Supreme Court Upholds Presumption of Debt in Cheque Dishonor Case: Uttam Ram vs. Devinder Singh Hudan (2019)

Date of the Judgment: 17 October 2019

Citation: CRIMINAL APPEAL NO. 1545 OF 2019 (ARISING OUT OF SLP (CRL) NO. 3452 OF 2019)

Judges: L. Nageswara Rao, J. and Hemant Gupta, J.

Can a court dismiss a cheque dishonor case simply because there are minor discrepancies in the claimed amount, even when the cheque itself is proven to be issued? The Supreme Court of India recently addressed this question, clarifying the legal presumptions associated with cheque dishonor cases. This judgment emphasizes that once a cheque is proven to be issued, a legal presumption arises that it was issued for a debt or liability, and the burden shifts to the accused to prove otherwise. The bench comprised of Justices L. Nageswara Rao and Hemant Gupta, with the majority opinion authored by Justice Hemant Gupta.

Case Background

The appellant, Uttam Ram, owned an apple orchard in Himachal Pradesh and also supplied packing materials to other apple growers. He also operated a commercial ropeway for transporting produce. In 2011, the respondent, Devinder Singh Hudan, purchased apple crops and used the appellant’s ropeway and packing materials. The respondent’s authorized agent, Prem Chand, settled the accounts with the appellant in September 2011, determining a sum of Rs. 5,38,856/- was due. The respondent issued a cheque for this amount, dated 2.10.2011. However, the cheque was dishonored on 11.10.2011, due to insufficient funds. A legal notice was sent to the respondent on 27.10.2011, but no payment was made, leading to the filing of a complaint under Section 138 of the Negotiable Instruments Act, 1881.

Timeline:

Course of Proceedings

The Trial Court dismissed the complaint, stating that the cheque amount was more than the amount allegedly due on the date the cheque was presented. The court also noted discrepancies in the number of cartons mentioned in the complaint and the appellant’s statement. The High Court of Himachal Pradesh upheld the Trial Court’s decision, citing contradictions in the evidence regarding the number of apple cartons and the rate per carton. The High Court concluded that the appellant failed to prove the respondent’s guilt beyond a reasonable doubt.

Legal Framework

The case primarily revolves around the interpretation of Sections 118(a) and 139 of the Negotiable Instruments Act, 1881. Section 118(a) states that every negotiable instrument is presumed to be made for consideration. Section 139 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. These sections create a legal presumption in favor of the complainant in a cheque dishonor case, shifting the burden of proof to the accused to demonstrate that the cheque was not 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 ;….”

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.”

Section 138 of the Negotiable Instruments Act, 1881 states:
“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….”

Arguments

Appellant’s Arguments:

• The appellant argued that the respondent owed him Rs. 5,38,856/- for packing materials and ropeway services.
• The appellant presented a cheque issued by the respondent for the said amount, which was dishonored.
• The appellant stated that the accounts were settled with the respondent’s agent, and the cheque was issued in his presence.
• The appellant relied on the statutory presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for a legally enforceable debt.

Respondent’s Arguments:

• The respondent claimed that the cheque was misused and that he did not issue it for any debt.
• The respondent presented a police entry dated 09.09.2011, stating that his cheque book was lost.
• The respondent highlighted discrepancies in the appellant’s statements regarding the number of cartons and the total amount due.
• The respondent argued that the cheque amount was more than the actual amount owed to the appellant.

The appellant argued that the cheque was issued by the respondent in discharge of a legally enforceable debt, and the statutory presumption under the Negotiable Instruments Act, 1881, placed the burden on the respondent to prove otherwise. The respondent argued that the cheque was misused and that discrepancies in the appellant’s claims should invalidate the presumption of debt.

The innovativeness of the argument by the appellant lies in its reliance on the statutory presumption, which is a well-established principle of law. However, the respondent’s argument of cheque misuse and discrepancies in the appellant’s claim, though not novel, sought to create doubt about the existence of a legally enforceable debt, thereby attempting to rebut the statutory presumption.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the Trial Court and the High Court were correct in dismissing the complaint under Section 138 of the Negotiable Instruments Act, 1881, based on discrepancies in the amount claimed by the appellant.
2. Whether the respondent had successfully rebutted the statutory presumption that the cheque was issued for a legally enforceable debt or liability.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on several key cases and legal provisions to reach its decision:

Cases:

Legal Provisions:

Judgment

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

How each authority was viewed by the Court?

