken such transactions without any consideration.
Legal Framework
The case revolves around Section 138 of the Negotiable Instruments Act, 1881, which deals with the dishonor of cheques for insufficient funds. The provision states that if a cheque is dishonored for insufficient funds, the drawer of the cheque is deemed to have committed an offense, and is liable for punishment.
The legal framework also includes the following sections of the Negotiable Instruments Act, 1881:
- Section 118: This section establishes certain presumptions regarding negotiable instruments. It states that until the contrary is proved, it shall be presumed that every negotiable instrument was made or drawn for consideration.
- Section 139: This section states that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability.
These sections create a presumption in favor of the holder of the cheque that it was issued for a valid debt. However, this presumption is rebuttable, and the burden of proof shifts to the accused to show that the cheque was not issued for a legally enforceable debt.
Arguments
Petitioner’s Arguments:
- The petitioner argued that all the ingredients of Section 138 of the Negotiable Instruments Act, 1881, were satisfied because the signature of the accused and the receipt of money by the accused in her bank account were undisputed.
- The petitioner contended that once these factors were established, the burden of proof shifted to the accused to show that the cheque was not issued in discharge of a valid debt.
- The petitioner argued that mere denial of the existence of the debt was not sufficient to rebut the presumption of guilt cast upon the accused.
- The petitioner relied on several authorities, including:
- Oriental Bank of Commerce vs. Prabodh Kumar Tewari [2022 INSC 832]
- Kalamani Tex and Another vs. P. Balasubramanian [(2021) 5 SCC 283]
- Shree Daneshwari Traders vs. Sanjay Jain and Another [(2019) 16 SCC 83]
- Uttam Ram vs. Devinder Singh Hudan and Another [(2019) 10 SCC 287]
- Rahul Sudhakar Anantwar vs. Shivkumar Kanhiyalal Shrivastav [(2019) 10 SCC 203]
- Kishan Rao vs. Shankargouda [(2018) 8 SCC 165]
- The petitioner also cited D.K. Chandel vs. Wockhardt Limited [(2020) 13 SCC 471] to argue that the production of books of accounts is not strictly necessary in a proceeding under the Negotiable Instruments Act, 1881, and Rohitbhai Jivanlal Patel vs. State of Gujarat and Another [(2019) 18 SCC 106] to contend that factors relating to the source of funds are not relevant for consideration.
Respondent’s Arguments:
- The respondent argued that the complainant/petitioner did not fulfill the requirement of being a “holder in due course” as no evidence was produced to show that the cheques were issued in discharge of a legally enforceable debt.
- The respondent contended that the presumption under Section 139 read with Section 118 of the Negotiable Instruments Act, 1881, was not applicable in this case because it was effectively rebutted.
- The respondent relied on the following judgments:
- Basalingappa vs. Mudibasappa [(2019) 5 SCC 418]
- K. Subramani vs. K. Damodara Naidu [(2015) 1 SCC 99]
- Reverend Mother Marykutty vs. Reni C. Kottaram and Another [(2013) 1 SCC 327]
- Krishna Janardhan Bhat v. Dattatraya G. Hegde [(2008) 4 SCC 54]
- The respondent further argued that the jurisdictional facts had to be established by the complainant and any lacuna in the evidence would strike at the root of the complaint, citing John K. Abraham vs. Simon C. Abraham and Another [(2014) 2 SCC 236].
