Supreme Court Upholds Conviction in Cheque Dishonor Case: Bir Singh vs. Mukesh Kumar (2019)

Date of the Judgment: 6 February 2019

Citation: (2019) INSC 78

Judges: R. Banumathi, J., Indira Banerjee, J.

Can a High Court reverse concurrent factual findings of lower courts in a cheque dishonor case? The Supreme Court addressed this question in a case where the High Court had acquitted an accused, overturning the conviction by the Trial Court and the Appellate Court. The core issue revolved around whether the presumption of liability under Section 139 of the Negotiable Instruments Act, 1881, could be negated simply because of a fiduciary relationship between the parties.

The Supreme Court bench, comprising Justices R. Banumathi and Indira Banerjee, delivered the judgment, with Justice Indira Banerjee authoring the opinion.

Case Background

The appellant, Bir Singh, claimed that he had given a “friendly loan” of Rs. 15 lakhs to the respondent, Mukesh Kumar. In return, Mukesh Kumar issued a cheque dated 4 March 2012. When Bir Singh deposited the cheque on 11 April 2012, it was returned unpaid due to “Insufficient Funds.” Bir Singh presented the cheque again on 23 May 2012, but it was again dishonored for the same reason. Following this, on 15 June 2012, Bir Singh sent a legal notice to Mukesh Kumar demanding payment, but received no response. Consequently, Bir Singh filed a criminal complaint in the court of the Judicial Magistrate, 1st Class, Palwal, under Section 138 of the Negotiable Instruments Act, 1881.

Timeline

Course of Proceedings

The Judicial Magistrate, 1st Class, Palwal, convicted Mukesh Kumar under Section 138 of the Negotiable Instruments Act, 1881, sentencing him to one year of simple imprisonment and directing him to pay Rs. 15 lakhs as compensation. Mukesh Kumar appealed to the Additional Sessions Judge, Palwal, who upheld the conviction but reduced the imprisonment to six months. Subsequently, Mukesh Kumar filed a Criminal Revision Petition in the High Court of Punjab and Haryana at Chandigarh, challenging the Appellate Court’s decision. The High Court reversed the concurrent findings of the lower courts and acquitted Mukesh Kumar, leading to the appeal before the Supreme Court.

Legal Framework

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

• Section 138 of the Negotiable Instruments Act, 1881: This section deals with the dishonor of a cheque due to insufficient funds. It states that if a cheque is returned unpaid because the account has insufficient funds, the person who issued the cheque is deemed to have committed an offense and can be punished with imprisonment up to two years, a fine of up to twice the cheque amount, or both. The section also specifies conditions that must be met for the offense to apply, including the cheque being presented within a specified time, a demand for payment being made through a written notice, and the drawer failing to make the payment within fifteen days of receiving the notice. The explanation to the section clarifies that “debt or other liability” means a legally enforceable debt or other liability.

  “138 Dishonour of cheque for insufficiency, etc., of funds in the account. —Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
  Provided that nothing contained in this section shall apply unless—
  (a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
  (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
  Explanation.— For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.]”
  

• Section 139 of the Negotiable Instruments Act, 1881: This section establishes a presumption in favor of the holder of a cheque. It states that unless proven otherwise, it shall be presumed that the holder of a cheque received it for the discharge, in whole or in part, of any debt or other liability.

  “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 provisions are designed to ensure the credibility of negotiable instruments like cheques and encourage their use in financial transactions. The penal provision is intended to deter the issuance of cheques without the intention to honor them.

Arguments

Appellant’s Arguments (Bir Singh):

• The appellant argued that he had advanced a friendly loan of Rs. 15 lakhs to the respondent, and the cheque was issued in repayment of that loan. He contended that the cheque was dishonored due to insufficient funds, and he had followed all the necessary legal procedures by issuing a demand notice.

• The appellant relied on Section 139 of the Negotiable Instruments Act, 1881, which creates a presumption that a cheque is issued in discharge of a debt or liability. He argued that the burden of proof was on the respondent to rebut this presumption, which the respondent failed to do.

• The appellant contended that the High Court erred in reversing the concurrent factual findings of the Trial Court and the Appellate Court, which had both found the respondent guilty under Section 138 of the Negotiable Instruments Act, 1881.

