Supreme Court Upholds Conviction in Cheque Dishonor Case: Kalamani Tex vs. P. Balasubramanian (2021)

LEGAL ISSUE: Whether the High Court was correct in reversing the trial court’s order of acquittal in a cheque dishonor case, considering the statutory presumptions under the Negotiable Instruments Act, 1881.

CASE TYPE: Criminal Appeal (Cheque Dishonor)

Case Name: M/s. Kalamani Tex & Anr vs. P. Balasubramanian

Judgment Date: 10 February 2021

Introduction

Date of the Judgment: 10 February 2021

Citation: (2021) INSC 47

Judges: N.V. Ramana, J., Surya Kant, J., Aniruddha Bose, J.

Can a trial court dismiss a cheque dishonor case by questioning the source of funds, even after the accused admits their signature on the cheque? The Supreme Court of India recently addressed this question in a case concerning the dishonor of a cheque issued for a business transaction. The core issue was whether the High Court rightly overturned the trial court’s acquittal, given the statutory presumptions in favor of the complainant under the Negotiable Instruments Act, 1881. The judgment was delivered by a three-judge bench comprising Justices N.V. Ramana, Surya Kant, and Aniruddha Bose, with Justice Surya Kant authoring the opinion.

Case Background

M/s. Kalamani Tex (Appellant No. 1) and its managing partner, B. Subramanian (Appellant No. 2), were engaged in a business arrangement with P. Balasubramanian (Respondent), who owned Growell International. They agreed to jointly export garments to France. Due to delays in shipment and payment, the appellants had to pay the respondent ₹11.20 lakhs. To this end, Appellant No. 2 issued a cheque on behalf of Appellant No. 1, dated 07.11.2000, and also executed a Deed of Undertaking on the same day, personally undertaking to pay the respondent.

The respondent presented the cheque on 29.12.2000, but it was returned due to insufficient funds. Following this, the respondent issued a notice dated 08.01.2001, demanding payment within 15 days. The appellants replied on 27.01.2001, denying liability and claiming that blank signed cheques and stamp papers were given to the respondent for debt recovery purposes, not for any legally enforceable debt.

Timeline

Date	Event
07.11.2000	Appellant No. 2 issued a cheque and executed a Deed of Undertaking for ₹11.20 lakhs.
29.12.2000	The respondent presented the cheque, which was returned due to insufficient funds.
08.01.2001	The respondent issued a notice to the appellants demanding payment.
27.01.2001	The appellants replied, denying liability.
12.03.2018	Appellants agreed to deposit the disputed amount in the Supreme Court.
11.04.2018	Appellants deposited ₹11.20 lakhs with the Supreme Court Registry.
09.11.2017	The High Court of Judicature at Madras reversed the trial court’s acquittal order, convicting the appellants.
10.02.2021	The Supreme Court dismissed the appeal and modified the High Court’s order.

Course of Proceedings

The respondent filed a private complaint under Section 138 and 142 of the Negotiable Instruments Act, 1881 (NIA), read with Section 200 of the Code of Criminal Procedure, 1973 (CrPC), before the Judicial Magistrate, Tiruppur. The respondent testified and produced the cheque and Deed of Undertaking. The appellants denied liability, claiming the cheque was given as a blank security.

The trial court disbelieved the respondent and held that he failed to establish a legally enforceable liability. The court dismissed the complaint, stating that the basic ingredients of an offense under Section 138 of the NIA were not satisfied.

The High Court of Judicature at Madras reversed the trial court’s decision, noting that Appellant No. 2 admitted his signatures on the cheque and the Deed of Undertaking, thus acknowledging liability. The High Court convicted the appellants under Section 138 of the NIA, sentencing Appellant No. 2 to three months of simple imprisonment and a fine of ₹5,000. Appellant No. 1 was fined ₹5,000.

Legal Framework

The case primarily revolves around Section 138 of the Negotiable Instruments Act, 1881, which deals with the dishonor of cheques for insufficient funds. It states that if a cheque is dishonored for insufficient funds, the drawer is deemed to have committed an offense. The Act also includes “reverse onus” clauses, specifically Section 118 and Section 139.

Section 118 of the Negotiable Instruments Act, 1881, establishes presumptions regarding negotiable instruments, including that every negotiable instrument was made or drawn for consideration. Section 139 of the Negotiable Instruments Act, 1881, states that unless the contrary is proved, it shall be presumed 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 place the burden of proof on the accused to rebut these presumptions.

