Supreme Court Upholds Conviction in Cheque Dishonor Case: Triyambak S. Hegde vs. Sripad (23 September 2021)

Introduction

Date of the Judgment: 23 September 2021

Citation: 2021 INSC 651

Judges: N.V. Ramana, CJI, Surya Kant, J., A.S. Bopanna, J.

Can a person be convicted for a cheque bounce if they claim they didn’t actually owe the money? The Supreme Court of India recently addressed this question in a case involving a dishonored cheque issued as part of a failed property deal. The core issue was whether the accused successfully rebutted the legal presumption that the cheque was issued for a debt or liability. The judgment was delivered by a three-judge bench comprising Chief Justice N.V. Ramana, Justice Surya Kant, and Justice A.S. Bopanna, with the majority opinion authored by Justice A.S. Bopanna.

Case Background

The appellant and respondent knew each other for several years. In 1996, the respondent, facing financial difficulties, offered to sell his house in Sirsi town to the appellant for Rs. 4,00,000. An agreement was made on 06 June 1996, and the appellant paid an advance of Rs. 3,50,000. Later, the appellant discovered the house was not in the respondent’s name and that the respondent lacked the authority to sell it. The appellant asked for his money back. Instead of returning the full amount, the respondent issued a cheque dated 17 May 1998 for Rs. 1,50,000. This cheque was dishonored due to insufficient funds.

Timeline:

Course of Proceedings

The Judicial Magistrate, First Class (JMFC) at Sirsi convicted the respondent under Section 138 of the Negotiable Instruments Act, 1881, sentencing him to six months of simple imprisonment and a fine of Rs. 2,00,000. The Sessions Judge upheld this conviction. The respondent then filed a revision petition before the High Court of Karnataka. The High Court allowed the revision petition, setting aside the conviction. The appellant then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of Section 139 and Section 118(a) of the Negotiable Instruments Act, 1881.

Section 139 of the Negotiable Instruments Act, 1881 states:

“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.”

This section establishes a presumption that if a cheque is presented and dishonored, it is presumed to have been issued for a debt or liability.

Section 118(a) of the Negotiable Instruments Act, 1881 states:

“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.”

This section establishes a presumption that every negotiable instrument, including a cheque, was made for consideration.

Arguments

Appellant’s Arguments:

• The appellant contended that the respondent issued the cheque for Rs. 1,50,000 as a partial repayment of the advance amount of Rs. 3,50,000 paid for a property deal that fell through.
• The appellant argued that since the respondent admitted his signature on the cheque, the presumption under Section 139 of the Negotiable Instruments Act, 1881, applies, and the burden was on the respondent to prove otherwise.
• The appellant stated that the agreement (Exhibit P-6) was only to indicate that there was a transaction between the parties towards which the payment was made.
• The appellant contended that the High Court exceeded its jurisdiction in a revision petition by re-evaluating evidence and going into the validity of the agreement.

Respondent’s Arguments:

• The respondent claimed that he did not receive the money and that his signature on the cheque and agreement was obtained under “peculiar circumstances.”
• The respondent argued that the appellant failed to prove that he possessed the funds and actually paid the amount, thereby not establishing a legally recoverable debt.
• The respondent contended that the High Court correctly examined the circumstances under which the cheque was signed and set aside the conviction.
• The respondent argued that the appellant’s cross-examination revealed lack of knowledge of property details, making the transaction doubtful.

The innovativeness of the argument by the respondent was that he claimed that the relative of the appellant was the junior of his advocate, and in a dominant position, had obtained his signature.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

✓ Whether the presumption under Section 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for the discharge of a debt or liability, was successfully rebutted by the respondent.

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:

Cases:

• K. Bhaskaran vs. Sankaran Vaidhyan Balan & Anr. (1999) 7 SCC 510, Supreme Court of India: This case was cited to support the legal inference that if the signature on a cheque is admitted, it is presumed to be drawn for consideration on the date it bears. It also established that the burden to rebut this presumption lies with the accused.
• Basalingappa vs. Mudibasappa (2019) 5 SCC 418, Supreme Court of India: This case was referred to by the respondent to argue that the presumption under Section 139 of the Negotiable Instruments Act, 1881, is rebuttable, and the accused can raise a probable defense. However, the Court distinguished the facts of this case from the present one.
• K. Chinnaswamy Reddy vs. State of Andhra Pradesh and Anr. AIR 1962 SC 1788, Supreme Court of India: This case was cited by the respondent but was not found applicable by the Court due to the limited power of the High Court in revision petitions.
• Kaushalya Devi Massand vs. Roopkishore Khore (2011) 4 SCC 593, Supreme Court of India: This case was cited to emphasize that the gravity of a complaint under the Negotiable Instruments Act, 1881, cannot be equated with offences under the Indian Penal Code, 1860.

Legal Provisions:

• Section 139, Negotiable Instruments Act, 1881: This section establishes the presumption that the holder of a cheque received it for the discharge of a debt or liability.
• Section 118(a), Negotiable Instruments Act, 1881: This section establishes the presumption that every negotiable instrument was made for consideration.
• Section 200, Criminal Procedure Code, 1973: This section was referred to as the provision under which the initial complaint was filed.
• Section 313, Criminal Procedure Code, 1973: This section was referred to regarding the recording of the statement of the accused, where the respondent failed to provide any explanation.
• Section 138, Negotiable Instruments Act, 1881: This section was referred to as the provision under which the respondent was convicted.

Judgment

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

How each authority was viewed by the Court?

