Supreme Court Upholds Conviction in Cheque Dishonor Case: T.P. Murugan vs. Bojan (2018)

Date of the Judgment: July 31, 2018

Citation: 2018 INSC 708

Judges: Justice Rohinton Fali Nariman and Justice Indu Malhotra

Can a person evade liability for a dishonored cheque by claiming it was issued as security, not for a debt? The Supreme Court of India addressed this question in a case involving dishonored cheques and a promissory note. The core issue revolved around whether the respondent had successfully rebutted the presumption under Section 139 of the Negotiable Instruments Act, which states that a cheque is presumed to be issued for a legally enforceable debt. The bench comprised of Justice Rohinton Fali Nariman and Justice Indu Malhotra, with the judgment authored by Justice Indu Malhotra.

Case Background

The appellants, T.P. Murugan and K. Posa Nandhi, had invested capital in Maanihada Tea Produce Company Pvt. Ltd., run by the respondent, Bojan. On November 24, 1998, the appellants resigned as directors, and the respondent and his son took charge of the company. The appellants claimed that the respondent failed to return their investment. On August 7, 2002, the respondent issued a promissory note for Rs. 51,00,000 in favor of K.Posa Nandhi, acknowledging a loan. On the same day, the respondent also issued two cheques: one for Rs. 37,00,000 in favor of K. Posa Nandhi, and another for Rs. 14,00,000 in favor of T.P. Murugan, to discharge their liability for the investments made in the company.

The cheques were presented for encashment on February 3, 2003, but were dishonored due to “Stop Payment” instructions from the respondent. The appellants issued statutory notices under Section 138 of the Negotiable Instruments Act, demanding payment. The respondent refuted the claims in his reply dated February 17, 2003. Subsequently, the appellants filed two complaints under Section 138 of the Negotiable Instruments Act before the Court of Judicial Magistrate II, Coimbatore.

The respondent contended that the promissory note was a blank one signed by him under a hire-purchase agreement with N.R.R. Finances Investments Pvt. Ltd. for a lorry loan, and it was filled up later by an employee of N.R.R. Investments. Regarding the cheques, he claimed they were among ten blank cheques given as security in 1995 when he borrowed Rs. 5,00,000, which he repaid in 1996. He further claimed that he had asked for the return of the cheques on November 9, 2002.

Timeline

Course of Proceedings

The Trial Court found the respondent guilty under Section 138 of the Negotiable Instruments Act, sentencing him to six months of rigorous imprisonment and a fine of Rs. 5,000. The District and Sessions Judge, Fast Track Court No. III, Coimbatore, upheld the conviction, stating that the respondent failed to rebut the presumption under Sections 118 and 139 of the Negotiable Instruments Act. The Sessions Court also discarded the evidence of DW.2 Mahesh, as he was found to be an interested witness who falsely claimed to be an employee of N.R.R. Finances.

The respondent then filed Criminal Revision Petitions before the Madras High Court. The High Court reversed the concurrent findings of the lower courts. It accepted the respondent’s contention that the cheques and promissory note, issued on the same date, were for security and not for any debt. The High Court held that the respondent had raised a doubt about the nature of the transaction, thus discharging the presumption under Section 139 of the Negotiable Instruments Act. The High Court set aside the conviction and sentence.

Legal Framework

The case primarily revolves around Section 138 and Section 139 of the Negotiable Instruments Act, 1881. Section 138 deals with the dishonor of cheques for insufficiency of funds. It states that when a cheque is dishonored due to insufficient funds, the drawer of the cheque is deemed to have committed an offense. Section 139 of the Negotiable Instruments Act 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 section establishes a presumption that a cheque is issued for a legally enforceable debt or liability. The burden of proof is on the issuer of the cheque to rebut this presumption.

Arguments

Arguments by the Appellants:

• The appellants argued that the respondent admitted his signatures on the dishonored cheques and the promissory note.
• They contended that they had presented sufficient evidence to prove their case that the cheques were issued towards the discharge of a legally enforceable debt.
• The appellants relied on the decisions of the Supreme Court in Rangappa vs. Shrimohan [(2010) 11 SCC 441], K.N. Beena vs. Muniyappan and Anr. [(2001)8 SCC 458], and T. Vasanthakumar vs. Vijayakumari [(2015)8 SCC 378] to support their case.

Arguments by the Respondent:

• The respondent contended that the cheques were not issued towards the discharge of a legally enforceable debt, but as a security.
• He argued that the promissory note and the cheques were issued on the same date, indicating that they were for security and not for a debt or liability.
• The respondent contended that he had already repaid the loan for which the cheques were given as security.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the respondent had successfully rebutted the presumption under Section 139 of the Negotiable Instruments Act that the cheques were issued for a legally enforceable debt or liability.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 138, Negotiable Instruments Act, 1881: This section deals with the offense of dishonor of cheques for insufficiency of funds.
• Section 139, Negotiable Instruments Act, 1881: This section establishes the presumption that a cheque is issued for a legally enforceable debt or liability.