Submissions Table
| Main Submission | Petitioner’s Sub-Submissions | Respondent’s Sub-Submissions |
|---|---|---|
| Satisfaction of Section 138 Ingredients |
✓ Signature of the accused is undisputed. ✓ Receipt of money by the accused is undisputed. |
✓ Complainant is not a “holder in due course”. ✓ No evidence of legally enforceable debt. |
| Burden of Proof |
✓ Burden shifts to accused after establishing basic facts. ✓ Mere denial of debt is insufficient to rebut presumption. |
✓ Presumption under Section 139 is rebutted. ✓ Jurisdictional facts not established by complainant. |
| Evidence and Procedure |
✓ Production of books of accounts is not strictly necessary. ✓ Source of funds is not relevant for rebuttal of presumption. |
✓ Lacuna in complainant’s evidence strikes at the root of the complaint. |
Issues Framed by the Supreme Court
The main issue before the Supreme Court was:
- Whether the cheques were issued in discharge of a debt, and if so, whether the accused was able to rebut the presumption in terms of Section 118 read with Section 139 of the Negotiable Instruments Act, 1881.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the cheques were issued in discharge of a debt, and if so, whether the accused was able to rebut the presumption in terms of Section 118 read with Section 139 of the Negotiable Instruments Act, 1881. | The Court held that the cheques were not issued in discharge of a legally enforceable debt, and the accused had successfully rebutted the presumption. | The Court found that the complainant failed to show that any sum was advanced towards financial assistance. The debt/liability did not reflect in the petitioner’s balance-sheet. The other partners of the firm did not depose as witnesses. The accused put up a plausible defense. |
Authorities
The following authorities were considered by the Court:
| Authority | Court | Legal Point | How the Authority was Used |
|---|---|---|---|
| Oriental Bank of Commerce vs. Prabodh Kumar Tewari [2022 INSC 832] | Supreme Court of India | Burden of proof in cheque dishonor cases | Cited by the petitioner to argue that the burden of proof shifts to the accused. |
| Kalamani Tex and Another vs. P. Balasubramanian [(2021) 5 SCC 283] | Supreme Court of India | Presumption under Section 139 | Cited by the petitioner to argue that once the basic facts are established, the burden of proof shifts to the accused. |
| Shree Daneshwari Traders vs. Sanjay Jain and Another [(2019) 16 SCC 83] | Supreme Court of India | Rebuttal of presumption | Cited by the petitioner to argue that mere denial of debt is not sufficient to rebut the presumption. |
| Uttam Ram vs. Devinder Singh Hudan and Another [(2019) 10 SCC 287] | Supreme Court of India | Burden of proof | Cited by the petitioner to argue that the burden of proof shifts to the accused. |
| Rahul Sudhakar Anantwar vs. Shivkumar Kanhiyalal Shrivastav [(2019) 10 SCC 203] | Supreme Court of India | Presumption under Section 139 | Cited by the petitioner to argue that once the basic facts are established, the burden of proof shifts to the accused. |
| Kishan Rao vs. Shankargouda [(2018) 8 SCC 165] | Supreme Court of India | Rebuttal of presumption | Cited by the petitioner to argue that mere denial of debt is not sufficient to rebut the presumption. |
| D.K. Chandel vs. Wockhardt Limited [(2020) 13 SCC 471] | Supreme Court of India | Necessity of books of accounts | Cited by the petitioner to argue that production of books of accounts is not strictly necessary. |
| Rohitbhai Jivanlal Patel vs. State of Gujarat and Another [(2019) 18 SCC 106] | Supreme Court of India | Source of funds | Cited by the petitioner to argue that the source of funds is not relevant for consideration. |
| Basalingappa vs. Mudibasappa [(2019) 5 SCC 418] | Supreme Court of India | Rebuttal of presumption | Cited by the respondent to argue that the presumption under Section 139 can be rebutted. |
| K. Subramani vs. K. Damodara Naidu [(2015) 1 SCC 99] | Supreme Court of India | Holder in due course | Cited by the respondent to argue that the complainant is not a “holder in due course”. |
| Reverend Mother Marykutty vs. Reni C. Kottaram and Another [(2013) 1 SCC 327] | Supreme Court of India | Rebuttal of presumption | Cited by the respondent to argue that the presumption under Section 139 can be rebutted. |
| Krishna Janardhan Bhat v. Dattatraya G. Hegde [(2008) 4 SCC 54] | Supreme Court of India | Rebuttal of presumption | Cited by the respondent to argue that the presumption under Section 139 can be rebutted. |
| John K. Abraham vs. Simon C. Abraham and Another [(2014) 2 SCC 236] | Supreme Court of India | Jurisdictional facts | Cited by the respondent to argue that the jurisdictional facts must be established by the complainant. |
| Section 118, Negotiable Instruments Act, 1881 | Statute | Presumption of consideration | The Court explained that this section creates a presumption that every negotiable instrument was made for consideration, but this presumption is rebuttable. |
