RAJARAM S/O SRIRAMULU NAIDU (SINCE DECEASED) THROUGH L.RS. VERSUS MARUTHACHALAM (SINCE DECEASED) THROUGH L.RS.

RAJARAM S/O SRIRAMULU NAIDU (SINCE DECEASED) THROUGH L.RS. VERSUS MARUTHACHALAM (SINCE DECEASED) THROUGH L.RS.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

Latest Dishonour of Cheque Case Decision by Supreme Court / Section 138 NI Act Latest Judgment by Supreme Court in 2023

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL/CIVIL APPELLATE JURISDICTION 

CRIMINAL APPEAL NO.1978 OF 2013

RAJARAM S/O SRIRAMULU NAIDU

(SINCE DECEASED) THROUGH L.RS.     ...APPELLANT (S)

VERSUS

MARUTHACHALAM (SINCE DECEASED)

THROUGH L.RS.  ...RESPONDENT (S)

WITH 

CRIMINAL APPEAL NO. 1990 OF 2013

CIVIL APPEAL NO. 10500 OF 2013

CIVIL APPEAL NO. 10501 OF 2013

J U D G M E N T

B.R. GAVAI, J.

1. The   Criminal   Appeals   challenge   the   common   judgment

and order of conviction and sentence dated 28th October 2008

and   30th  October   2008   passed   by   the   Madras   High   Court

whereby the Appellant has been convicted under Section 138 of

the Negotiable Instruments Act, 1881 (hereinafter referred to as

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“the N.I. Act”) and has been sentenced to a fine of Rs. 7 Lakhs

in each case in respect of two cheques for an amount of Rs. 3.5

Lakhs. 

2. The   Civil   Appeals   challenge   the   judgments   dated   08th

August 2011 and 03rd  February 2012 passed by the Madras

High Court whereby the Original Suits filed by the plaintiffrespondents for recovery of money on the basis of promissory

notes were decreed.

3. For the sake of convenience, the parties will be referred to

as their status before this Court.

4. Since both the Criminal Appeals arise out of a common

judgment,   we   consider   it   apposite   to   refer   to   the   facts   in

Criminal Appeal No.1978 of 2013.  Insofar as the Civil Appeals

are concerned, while they arise out of different judgments, for

the sake of convenience, we shall refer to the facts arising from

Civil Appeal No.10501 of 2013. 

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5. The   present   appeals   arise   from   the   following   factual

matrix:

5.1 In 1992, the Appellant­Rajaram’s wife subscribed to a 5­

year chit­fund with one Maruthachalam, the Respondent

in   Criminal   Appeal   No.   1978/2013   and   Civil   Appeal

No.10500/2013. Upon the Respondent­Maruthachalam’s

persuasion   that,   in   order   to   be   a   successful   bidder,   a

security by way of a blank cheque must be submitted, the

Appellant   submitted   two   signed   blank   cheques   bearing

nos. 237954 and 237956 on behalf of his wife, since she

did not have a bank account. It is to be noted that the

cheques   were   drawn   on   the   account   of   M/s   Brinda

Engineering,   the   sole   proprietorship   concern   of   the

Appellant, maintained with the Laxmi Vilas Bank Ltd.

5.2 It is further the case of the Appellant that in 1995, his wife

subscribed   to   yet   another   5­year   chit­fund   with   the

Respondent­Maruthachalam.

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5.3 In 1997, the bank account on which the said cheques were

drawn was closed due to non­operation.

5.4 The first chit matured in 1997 and, since the wife of the

Appellant   was   never   a   successful   bidder,   thus,   the

Appellant   and   his   wife   repeatedly   requested   the

Respondent to release the amount of the chits, but the

Respondent never did so. On the contrary, the Respondent

promised   to   keep   the   amount   as   a   deposit   and   pay

interest.     Similarly,   the   second   chit   matured   in   1999,

whereafter   also   the   wife   of   the   Appellant   was   never   a

successful   bidder.   Thereafter,   repeated   requests   for

releasing the subscription amount to the tune of Rs. 6

lakhs for both the chits were made on their behalf, but to

no avail. Finally, the Appellant and his wife threatened the

Respondent with legal action, whereupon the Respondent

immediately   presented   the   cheques   for   encashment

without any information or intimation to the Appellant.

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5.5 The Cheque No. 237954 was dated 20th  October 1999 in

favour of Respondent­Nachimuthu (who happens to be the

brother­in­law of Maruthachalam) for an amount of Rs.

3,50,000/,   and   was   presented   for   encashment   on   04th

November 1999 by the Respondent through his banker

Indian Overseas Bank. The said cheque returned unpaid

on   14th  November   1999   with   an   endorsement   stating

“account closed”. 

5.6 The   other   Cheque   No.   237956   was   dated   25th  October

1999 in favour of the Respondent­Maruthachalam for an

amount   of   Rs.   3,50,000/­,   and   was   presented   for

encashment on 04th  November 1999 by the Respondent

through   his   banker   Indian   Overseas   Bank.   The   said

cheque too returned unpaid on 14th November 1999 with

an endorsement stating “account closed”.