Respondent’s Arguments (Mukesh Kumar):

• The respondent argued that he had a fiduciary relationship with the appellant, who was his income tax practitioner. He claimed that he had given a blank cheque to the appellant for payment of income tax and that the appellant had misused this cheque. The respondent argued that he used to pay his taxes in cash and that the appellant used to take cash from him.

• The respondent contended that the appellant failed to prove that he had advanced the loan, and the fact that the loan was not shown in the appellant’s income tax return raised doubts about the transaction. He also argued that the appellant, being an income tax practitioner, should have obtained a receipt or made the payment through a formal banking channel.

• The respondent argued that the High Court was correct in holding that the presumption under Section 139 of the Negotiable Instruments Act, 1881, could not be raised due to the fiduciary relationship between the parties and that the burden was on the appellant to prove the loan transaction beyond reasonable doubt.

Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether a revisional court can interfere with an order of conviction in the absence of any jurisdictional error or error of law.
2. Whether the payee of a cheque is disentitled to the benefit of the presumption under Section 139 of the Negotiable Instruments Act, 1881, merely because he is in a fiduciary relationship with the drawer of the cheque.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed MSR Leathers vs. S. Palaniappan & Anr. [(2013) 1 SCC 177], holding that a prosecution based on a second or successive default in payment of the cheque amount is permissible.
• The Supreme Court followed Southern Sales and Services and Others vs. Sauermilch Design and Handels GMBH [(2008) 14 SCC 457], stating that a revisional court will not interfere even if a wrong order is passed by a court having jurisdiction, in the absence of a jurisdictional error.
• The Supreme Court followed Hiten P. Dalal vs. Bratindranath Banerjee [(2001) 6 SCC 16], reiterating that the Court shall presume the liability of the drawer of the cheques for the amounts for which the cheques are drawn.
• The Supreme Court followed State of Madras vs. Vaidyanatha Iyer [AIR 1958 SC 61], holding that it was obligatory on the Court to raise the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• The Supreme Court cited Ranjitsing Brahmajeetsing Sharma vs. State of Maharashtra and Anr [(2005) 5 SCC 294] and Rajesh Ranjan Yada @ Pappu Yadav vs. CBI through its Director [(2007) 1 SCC 70], acknowledging that the presumption of innocence is a human right.
• The Supreme Court followed Laxmi Dyechem vs. State of Gujarat & Ors. [(2012) 13 SCC 375], affirming that it has to be presumed that a cheque was issued in discharge of a debt or other liability, but the presumption could be rebutted by adducing evidence.
• The Supreme Court followed Kumar Exports vs. Sharma Carpets [(2009) 2 SCC 513], stating that there is a presumption that every negotiable instrument duly executed is for discharge of a debt or liability, but the presumption is rebuttable by proving the contrary.
• The Supreme Court followed K.N. Beena vs. Muniyappan and Another [(2001) 8 SCC 458], holding that the Court had to presume that the cheque had been issued for discharging a debt or liability, and mere denial was not enough to rebut the presumption.
• The Supreme Court followed R. Vijayan vs. Baby and Another [(2012) 1 SCC 260], emphasizing that the object of Chapter XVII of the Negotiable Instruments Act, 1881 is both punitive as also compensatory and restitutive.
• The Supreme Court distinguished Raj Kumar Khurana vs. State of (NCT of Delhi) & Anr. [(2009) 6 SCC 72], noting that the facts of that case were different, as the drawer of the cheque had reported the theft of the signed blank cheques.
• The Supreme Court cited John K John vs. Tom Varghese & Anr. [(2007) 12 SCC 714], stating that if two views are possible, the Supreme Court would ordinarily not interfere with a judgment of acquittal.
• The Supreme Court cited Krishna Janardhan Bhat vs. Dattatraya G. Hegde [(2008) 4 SCC 54], reaffirming that Section 139 of the Act raises a presumption that a cheque duly drawn was towards a debt or liability.
• The Supreme Court cited State of Punjab & Ors. vs. Surinder Kumar & Ors. [(1992) 1 SCC 489], stating that what is binding on all courts is what the Supreme Court says under Article 141 of the Constitution, which is declaration of the law and not what it does under Article 142 to do complete justice.

What weighed in the mind of the Court?