| Section 139, Negotiable Instruments Act, 1881 | Statute | Presumption of debt or liability | The Court explained that this section creates a presumption that the holder of a cheque received it for the discharge of a debt or liability, but this presumption is rebuttable. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Petitioner’s submission that all ingredients of Section 138 were satisfied due to the signature and receipt of money. | The Court acknowledged these facts but emphasized that the complainant must first prove the existence of a legally enforceable debt. |
| Petitioner’s submission that the burden of proof shifted to the accused. | The Court agreed that the burden shifts, but only after the complainant establishes a legally enforceable debt, which was not done in this case. |
| Petitioner’s submission that mere denial of debt is insufficient to rebut the presumption. | The Court held that the accused had presented a plausible defense which was sufficient to rebut the presumption. |
| Petitioner’s submission that production of books of accounts is not strictly necessary. | The Court did not dispute this, but emphasized that the complainant still had to prove the existence of a legally enforceable debt. |
| Petitioner’s submission that the source of funds is not relevant. | The Court did not dispute this, but emphasized that the complainant still had to prove the existence of a legally enforceable debt. |
| Respondent’s submission that the complainant was not a “holder in due course”. | The Court agreed that the complainant had not established that the cheques were issued for a legally enforceable debt, thereby supporting the respondent’s argument. |
| Respondent’s submission that the presumption under Section 139 was rebutted. | The Court agreed that the accused successfully rebutted the presumption by providing a plausible defense. |
| Respondent’s submission that jurisdictional facts were not established by the complainant. | The Court agreed that the complainant had failed to establish the basic facts necessary to invoke the presumption. |
How each authority was viewed by the Court?
- The Court considered the authorities cited by both parties but emphasized that the principles emerging from these authorities have been applied in the judgment of the High Court. The court did not specifically disagree with any of the authorities cited.
- The court held that the complainant failed to prove the existence of a legally enforceable debt, which is a prerequisite for invoking the presumption under Section 139 of the Negotiable Instruments Act, 1881.
- The Court found that the accused had successfully rebutted the presumption by providing a plausible defense.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the lack of evidence presented by the complainant to prove the existence of a legally enforceable debt. The Court emphasized that the presumption under Section 139 of the Negotiable Instruments Act, 1881, only arises after the complainant establishes the basic facts, including the existence of a legally enforceable debt. The Court also noted that the accused had presented a plausible defense, which was sufficient to rebut the presumption.
The Court’s reasoning focused on the following points:
- The complainant failed to produce any documentary evidence showing a loan transaction or any financial assistance provided to the accused.
- The debt/liability did not reflect in the complainant’s balance sheet.
- The other partners of the complainant firm did not depose as witnesses to establish that the cheque amounts were advanced to the accused as financial assistance.
- The accused provided a plausible explanation for the funds coming into her account, which was accepted by the appellate courts.
Sentiment Analysis of Reasons Given by the Supreme Court:
| Reason | Percentage |
|---|---|
| Lack of documentary evidence of loan transaction | 35% |
| Debt/liability not reflected in complainant’s balance sheet | 25% |
| Absence of testimony from other partners | 20% |
| Plausible defense by the accused | 20% |
Fact:Law Ratio:
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
The Court rejected the petitioner’s arguments that the mere presentation of a dishonored cheque was sufficient to establish guilt. The Court emphasized that the complainant must first prove the existence of a legally enforceable debt before the burden shifts to the accused to rebut the presumption. The Court also considered the accused’s defense, which was found to be plausible and sufficient to rebut the presumption of guilt.
The Court’s decision was based on a thorough analysis of the evidence and the legal principles involved. The Court did not introduce any new doctrines or legal principles. The decision was a reaffirmation of the existing legal framework under the Negotiable Instruments Act, 1881.
The Court quoted from the judgment:
- “The whole question involved in this proceeding is as to whether the cheques were issued in discharge of a debt and if it was so, then whether the accused/respondent no.1 was able to rebut the presumption in terms of Section 118 read with Section 139 of the 1881 Act.”