5.7 Statutory Notices dated 15th November 1999 were sent in

respect of the aforesaid dishonoured cheques, which were

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duly   replied   by   the   accused/Appellant   denying   the

existence   of   any   legally   enforceable   debt   and   stating

therein   that   the   Respondent   is   liable   to   pay   the   chit

amount along with subsequent interest. Since the amount

was not paid, the Respondents instituted Complaint Cases

under Section 138 of the N.I. Act, being CC No. 26 of 2000

in respect of Cheque No. 237954 and CC No. 32 of 2000 in

respect   of   Cheque   No.   237956.   Both   the   cases   were

dismissed by the learned Trial Court on 10th  July 2001

vide separate judgments. 

5.8 Pursuant to the dismissal of the aforesaid cases, both the

Respondents instituted civil/original suits for recovery of

money on the basis of Promissory Notes. 

5.9 Original Suit No. 112/2003 (earlier OS No. 602/2002) was

instituted by the Respondent­Nachimuthu, alleging that

the Appellant had borrowed a sum of Rs. 3 Lakhs on 20th

October 1998 from him and had executed a promissory

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note on the same day thereby promising to repay the same

with interest at 24% per annum. It was further alleged

that the Appellant had issued a cheque on 20th  October

1999   for   Rs.   3,50,000/­   towards   the   discharge   of   his

liability   and   when   the   same   was   presented   for

encashment,   it   was   dishonoured   as   the   Appellant   had

closed   the   account.   Criminal   Case   No.   32/2000   was

pursued   under   Section   138   of   the   N.I.   Act   which   was

dismissed against which an appeal was pending before the

High Court. 

5.10 Another Original Suit No. 266 of 2004 (earlier OS 746 of

2002) was instituted by the Respondent­Maruthachalam,

alleging that the Appellant had borrowed a sum of Rs. 3

Lakhs on 25th October 1998 from him and had executed a

promissory note on 25th October 1998, thereby promising

to repay the same with interest at 24% per annum. It was

further alleged that the Appellant issued a cheque on 20th

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October 1999 for Rs. 3,50,000/­ towards the discharge of

his   liability   and   when   the   same   was   presented   for

encashment,   it   was   dishonoured   as   the   Appellant   had

closed   the   account.   Criminal   Case   No.   26/2000   was

pursued   under   Section   138   of   the   N.I.   Act   which   was

dismissed against which an appeal was pending before the

High Court.

5.11 Original Suit No. 112 of 2003 and Original Suit No. 266 of

2004   came   to   be   dismissed   vide   judgment   dated   06th

January 2004 and 29th July 2005 respectively. As against

both   the   judgments,   appeals   were   preferred   before   the

High Court. 

5.12 The Appeals against the judgments in criminal matters

were allowed by the High Court vide common judgment

and order of conviction and sentence dated 28.10.2008

and 30th October 2008. 

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5.13 In Appeal, Original Suit No. 266 of 2004 and Original Suit

No. 112 of 2003 were decreed by the High Court vide

judgments dated 08th August 2011 and 03rd February 2012

respectively.

5.14 The Appeals against all the 3 judgments of the High Court

are before us and are being disposed of vide this common

judgment.

6. We   have   heard   Ms.   Neha   Sharma,   learned   counsel

appearing for the Appellants in all the appeals, and Mr. V.

Prabhakar, learned counsel appearing for both the Respondents

in all the appeals. 

7. Ms.   Neha   Sharma   submits   that   the   High   Court   has

erroneously   reversed   the   well­reasoned   judgements   of   the

learned Trial Court. She submitted that blank cheques issued

in the year 1992 by way of security for chit­funds were misused

by the Respondents in the year 1999. She further submitted

that   in   the   year   1999,   when   the   cheques   were   sent   for

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encashment, the Appellant was no longer the proprietor of M/s

Brinda Engineering and the bank account on which the said

cheques were drawn was not operated after 1992, and had

already   closed   in   1997   due   to   non­operation.   She   further

submitted that even before the account was closed down, the

wife   of   the   Appellant   became   the   sole   proprietor   of   the

enterprise, and thus, the appellant could not have signed the

said cheques in the capacity of the proprietor of M/s Brinda

Engineering.