Arguments

Appellants’ Arguments:

The appellants argued that there was no legally enforceable liability on the date of the cheque issuance.
They claimed that blank stamp papers signed by Appellant No. 2 were misused by the respondent to forge the Deed of Undertaking.
Relying on Murugesan v. State Through Inspector of Police [(2012) 10 SCC 383], they contended that the trial court’s view was a possible one, and the High Court exceeded its jurisdiction in reversing the acquittal.
Citing Reena Hazarika v. State of Assam [(2019) 13 SCC 289], they argued that the High Court did not consider their defense, causing serious prejudice.
They asserted that the presumption under Section 118 and Section 139 of the Negotiable Instruments Act, 1881, is rebuttable through a standard of “preponderance of probability,” which they claimed to have met, relying on Basalingappa v. Mudibasappa [(2019) 5 SCC 418] and Kumar Exports v. Sharma Carpets [(2009) 2 SCC 513].

Respondent’s Arguments:

The respondent maintained that the High Court’s decision was well-reasoned and based on all relevant factors.
He emphasized the undisputed signatures on the cheque and the Deed of Undertaking, asserting that the appellants admitted their liability of ₹11.20 lakhs.
The respondent highlighted the financial loss he suffered and the adverse impact on his business, requesting suitable compensation.

The appellants argued that the High Court should not have reversed the trial court’s acquittal because the trial court’s view was a possible one. They also argued that the High Court did not consider their defense that the cheque and deed were misused, causing them prejudice. They relied on precedents to argue that the presumption of liability could be rebutted with a preponderance of probability, which they claim to have done.

The respondent argued that the High Court was correct because the appellants admitted their signatures on the cheque and deed, acknowledging their liability. He also argued that the appellants’ defense was not credible and that he suffered financial losses due to their actions. The respondent’s arguments were based on the fact that the appellants had admitted their signatures on the cheque and the Deed of Undertaking, which implied that they had acknowledged their liability.

Submissions Table

Appellants’ Main Submissions	Appellants’ Sub-Submissions	Respondent’s Main Submissions	Respondent’s Sub-Submissions
No legally enforceable liability	Cheque issued without liability; blank signed papers misused; Deed of Undertaking forged.	High Court decision well-reasoned	Based on all relevant factors; appellants admitted liability.
Trial Court’s view was possible	High Court exceeded its jurisdiction in reversing acquittal; relied on Murugesan v. State.	Undisputed signatures	Signatures on cheque and Deed of Undertaking prove liability.
High Court did not consider defense	Caused serious prejudice; relied on Reena Hazarika v. State of Assam.	Financial loss	Suffered financial loss and business impact; requested compensation.
Presumption rebutted	Met the standard of “preponderance of probability”; relied on Basalingappa v. Mudibasappa and Kumar Exports v. Sharma Carpets.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

Whether the High Court erred in reversing the findings of the trial court in exercise of its powers under Section 378 of CrPC?

Treatment of the Issue by the Court

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

Issue	How the Court Dealt with It
Whether the High Court erred in reversing the findings of the trial court in exercise of its powers under Section 378 of CrPC?	The Supreme Court held that the High Court did not err in reversing the trial court’s decision. The trial court had overlooked the statutory presumptions under Section 118 and Section 139 of the Negotiable Instruments Act, 1881. The Supreme Court found that the High Court was justified in interfering with the trial court’s order due to a patent error of law.

Authorities

The Court considered the following authorities:

On the powers of the High Court under Section 378 of CrPC:

State of UP v. Banne [(2009) 4 SCC 271] – Supreme Court of India
Ghurey Lal v. State of U.P. [(2008) 10 SCC 450] – Supreme Court of India
CK Dasegowda and Others v. State of Karnataka [(2014) 13 SCC 119] – Supreme Court of India

On the limitations of the Supreme Court under Article 136 of the Constitution:

Ram Jag v. State of UP [(1974) 4 SCC 201] – Supreme Court of India
Rohtas v. State of Haryana [(2019) 10 SCC 554] – Supreme Court of India
Raveen Kumar v. State of Himachal Pradesh [2020 SCC Online SC 869] – Supreme Court of India

On the statutory presumptions under Section 118 and Section 139 of the Negotiable Instruments Act, 1881:

Rohitbhai Jivanlal Patel v. State of Gujarat [(2019) 18 SCC 106] – Supreme Court of India
MS Narayana Menon v. State of Kerala [(2006) 6 SCC 39] – Supreme Court of India
Kumar Exports v. Sharma Carpets [(2009) 2 SCC 513] – Supreme Court of India
Basalingappa v. Mudibasappa [(2019) 5 SCC 418] – Supreme Court of India
Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197] – Supreme Court of India

On the object of Chapter XVII of the Negotiable Instruments Act, 1881:

R. Vijian v. Baby [(2012) 1 SCC 260] – Supreme Court of India

Legal Provisions:

Section 138 of the Negotiable Instruments Act, 1881: Deals with the offense of dishonor of cheques for insufficient funds.
Section 118 of the Negotiable Instruments Act, 1881: Establishes presumptions regarding negotiable instruments, including that every negotiable instrument was made or drawn for consideration.
Section 139 of the Negotiable Instruments Act, 1881: States that unless the contrary is proved, it shall be presumed that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability.
Section 378 of the Code of Criminal Procedure, 1973: Deals with appeals in cases of acquittal.
Article 136 of the Constitution of India: Grants special leave to appeal to the Supreme Court.