✓ K. Bhaskaran vs. Sankaran Vaidhyan Balan & Anr. [CITATION]: The Supreme Court followed this case, reiterating that when a signature on a cheque is admitted, the presumption under Section 118 of the Negotiable Instruments Act, 1881, is that it was drawn for consideration.

✓ Basalingappa vs. Mudibasappa [CITATION]: While acknowledging the principle that the presumption under Section 139 of the Negotiable Instruments Act, 1881, is rebuttable, the Court distinguished the facts of this case from the present one, finding that the respondent did not provide sufficient evidence to rebut the presumption.

✓ K. Chinnaswamy Reddy vs. State of Andhra Pradesh and Anr. [CITATION]: The Supreme Court held that this case was not applicable as the High Court exceeded its jurisdiction in a revision petition.

✓ Kaushalya Devi Massand vs. Roopkishore Khore [CITATION]: This case was considered to contextualize the nature of the offence under the Negotiable Instruments Act, 1881, and to justify the modification of the sentence.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legal presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881, and the respondent’s failure to provide credible evidence to rebut these presumptions. The Court emphasized the following points:

• The respondent admitted his signature on the cheque, which triggered the presumption of a debt or liability.
• The respondent’s claim that his signature was obtained under duress was not supported by any evidence and was an afterthought.
• The respondent did not reply to the notice of dishonor, which was a crucial point against him.
• The respondent did not offer any explanation in his statement under Section 313 of the Criminal Procedure Code, 1973.
• The High Court exceeded its jurisdiction in a revision petition by re-evaluating evidence and going into the validity of the agreement.

Fact:Law Ratio

The court’s reasoning was primarily based on the legal provisions and the precedents set by previous judgments, with a lesser emphasis on the specific factual aspects of the case.

The Court considered the respondent’s claim that a relative of the appellant, who was a junior advocate in his lawyer’s office, had used his dominant position to force him to sign the cheque. However, the Court found this claim to be an afterthought, noting that the respondent had not raised this issue earlier, not even in the proceedings before the JMFC or the Sessions Court.

The Court rejected the High Court’s view that the appellant had not proved the payment of Rs. 3,50,000, stating that this was beyond the scope of a proceeding under Section 138 of the Negotiable Instruments Act, 1881. The Court emphasized that the validity of the agreement was not the issue, but rather whether the cheque was issued for a debt or liability.

The Court observed that the respondent had not provided any explanation as to why he would have signed the cheque if there was no transaction. Furthermore, the Court noted that the respondent engaged the same advocate, Mr. Rama Joshi, against whose junior he claimed to have a grievance.

The Court also noted that if the cheque was secured under duress, it is difficult to understand why it was only for Rs. 1,50,000 when the appellant claimed to have paid an advance of Rs. 3,50,000.

The Court concluded that the respondent’s case did not meet the requirement of rebuttal, even when tested on the touchstone of preponderance of probability.

The Supreme Court stated, “In that light, it is contended that the very materials produced by the appellant and the answers relating to lack of knowledge of property details by PW-1 in his cross-examination would indicate that the transaction is doubtful and no evidence is tendered to indicate that the amount was paid.”

The Supreme Court stated, “The learned Single Judge however while accepting the said story has referred to certain discrepancies in the agreement (Exhibit P-6) relating to the details of the property and the appellant having admitted with regard to not having visited the property or having knowledge of the location of the property. Such consideration, in our opinion, was not germane and was beyond the scope of the nature of litigation.”

The Supreme Court stated, “Further, though the respondent had put forth the contention that a relative of the appellant was the junior of his advocate and he has used his dominant position to secure the signature on the cheque, there is absolutely no explanation whatsoever to indicate the reason for which such necessity arose for him to secure the signatures of the respondent, if there was no transaction whatsoever between the parties.”

Key Takeaways

✓ When a cheque is dishonored, there is a legal presumption that it was issued for a debt or liability, and the burden is on the issuer to prove otherwise.

✓ A mere denial of liability is not sufficient to rebut the presumption; the accused must provide credible evidence to support their claim.

✓ Claims of coercion or undue influence must be supported by evidence and cannot be raised for the first time in revision proceedings.

✓ The High Court should not re-evaluate evidence in revision petitions.

✓ The gravity of a complaint under the Negotiable Instruments Act, 1881, is different from other criminal offences, and the sentence can be modified to reflect this.

Directions

The Supreme Court gave the following directions:

• The order of the High Court was set aside.
• The conviction ordered by the JMFC was restored.
• The sentence was modified to a fine of Rs. 2,50,000, with a default imprisonment of six months if the fine is not paid.
• A compensation of Rs. 2,40,000 was to be paid to the appellant from the fine amount.

Development of Law

The ratio decidendi of this case is that once the signature on a cheque is admitted, the presumption under Section 139 of the Negotiable Instruments Act, 1881, applies, and the burden is on the accused to rebut this presumption with credible evidence. The Supreme Court reiterated the principles established in K. Bhaskaran vs. Sankaran Vaidhyan Balan & Anr. and clarified that the presumption can only be rebutted by providing evidence that demonstrates a preponderance of probability against the existence of a debt or liability. This judgment reinforces the legal position that the High Court should not re-evaluate evidence in revision petitions.

Conclusion

The Supreme Court allowed the appeal in part, setting aside the High Court’s order and restoring the conviction by the JMFC. The Court modified the sentence, imposing a fine of Rs. 2,50,000 instead of imprisonment, with a default imprisonment of six months if the fine is not paid. The Court emphasized that the respondent failed to rebut the presumption under Section 139 of the Negotiable Instruments Act, 1881, and that the High Court exceeded its jurisdiction in a revision petition. This case reinforces the legal principles regarding presumptions in cheque dishonor cases and the burden of proof.