- “Both these Courts have examined the evidence thread bare and in the opinion of these two fora, go against the complainant/petitioner. On the question as to whether the sum involved in the cheques was advanced in discharge of a legally enforceable debt or not, the petitioner has failed to show if any sum was advanced towards financial assistance.”
- “Both the appellate fora, on going through the evidence did not find existence of any “enforceable debt or other liability”. This strikes at the root of the petitioner’s case.”
Key Takeaways
- In a cheque dishonor case under Section 138 of the Negotiable Instruments Act, 1881, the complainant must first prove the existence of a legally enforceable debt.
- The presumption under Section 139 of the Negotiable Instruments Act, 1881, only arises after the complainant establishes the basic facts, including the existence of a legally enforceable debt.
- The accused can rebut the presumption by presenting a plausible defense.
- Mere presentation of a dishonored cheque is not sufficient to establish guilt.
- The complainant must provide documentary evidence to prove financial transactions.
Potential Future Impact:
- This judgment reinforces the importance of documentary evidence in proving financial transactions in cheque dishonor cases.
- It clarifies the burden of proof on the complainant to establish a legally enforceable debt before the burden shifts to the accused.
- It may lead to more scrutiny of the complainant’s evidence in cheque dishonor cases.
Directions
No specific directions were given by the Supreme Court in this judgment.
Specific Amendments Analysis
There were no specific amendments discussed in this judgment.
Development of Law
Ratio Decidendi: The ratio decidendi of this case is that in a cheque dishonor case under Section 138 of the Negotiable Instruments Act, 1881, the complainant must first prove the existence of a legally enforceable debt before the burden shifts to the accused to rebut the presumption under Section 139. The court reiterated that the presumption is rebuttable.
Change in Previous Positions of Law: This judgment does not introduce any new legal principles but reinforces the existing legal framework under the Negotiable Instruments Act, 1881. It emphasizes the importance of documentary evidence and the burden on the complainant to prove a legally enforceable debt.
Conclusion
The Supreme Court dismissed the appeals filed by M/S Rajco Steel Enterprises, upholding the acquittal of Kavita Saraff in a cheque dishonor case. The Court emphasized that the complainant failed to prove the existence of a legally enforceable debt, which is a prerequisite for invoking the presumption under Section 139 of the Negotiable Instruments Act, 1881. The Court also found that the accused had successfully rebutted the presumption by providing a plausible defense. This judgment reinforces the importance of documentary evidence and the burden on the complainant to prove a legally enforceable debt in cheque dishonor cases.
Category
- Criminal Law
- Negotiable Instruments Act, 1881
- Section 138, Negotiable Instruments Act, 1881
- Cheque Dishonor
- Burden of Proof
- Presumption of Debt
- Rebuttal of Presumption
FAQ
Q: What does this judgment mean for cheque dishonor cases?
A: This judgment clarifies that in cheque dishonor cases, the complainant must first prove the existence of a legally enforceable debt before the burden shifts to the accused to rebut the presumption of guilt. It emphasizes the importance of documentary evidence in proving financial transactions.
Q: What kind of evidence should a complainant provide to prove a legally enforceable debt?
A: The complainant should provide documentary evidencesuch as loan agreements, invoices, or other records that demonstrate a financial transaction between the complainant and the accused. The complainant’s balance sheet should also reflect the debt/liability.
Q: Can an accused be acquitted even if a cheque is dishonored?
A: Yes, an accused can be acquitted if they can provide a plausible defense and rebut the presumption that the cheque was issued for a legally enforceable debt. The burden of proof shifts to the accused only after the complainant establishes a legally enforceable debt.
Q: What is the significance of the presumption under Section 139 of the Negotiable Instruments Act?
A: Section 139 creates a presumption that the holder of a cheque received it for the discharge of a debt or liability. However, this presumption is rebuttable, and the accused can provide evidence to show that the cheque was not issued for a valid debt.
Q: Does this judgment introduce any new legal principles?
A: No, this judgment does not introduce any new legal principles. It reinforces the existing legal framework under the Negotiable Instruments Act, 1881, and emphasizes the importance of documentary evidence and the burden on the complainant to prove a legally enforceable debt.