Judgment

How each authority was viewed by the Court:

• K.N. Beena Vs. Muniyappan and Another[(2001) 8 SCC 458]:* The Court followed this authority to reiterate the statutory presumption under Section 139 of the Negotiable Instruments Act.
• Rangappa vs. Shrimohan [(2010) 11 SCC 441]:* The Court relied on this authority to emphasize that once a cheque is signed and issued, there is a statutory presumption that it is issued in discharge of a legally enforceable debt or liability.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the respondent’s failure to provide credible evidence to rebut the statutory presumption under Section 139 of the Negotiable Instruments Act. The Court emphasized that the respondent’s defense lacked credibility and was inconsistent with the facts and evidence presented.

The Court’s reasoning was structured as follows:

The Court rejected alternative interpretations, emphasizing that the respondent’s defense lacked credibility. The Court highlighted that the respondent had issued a promissory note for the amount covered by the cheques, stating it was for a loan. The Court also noted that the respondent’s defense regarding the 10 blank cheques and the letter dated 09.11.2002 were disbelieved by the Trial Court and Sessions Court.

The Supreme Court stated that, “In the present case, the respondent has failed to produce any credible evidence to rebut the statutory presumption.” Further, the Court noted, “The defence of the respondent that he had allegedly issued 10 blank cheques in 1995 for repayment of a loan, has been disbelieved both by the Trial Court and Sessions Court… This defence was obviously a cover-up, and lacked credibility, and hence was rightly discarded.” Additionally, the Court observed, “The letter dated 09.11.2002 was an after-thought, and was written to evade liability. This defence also lacked credibility…”

The decision was unanimous, with both judges concurring on the judgment.

Key Takeaways

• A cheque issued is presumed to be for a legally enforceable debt or liability under Section 139 of the Negotiable Instruments Act, 1881.
• The burden of proof to rebut this presumption lies on the issuer of the cheque.
• The issuer must provide credible evidence to prove that the cheque was not issued for a debt or liability.
• Vague or inconsistent defenses will not suffice to rebut the presumption.
• The courts will consider the facts and circumstances of each case to determine if the presumption has been rebutted.

Directions

The Supreme Court set aside the order of the High Court and restored the order of conviction and fine passed by the Trial Court.

Development of Law

The ratio decidendi of this case is that the statutory presumption under Section 139 of the Negotiable Instruments Act, 1881, that a cheque is issued for a legally enforceable debt or liability, can only be rebutted by credible evidence. The judgment reinforces the legal position that the burden of proving that the cheque was not issued for a debt or liability lies on the issuer.

Conclusion

The Supreme Court’s judgment in T.P. Murugan vs. Bojan reaffirms the statutory presumption under Section 139 of the Negotiable Instruments Act, 1881. The Court held that the respondent failed to provide credible evidence to rebut the presumption that the cheques were issued for a legally enforceable debt. Consequently, the Supreme Court set aside the High Court’s order and restored the conviction and sentence passed by the Trial Court. This case underscores the importance of providing credible evidence to rebut statutory presumptions and emphasizes that vague or inconsistent defenses will not suffice.

Category

Parent Category: Negotiable Instruments Act, 1881

Child Category: Section 138, Negotiable Instruments Act, 1881

Child Category: Section 139, Negotiable Instruments Act, 1881

Parent Category: Criminal Law

Child Category: Cheque Dishonor

Parent Category: Indian Contract Act, 1872

Child Category: Debt

FAQ

Q: What does Section 139 of the Negotiable Instruments Act say?

A: Section 139 of the Negotiable Instruments Act states that it is presumed that a cheque was issued for a legally enforceable debt or liability unless proven otherwise.

Q: What is the main point of the T.P. Murugan vs. Bojan case?

A: The main point is that if someone issues a cheque, it is presumed to be for a debt or liability. The person who issued the cheque has to prove it was not for a debt, which is a difficult task.

Q: What happens if a cheque is dishonored?

A: If a cheque is dishonored due to insufficient funds or stop payment instructions, the issuer can be held liable under Section 138 of the Negotiable Instruments Act.

Q: Can a person avoid liability by claiming a cheque was given as security?

A: Not easily. The person must provide credible evidence to prove that the cheque was issued as security and not for a debt. Vague claims are not enough.

Q: What type of evidence is needed to rebut the presumption under Section 139?

A: The evidence needs to be credible and consistent with the facts. The issuer of the cheque must prove that the cheque was not issued for a debt or liability.