• Hiten P. Dalal v. Bratindranath Banerjee [2001] 6 SCC 16: The Court followed this case to reiterate that the presumption under Section 139 is a presumption of law and that the obligation on the prosecution may be discharged with the help of presumptions of law and presumptions of fact.
• Kumar Exports v. Sharma Carpets [2009] 2 SCC 513: The Court followed this case to clarify that the accused can rebut the presumption by showing that the consideration or debt did not exist, or that the non-existence of consideration is probable. It also clarified that a mere denial of debt is insufficient.
• Rangappa v. Sri Mohan [2010] 11 SCC 441: The Court followed this case to state that the presumption under Section 139 includes the existence of a legally enforceable debt and that it is a rebuttable presumption.
• Kishan Rao v. Shankargouda [2018] 8 SCC 165: The Court followed this case to reiterate that the accused can rebut the presumption by raising a probable defense that creates doubt about the existence of a debt or liability.
• Bir Singh v. Mukesh Kumar [2019] 4 SCC 197: The Court followed this case to state that the presumption under Section 139 is a presumption of law and that a person signing a cheque remains liable unless they rebut the presumption of debt.
• Rohitbhai Jivanlal Patel v. State of Gujarat and Another AIR 2019 SC 1876: The Court followed this case to reiterate that once the basic ingredients of Section 138 are met, the presumption of debt arises and the burden shifts to the accused to rebut it.
• M. S. Narayana Menon v. State of Kerala [2006] 6 SCC 39: The Court distinguished this case, stating that while the complainant’s evidence can be used to rebut the presumption, it was not applicable in this case as the trial court had found that the presumption was not rebutted.
• K. Prakashan v. P . K. Surenderan [2008] 1 SCC 258: The Court distinguished this case, stating that the findings recorded by the courts below were a total misreading of the statutory provisions.
• John K. Abraham v. Simon C. Abraham [2014] 2 SCC 236: The Court distinguished this case, stating that the findings recorded by the courts below were a total misreading of the statutory provisions.
• Vijay v. Laxman and another [2013] 3 SCC 86: The Court distinguished this case, stating that in the present case, the findings recorded by the courts below were a total misreading of the statutory provisions.

The Supreme Court held that the Trial Court and the High Court had erred in dismissing the complaint. The Court emphasized that once the issuance of the cheque is proven, a statutory presumption arises that it was issued for a debt or liability. The burden then shifts to the accused to rebut this presumption, which the respondent failed to do. The Court found that the respondent’s defense of cheque misuse was not supported by any evidence. The Court also held that minor discrepancies in the amount claimed were not sufficient to rebut the presumption of debt.

The Court stated that the lower courts treated the case as a civil suit, requiring the appellant to prove the debt beyond a reasonable doubt, which was incorrect. The presumption of consideration under Section 118(a) and the presumption of debt under Section 139 of the Negotiable Instruments Act, 1881, were not properly considered by the lower courts.

“A negotiable instrument including a cheque carries presumption of consideration in terms of Section 118(a) and under Section 139 of the Act.”

“The Trial Court and the High Court proceeded as if, the appellant is to prove a debt before civil court wherein, the plaintiff is required to prove his claim on the basis of evidence to be laid in support of his claim for the recovery of the amount due. A dishonour of cheque carries a statutory presumption of consideration.”

“Once the agent of the respondent has admitted the settlement of due amount and in absence of any other evidence the Trial Court or the High Court could not dismiss the complaint only on account of discrepancies in the determination of the amount due or oral evidence in the amount due when the written document crystalizes the amount due for which the cheque was issued.”

There were no dissenting opinions in this case. The bench comprised of Justices L. Nageswara Rao and Hemant Gupta, with the opinion authored by Justice Hemant Gupta.