Judgment

Submission by the Parties	How the Court Treated the Submission
Appellants: No legally enforceable liability on the date of the cheque issuance.	The Court rejected this submission, holding that once the signature on the cheque is admitted, the presumption of legally enforceable debt arises under Section 139 of the Negotiable Instruments Act, 1881.
Appellants: Blank stamp papers signed by Appellant No. 2 were misused to forge the Deed of Undertaking.	The Court found this argument to be a mere bald denial and insufficient to rebut the presumption, especially since the signatures were admitted.
Appellants: Trial Court’s view was a possible one, and the High Court exceeded its jurisdiction.	The Court held that the trial court had overlooked statutory presumptions and committed a patent error of law, justifying the High Court’s intervention.
Appellants: High Court did not take notice of the defense raised by the appellants, causing prejudice.	The Court found that the appellants’ defense did not meet the standard of “preponderance of probability” required to rebut the presumptions.
Appellants: Presumption under Section 118 and Section 139 of the Negotiable Instruments Act, 1881, is rebuttable through a standard of “preponderance of probability.”	The Court agreed with this principle but found that the appellants failed to meet this standard with their defense.
Respondent: High Court’s decision was well-reasoned and founded upon due consideration of all relevant factors.	The Court upheld the High Court’s decision, finding it well-reasoned and justified.
Respondent: Undisputed signatures on the cheque and the Deed of Undertaking admitted the appellants’ existing liability of ₹11.20 lakhs.	The Court agreed that the admitted signatures created a presumption of liability.
Respondent: Financial loss suffered and adverse impact on his business; requested suitable compensation.	The Court acknowledged the compensatory object of the Act but denied the claim for compensation as the respondent did not raise it before the High Court. However, the Court directed the release of the cheque amount deposited by the appellants.

How each authority was viewed by the Court?

State of UP v. Banne [(2009) 4 SCC 271]* and Ghurey Lal v. State of U.P. [(2008) 10 SCC 450]*: These cases were cited to support the High Court’s power to reverse an acquittal if the trial court committed a patent error of law.
CK Dasegowda and Others v. State of Karnataka [(2014) 13 SCC 119]*: This case was cited to reiterate that the High Court should not reverse an acquittal if two conclusions are possible. However, the court distinguished the present case.
Ram Jag v. State of UP [(1974) 4 SCC 201]*, Rohtas v. State of Haryana [(2019) 10 SCC 554]* and Raveen Kumar v. State of Himachal Pradesh [2020 SCC Online SC 869]*: These cases were cited to highlight the limitations of the Supreme Court in re-appreciating evidence under Article 136 of the Constitution.
Rohitbhai Jivanlal Patel v. State of Gujarat [(2019) 18 SCC 106]*: This case was followed to emphasize that once the signature on the cheque is admitted, the onus shifts to the accused to rebut the presumption of liability.
MS Narayana Menon v. State of Kerala [(2006) 6 SCC 39]*, Basalingappa v. Mudibasappa [(2019) 5 SCC 418]* and Kumar Exports v. Sharma Carpets [(2009) 2 SCC 513]*: These cases were cited to explain that the presumption under Section 139 of the Negotiable Instruments Act, 1881, is rebuttable, but the accused must meet the standard of “preponderance of probability.”
Bir Singh v. Mukesh Kumar [(2019) 4 SCC 197]*: This case was cited to support the view that even a blank cheque leaf, voluntarily signed and handed over, attracts the presumption under Section 139 of the Negotiable Instruments Act, 1881.
R. Vijian v. Baby [(2012) 1 SCC 260]*: This case was cited to highlight the compensatory and restitutive object of Chapter XVII of the Negotiable Instruments Act, 1881.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory presumptions under the Negotiable Instruments Act, 1881. The Court emphasized that once the signature on the cheque is admitted, the burden shifts to the accused to prove that the cheque was not issued for a legally enforceable debt. The Court found that the appellants failed to meet this burden, as their defense was not credible and did not meet the standard of “preponderance of probability.”

