Supreme Court Upholds Conviction in Cheque Dishonor Case: K.S. Ranganatha vs. Vittal Shetty (2021)

Introduction

Date of the Judgment: 08 December 2021
Citation: 2021 INSC 733
Judges: N.V. Ramana, CJI, A.S. Bopanna, J., Hima Kohli, J.

Can a person be convicted for cheque dishonor even if they claim the cheque was obtained under duress? The Supreme Court of India recently addressed this question in a case concerning the dishonor of a cheque issued for a loan. The core issue revolved around whether the accused had successfully rebutted the presumption that a cheque was issued for a legally recoverable debt under Section 138 of the Negotiable Instruments Act, 1881. The judgment was delivered by a three-judge bench comprising Chief Justice N.V. Ramana, Justice A.S. Bopanna, and Justice Hima Kohli, with the opinion authored by Justice A.S. Bopanna.

Case Background

The case involves a dispute between K.S. Ranganatha (the appellant) and Vittal Shetty (the respondent), both residents of Udupi, Karnataka. The respondent claimed that the appellant borrowed Rs. 3,75,000 on June 12, 2003, and issued a post-dated cheque for Rs. 4,00,000, dated December 12, 2003, which included interest for six months. When the respondent presented the cheque on February 17, 2004, it was dishonored due to insufficient funds. Following a legal notice, the respondent filed a complaint under Section 138 of the Negotiable Instruments Act, 1881.

The appellant, however, contended that he had only borrowed Rs. 80,000 in 1995, which he had repaid with interest. He alleged that the respondent had assaulted and coerced him on January 20, 2004, to sign blank papers and cheque leaves, which were then misused. The appellant had filed a complaint regarding this incident, but the respondent was acquitted in those proceedings.

Timeline:

Course of Proceedings

The trial court, the IIIrd Additional Civil Judge (Junior Division) and JMFC, Udupi, acquitted the appellant, accepting his defense that the cheque was not issued for a legally recoverable debt. However, the High Court of Karnataka reversed this decision, convicting the appellant and sentencing him to pay compensation of Rs. 4,00,000, along with a fine. The High Court relied on the presumption that arises when a cheque is issued and held that the appellant had failed to rebut this presumption. The appellant then appealed to the Supreme Court.

Legal Framework

The case primarily involves Section 138 of the Negotiable Instruments Act, 1881, which deals with the dishonor of cheques for insufficient funds. This section makes it an offense if a cheque is dishonored and the drawer fails to make the payment within the stipulated time after receiving a notice. Additionally, Section 139 of the same Act states that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for the discharge of any debt or other liability.

Section 118(a) of the Negotiable Instruments Act, 1881, also plays a crucial role, stating:

“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.”

Arguments

Appellant’s Arguments:

• The appellant argued that he had only borrowed Rs. 80,000 from the respondent in 1995, which he had repaid with interest.
• He denied taking any loan on June 12, 2003, as alleged by the respondent.
• The appellant contended that the respondent had assaulted and threatened him on January 20, 2004, and forcibly obtained his signatures on blank papers and cheque leaves, which were then misused.
• He further argued that he had lodged a complaint on February 2, 2004, regarding the assault and coercion.
• The appellant claimed that the respondent filed the cheque dishonor case due to his refusal to sell his property at a lower price.
• The appellant relied on the decision of the Supreme Court in Reverend Mother Marykutty vs. Reni C. Kottaram & Anr. (2013) 1 SCC 327, to argue that the initial presumption under Section 139 of the Negotiable Instruments Act, 1881, was rebutted by his evidence and the preponderance of probabilities.

Respondent’s Arguments:

• The respondent argued that the appellant had borrowed Rs. 3,75,000 on June 12, 2003, and issued a post-dated cheque for Rs. 4,00,000, which included interest.
• He stated that the cheque was dishonored due to insufficient funds.
• The respondent contended that the appellant had failed to rebut the presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881.
• The respondent relied on the decision of the Supreme Court in Kalamani Tex & Anr. vs. P. Balasubramanian (2021) 5 SCC 283, which held that even a blank cheque leaf, voluntarily signed and handed over, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• He also relied on Triyambak S. Hegde vs. Sripad, Criminal Appeal Nos. 849-850 of 2011, to emphasize the presumption under Section 118(a) of the Negotiable Instruments Act, 1881.
• The respondent argued that the appellant’s defense of coercion was already considered and rejected in a previous case where the respondent was acquitted.

Summary of Arguments

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the cheque was issued by the appellant on June 12, 2003, post-dating it to December 12, 2003, towards the discharge of a legal debt.

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:

On Presumption and Rebuttal:

• K. Prakashan vs. P.K. Surendran (2008) 1 SCC 258 – Supreme Court of India: This case was referred to by the trial court to note that the initial burden is on the complainant to discharge.
• Reverend Mother Marykutty vs. Reni C. Kottaram & Anr. (2013) 1 SCC 327 – Supreme Court of India: The appellant relied on this case to argue that the initial presumption under Section 139 of the Negotiable Instruments Act, 1881, was rebutted by his evidence and the preponderance of probabilities.
• Bharat Barrel & Drum Mfg. Co. v. Amin Chand Payrelal – Supreme Court of India: This case was cited in Reverend Mother Marykutty vs. Reni C. Kottaram & Anr. (2013) 1 SCC 327, regarding the presumption under Section 118(a) of the Negotiable Instruments Act, 1881.
• M.S. Narayana Menon – Supreme Court of India: This case was cited in Reverend Mother Marykutty vs. Reni C. Kottaram & Anr. (2013) 1 SCC 327, regarding the presumption to be drawn and the preponderance of probabilities.
• Kalamani Tex & Anr. vs. P. Balasubramanian (2021) 5 SCC 283 – Supreme Court of India: The respondent relied on this case to argue that even a blank cheque leaf, voluntarily signed and handed over, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• Bir Singh v. Mukesh Kumar – Supreme Court of India: This case was cited in Kalamani Tex & Anr. vs. P. Balasubramanian (2021) 5 SCC 283, regarding the presumption under Section 139 of the Negotiable Instruments Act, 1881, for a voluntarily signed blank cheque.
• Triyambak S. Hegde vs. Sripad, Criminal Appeal Nos. 849-850 of 2011 – Supreme Court of India: The respondent relied on this case to emphasize the presumption under Section 118(a) of the Negotiable Instruments Act, 1881.
• K. Bhaskaran vs. Sankaran Vaidhyan Balan & Anr. (1999) 7 SCC 510 – Supreme Court of India: This case was cited in Triyambak S. Hegde vs. Sripad, regarding the presumption under Section 118 of the Negotiable Instruments Act, 1881.
• Basalingappa vs. Mudibasappa (2019) 5 SCC 418 – Supreme Court of India: This case was referred to summarize the principles regarding Sections 118(a) and 139 of the Negotiable Instruments Act, 1881.

Legal Provisions:

• Section 138 of the Negotiable Instruments Act, 1881: Deals with the dishonor of cheques for insufficient funds.
• Section 139 of the Negotiable Instruments Act, 1881: States that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque for the discharge of any debt or other liability.
• Section 118(a) of the Negotiable Instruments Act, 1881: States that every negotiable instrument was made or drawn for consideration.

Authorities Considered by the Court

Judgment

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

How each authority was viewed by the Court?

• The court acknowledged the trial court’s reference to K. Prakashan vs. P.K. Surendran (2008) 1 SCC 258, regarding the initial burden on the complainant.
• The court distinguished Reverend Mother Marykutty vs. Reni C. Kottaram & Anr. (2013) 1 SCC 327*, stating that the facts of the present case were different and the presumption was not rebutted.
• The court relied on Kalamani Tex & Anr. vs. P. Balasubramanian (2021) 5 SCC 283*, to emphasize that even a blank cheque leaf, voluntarily signed and handed over, would attract the presumption under Section 139 of the Negotiable Instruments Act, 1881.
• The court also relied on Triyambak S. Hegde vs. Sripad*, to support the presumption under Section 118(a) of the Negotiable Instruments Act, 1881.
• The court referred to Basalingappa vs. Mudibasappa (2019) 5 SCC 418*, to summarize the principles regarding Sections 118(a) and 139 of the Negotiable Instruments Act, 1881.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the statutory presumptions under the Negotiable Instruments Act, 1881, and the failure of the appellant to provide a credible defense. The court emphasized that once the issuance of a cheque is admitted, a presumption arises that it was issued for a legally recoverable debt. This presumption can only be rebutted by a preponderance of probabilities, which the appellant failed to establish. The court also noted that the appellant’s defense of coercion had already been considered and rejected in a previous case.

The court’s reasoning was primarily based on the following points:

• The initial burden on the respondent to prove the issuance of the cheque was met.
• The statutory presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881, was not rebutted by the appellant.
• The appellant’s defense of coercion was not credible as it was previously rejected.
• The appellant admitted to previous financial transactions with the respondent, making the current transaction probable.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

Logical Reasoning:

The court considered the appellant’s defense that the cheque was obtained under duress but rejected it, noting that the same issue was already decided in a previous case. The court emphasized that the appellant failed to provide sufficient evidence to rebut the statutory presumption that the cheque was issued for a legally recoverable debt. The court also noted that the appellant’s admission of previous financial transactions with the respondent made the current transaction probable. The court concluded that the High Court was justified in convicting the appellant.

The Supreme Court quoted the following from the judgment:

• “The legal aspect relating to the presumption arising in law when a cheque is issued, is to be noted at the threshold.”
• “The onus is on the accused to raise a probable defence and the standard of proof for rebutting the presumption is on preponderance of probabilities.”
• “The defence sought to be put forth relating to the cheque and other documents having been obtained by force, cannot be accepted as a probable defence when the respondent successfully discharged the initial burden cast on him of establishing that the cheque signed by the appellant was issued in his favour toward discharge of a legally recoverable amount.”

Key Takeaways

• The issuance of a cheque carries a legal presumption that it is for a legally recoverable debt.
• The burden to rebut this presumption lies on the accused.
• The standard of proof for rebutting the presumption is preponderance of probabilities.
• A defense of coercion or fraud must be supported by credible evidence and not merely a bald assertion.
• Previous findings of fact in other legal proceedings can be relevant and binding in subsequent cases.

Directions

The Supreme Court dismissed the appeal and upheld the conviction of the appellant. The parties were directed to bear their own costs.

Development of Law

The ratio decidendi of this case is that once a cheque is issued, there is a legal presumption that it is for a legally recoverable debt, and the burden to rebut this presumption lies on the accused. This judgment reinforces the established legal position regarding the presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881. The court did not introduce any new legal principles but clarified the application of existing principles in a case where the accused claimed coercion and fraud. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeal filed by K.S Ranganatha, upholding the conviction and sentence imposed by the High Court. The court reaffirmed the importance of statutory presumptions under the Negotiable Instruments Act, 1881, and emphasized that the accused must present a credible defense to rebut these presumptions. The judgment serves as a reminder that a mere assertion of coercion or fraud is not sufficient to overcome the presumption that a cheque is issued for a legally recoverable debt.