The Supreme Court emphasized several key points in its reasoning:

• The High Court exceeded its revisional jurisdiction by re-analyzing factual findings.
• The presumption under Section 139 of the Negotiable Instruments Act, 1881, is a rebuttable presumption, but the burden of proof lies on the accused to show that the cheque was not issued in discharge of a debt or liability.
• A fiduciary relationship between the payee and the drawer does not negate the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• The fact that a cheque may be post-dated does not absolve the drawer of the penal consequences of Section 138 of the Negotiable Instruments Act, 1881.
• Even a blank cheque leaf, voluntarily signed and handed over by the accused, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

Logical Reasoning:

The Court’s reasoning was based on the legal principles enshrined in the Negotiable Instruments Act, 1881, and the established precedents. The Court emphasized the importance of maintaining the credibility of negotiable instruments and deterring the issuance of cheques without the intention to honor them.

The Court considered the argument that the High Court had erred in reversing the concurrent findings of the lower courts. The Supreme Court stated that the High Court had exceeded its jurisdiction by re-analyzing the evidence. The Supreme Court also considered the argument that the fiduciary relationship between the parties negated the presumption under Section 139 of the Negotiable Instruments Act, 1881. The Court rejected this argument, holding that the presumption under Section 139 is a rebuttable presumption, and the burden of proof lies on the accused to show that the cheque was not issued in discharge of a debt or liability.

The Court also considered the argument that the cheque was a blank cheque given for tax payment and was misused. The Court rejected this argument, holding that even a blank cheque leaf, voluntarily signed and handed over by the accused, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.

The Supreme Court stated, “A meaningful reading of the provisions of the Negotiable Instruments Act including, in particular, Sections 20, 87 and 139, makes it amply clear that a person who signs a cheque and makes it over to the payee remains liable unless he adduces evidence to rebut the presumption that the cheque had been issued for payment of a debt or in discharge of a liability.”

The Court also observed, “If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability by adducing evidence.”

Further, the Court noted, “Even a blank cheque leaf, voluntarily signed and handed over by the accused, which is towards some payment, would attract presumption under Section 139 of the Negotiable Instruments Act, in the absence of any cogent evidence to show that the cheque was not issued in discharge of a debt.”

Key Takeaways

• A Revisional Court cannot interfere with an order of conviction unless there is a jurisdictional error or error of law.
• The presumption under Section 139 of the Negotiable Instruments Act, 1881, that a cheque was issued in discharge of a debt or liability, is a rebuttable presumption, and the burden of proof lies on the accused to rebut it.
• The existence of a fiduciary relationship between the payee and the drawer of a cheque does not negate the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• Even a blank cheque leaf, voluntarily signed and handed over by the accused, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• The drawer of a cheque cannot escape liability under Section 138 of the Negotiable Instruments Act, 1881, by claiming that the cheque was given as a blank cheque or that there was a fiduciary relationship with the payee.

Directions

The Supreme Court set aside the judgment of the High Court and restored the conviction of the respondent under Section 138 of the Negotiable Instruments Act, 1881. The Court enhanced the fine to Rs. 16 lakhs to be paid as compensation to the appellant. The fine was to be deposited in the Trial Court within eight weeks, failing which the sentence of imprisonment of one year as imposed by the Trial Court would revive.

Development of Law

The ratio decidendi of this case is that the presumption under Section 139 of the Negotiable Instruments Act, 1881, that a cheque was issued in discharge of a debt or liability, is a rebuttable presumption, and the burden of proof lies on the accused to rebut it. The existence of a fiduciary relationship between the payee and the drawer of a cheque does not negate this presumption. This case clarifies that even a blank cheque leaf, voluntarily signed and handed over by the accused, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881. The Supreme Court has reiterated the importance of maintaining the credibility of negotiable instruments and deterring the issuance of cheques without the intention to honor them.

Conclusion

The Supreme Court’s judgment in Bir Singh vs. Mukesh Kumar (2019) is a significant ruling that reinforces the legal framework surrounding cheque dishonor cases. It clarifies the scope of the presumption under Section 139 of the Negotiable Instruments Act, 1881, and underscores that the burden of proof lies on the drawer of the cheque to rebut this presumption. The judgment emphasizes that a fiduciary relationship between the parties does not negate this presumption and that even a blank cheque, voluntarily signed and handed over, can attract liability. This ruling serves as a crucial reminder of the legal obligations associated with issuing cheques and the importance of maintaining the integrity of financial transactions.