The Court also considered the trial court’s error in overlooking the statutory presumptions and calling upon the complainant to explain the circumstances under which the appellants were liable to pay. This approach was deemed a patent error of law, justifying the High Court’s reversal of the acquittal.

Reason	Sentiment	Percentage
Statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881.	Strongly Favored	40%
Admission of signatures on the cheque and Deed of Undertaking.	Favored	30%
Failure of the appellants to provide a credible defense.	Negative	20%
Trial Court’s error in overlooking statutory presumptions.	Negative	10%

Fact:Law Ratio

Category	Percentage
Fact	30%
Law	70%

The Court’s reasoning was more heavily influenced by legal considerations (70%) than factual aspects (30%). The primary focus was on the application of statutory presumptions and the burden of proof, rather than on the specific factual circumstances of the case.

Logical Reasoning

Issue: Whether the High Court erred in reversing the trial court’s acquittal?

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Step 1: Trial court overlooked statutory presumptions under Section 118 and Section 139 of the Negotiable Instruments Act, 1881.

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Step 2: Appellants admitted signatures on the cheque and Deed of Undertaking, triggering presumption of liability.

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Step 3: Appellants failed to rebut the presumption with a credible defense meeting the standard of “preponderance of probability.”

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Step 4: High Court was justified in reversing the trial court’s order due to a patent error of law.

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Conclusion: Supreme Court upheld the High Court’s decision and dismissed the appeal.

Key Takeaways

Statutory Presumptions: Once a signature on a cheque is admitted, there is a legal presumption that the cheque was issued for a legally enforceable debt. The burden of proof shifts to the accused to rebut this presumption.
Standard of Proof: The accused must rebut the presumption by showing a “preponderance of probability” that the cheque was not issued for a debt. A mere denial is not sufficient.
High Court’s Power: The High Court can reverse a trial court’s acquittal if the trial court has committed a patent error of law, such as overlooking statutory presumptions.
Blank Cheques: Even a blank cheque leaf, voluntarily signed and handed over, attracts the presumption under Section 139 of the Negotiable Instruments Act, 1881.
Compensatory Object: The Negotiable Instruments Act, 1881, has a compensatory and restitutive object. However, claims for compensation must be raised in the appropriate forum.

Potential Future Impact: This judgment reinforces the importance of statutory presumptions in cheque dishonor cases and clarifies the burden of proof on the accused. It will likely lead to more convictions in cases where the accused fails to present a credible defense.

Directions

The Supreme Court directed that Appellant No. 2 shall not be required to undergo the awarded sentence of simple imprisonment. The registry of the Court was directed to transfer the amount of ₹11.20 lakhs, along with interest accrued, to the respondent within two weeks.

Development of Law

The ratio decidendi of this case is that once the signature on a cheque is admitted, a presumption arises under Section 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for a legally enforceable debt. The accused must rebut this presumption by showing a “preponderance of probability” that the cheque was not issued for a debt. This judgment reaffirms the settled legal position on statutory presumptions in cheque dishonor cases and clarifies the burden of proof on the accused. It also clarifies that even a blank cheque voluntarily signed attracts the presumption of liability.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s conviction of the appellants under Section 138 of the Negotiable Instruments Act, 1881. The Court held that the trial court had erred in overlooking the statutory presumptions and that the appellants failed to rebut the presumption of liability. The Court modified the High Court’s order by exempting Appellant No. 2 from undergoing the sentence of imprisonment, while directing the release of the deposited amount to the respondent.

FAQ

Q: What does it mean when a cheque is dishonored?

A: A cheque is dishonored when the bank refuses to make the payment, usually because there are insufficient funds in the account of the person who wrote the cheque.

Q: What is the significance of admitting a signature on a cheque in a court case?

A: If you admit that the signature on a cheque is yours, the court will presume that the cheque was issued for a legally enforceable debt or liability. This is a statutory presumption under the Negotiable Instruments Act, 1881.

Q: What is the meaning of ‘preponderance of probability’ in a cheque dishonor case?

A: ‘Preponderance of probability’ means that the accused needs to show that it is more likely than not that the cheque was not issued for a debt or liability. It’s a higher standard than just raising a doubt.

Q: Can a High Court reverse a trial court’s decision in a cheque dishonor case?

A: Yes, a High Court can reverse a trial court’s decision if the trial court made a mistake of law, such as overlooking statutory presumptions. The High Court can also reverse if there has been a grave miscarriage of justice.

Q: What should I do if I receive a dishonored cheque?

A: You should send a legal notice to the issuer of the cheque demanding payment within a specified period. If the payment is not made, you can file a complaint under Section 138 of the Negotiable Instruments Act, 1881.

Source: Kalamani Tex vs. P. Balasubramanian