The Supreme Court’s decision reinforces the legal presumption of debt in cheque dishonor cases and clarifies that minor discrepancies in the amount claimed are not sufficient to dismiss a complaint. The Court’s reasoning was based on the statutory provisions of the Negotiable Instruments Act, 1881, and the precedents set by previous Supreme Court judgments. This judgment has significant implications for future cases involving cheque dishonor, as it emphasizes the importance of the statutory presumption and the burden on the accused to rebut it.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the statutory presumptions under the Negotiable Instruments Act, 1881. The Court emphasized the importance of Sections 118(a) and 139, which create a presumption of consideration and debt in favor of the complainant. The Court also considered the factual evidence presented, including the issuance of the cheque by the respondent, the settlement of accounts with the respondent’s agent, and the lack of any credible evidence to support the respondent’s claim of cheque misuse. The Court was critical of the lower courts for treating the case as a civil suit and failing to apply the statutory presumptions correctly.

The Court’s reasoning was primarily driven by legal principles and the interpretation of the Negotiable Instruments Act, 1881. The factual aspects of the case were considered to determine whether the respondent had successfully rebutted the statutory presumption, which he failed to do. The Court’s emphasis on the statutory presumptions and the burden of proof on the accused indicates a strong inclination towards upholding the integrity of negotiable instruments.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

Logical Reasoning:

Key Takeaways

The Supreme Court’s judgment in Uttam Ram vs. Devinder Singh Hudan (2019) provides several key takeaways:

• Statutory Presumption of Debt: In cheque dishonor cases, there is a statutory presumption under Sections 118 and 139 of the Negotiable Instruments Act, 1881, that the cheque was issued for a legally enforceable debt or liability. This presumption shifts the burden of proof to the accused to prove otherwise.
• Burden of Proof: Once the issuance of the cheque is proven, the burden shifts to the accused to rebut the presumption of debt. A mere denial of debt is not sufficient; the accused must provide credible evidence to show that the cheque was not issued for a debt or liability.
• Discrepancies in Amount: Minor discrepancies in the amount claimed by the complainant are not sufficient to dismiss a complaint under Section 138 of the Negotiable Instruments Act, 1881. The focus should be on whether the cheque was issued for a debt or liability, not on the exact amount.
• Importance of Statutory Presumptions: Courts must adhere to the statutory presumptions under the Negotiable Instruments Act, 1881, and not treat cheque dishonor cases as civil suits where the complainant must prove the debt beyond a reasonable doubt.
• Evidence Required to Rebut Presumption: The accused must present credible evidence to rebut the presumption of debt. Self-serving statements or mere denials are not sufficient. The accused must show that the consideration or debt did not exist, or that the non-existence of consideration is probable.

Implications

The judgment in Uttam Ram vs. Devinder Singh Hudan (2019) has significant implications for future cases involving cheque dishonor:

• Strengthening the Presumption of Debt: The judgment reinforces the statutory presumption of debt in cheque dishonor cases, making it more difficult for accused persons to evade liability.
• Emphasis on Burden of Proof: The judgment clarifies that the burden of proof is on the accused to rebut the presumption of debt, and mere denials or discrepancies in the amount claimed are not sufficient.
• Guidance for Lower Courts: The judgment provides clear guidance to lower courts on how to interpret and apply the statutory presumptions under the Negotiable Instruments Act, 1881.
• Protection of Creditors: The judgment protects the interests of creditors by ensuring that they are not unduly burdened with proving the existence of a debt when a cheque has been issued and dishonored.
• Deterrent to Dishonest Practices: The judgment acts as a deterrent to dishonest practices involving the issuance of cheques without sufficient funds or with the intention of evading payment.
• Streamlining Legal Process: By emphasizing the statutory presumptions, the judgment may help streamline the legal process in cheque dishonor cases, reducing delays and ensuring quicker resolution.

The judgment is a landmark decision that clarifies the legal position on cheque dishonor cases and provides a strong legal framework for future cases. It underscores the importance of the statutory presumptions under the Negotiable Instruments Act, 1881, and the burden of proof on the accused to rebut these presumptions. This judgment will likely have a positive impact on the legal landscape by promoting the integrity of negotiable instruments and ensuring that creditors are not unduly burdened in proving the existence of a debt.