8. The   learned   counsel   submitted   that   the   Respondents

herein did not have the financial capacity to lend an amount of

Rs.3,00,000/­ each as on 20th October 1998 and 25th October

1998,   when   the   promissory   notes   were   said   to   have   been

executed.   It   is   further   submitted   that   although   it   was   the

Respondents’ case that they had given the amounts out of their

agricultural income, since they had not declared the same in

their Income Tax Returns from 1992­1999, thus, there was no

10

material to show that they could have lent money. To buttress

her submissions, the learned counsel relies on the judgment of

this Court in the case of, Basalingappa v. Mudibasappa1

, 

9. Per   contra,   Mr.   V.   Prabhakar,   learned   counsel   for   the

Respondents, submits that the Appellant­Raja Ram had failed

to produce any material evidence to substantiate the claim that

his   wife   subscribed   to   the   chit­funds   run   by   Respondent,

Maruthachalam.   He   submitted   that   the   High   Court   rightly

observed that no material was produced by the Appellant­Raja

Ram   to   prove   that   the   cheques   and   promissory   notes   were

issued only as a security for such a chit. He further submitted

that no legal proceedings were initiated for the recovery of the

alleged amount due by the Appellant either.

10. The   learned   counsel   submitted   that   there   arose   no

occasion for the Appellant­Raja Ram to issue a blank cheque in

the year 1992 for a chit to be subscribed much later in the year

1995. It is further submitted that even if certain amounts are

1 (2019) 5 SCC 418

11

not accounted for in the Income Tax Returns, this is a matter

concerning only the defaulter and Revenue Authority. Thus, a

borrower cannot be allowed to take advantage of the same solely

on the ground that such an amount does not reflect in the

Income   Tax   Returns.   The   learned   counsel   relied   on   the

judgments of this Court in the cases of Bir Singh v. Mukesh

Kumar2

,  Rohitbhai Jivanlal Patel v. State of Gujarat and

Anr3

,  Kalamani   Tex   and   Anr   v.   P.   Balasubramanian4

  to

buttress his submissions. 

11. We shall first consider the Criminal Appeals.  

12. This Court in the case of Baslingappa v. Mudibasappa

(supra) has summarized the principles on Sections 118(a) and

139 of the N.I. Act.  It will be relevant to reproduce the same.

“25.  We   having   noticed   the   ratio   laid

down by this Court in the above cases on

Sections   118(a)   and   139,   we   now

2 (2019) 4 SCC 197

3 (2019) 18 SCC 106

4 (2021) 5 SCC 283

12

summarise the principles enumerated by

this Court in following manner:

25.1.  Once the execution of cheque is

admitted Section 139 of the Act mandates

a presumption that the cheque was for the

discharge of any debt or other liability.

25.2.  The   presumption   under   Section

139 is a rebuttable presumption and the

onus   is   on   the   accused   to   raise   the

probable defence. The standard of proof for

rebutting   the   presumption   is   that   of

preponderance of probabilities.

25.3.  To  rebut  the  presumption,  it  is

open for the accused to rely on evidence

led by him or the accused can also rely on

the   materials   submitted   by   the

complainant in order to raise a probable

defence.   Inference   of   preponderance   of

probabilities can be drawn not only from

the   materials   brought   on   record   by   the

parties   but   also   by   reference   to   the

circumstances upon which they rely.

25.4.  That it is not necessary for the

accused   to   come   in   the   witness   box   in

support   of   his   defence,   Section   139

imposed an evidentiary burden and not a

persuasive burden.

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25.5. It is not necessary for the accused

to come in the witness box to support his

defence.”

13. It can thus be seen that this Court has held that once the

execution of cheque is admitted, Section 139 of the N.I. Act

mandates a presumption that the cheque was for the discharge

of any debt or other liability.  It has however been held that the

presumption under Section 139 is a rebuttable presumption

and the onus is on the accused to raise the probable defence.

The standard of proof for rebutting the presumption is that of

preponderance of probabilities.  It has further been held that to

rebut the presumption, it is open for the accused to rely on

evidence   led   by   him   or   the   accused   can   also   rely   on   the

materials submitted  by the complainant  in order to  raise  a

probable   defence.   It   has   been   held   that   inference   of

preponderance of probabilities can be drawn not only from the

14

materials brought on record by the parties but also by reference

to the circumstances upon which they rely.

14. In   the   said   case,   i.e.  Baslingappa   v.   Mudibasappa

(supra), the learned Trial Court, after considering the evidence

and material on record, held that the accused had raised a

probable   defence   regarding   the   financial   capacity   of   the

complainant.       The   accused   was,   therefore,   acquitted.

Aggrieved thereby, the complainant preferred an appeal before

the   High   Court.     The   High   Court   reversed   the   same   and

convicted the accused.  This Court found that unless the High

Court came to a finding that the finding of the learned Trial

Court   regarding   financial   capacity   of   the   complainant   was

perverse, it was not permissible for the High Court to interfere

with the same. 

15. In the present case, the accused appellant had examined

Mr. Sarsaiyyn, Income Tax Officer, Ward No.18, Circle (II) (5),

who produced certified copies of the Income Tax Returns of the

15

complainant for the financial year 1995­96, 1996­97, 1997­98

and 1998­99.  The certified copies of the Income Tax Returns

established that the complainant had not declared that he had

lent Rs.3 lakh to the accused.  It further established that the

agricultural income also was not declared in the Income Tax

Returns.  

16. The   learned   Trial   Court   further   found   that   from   the

income which was shown in the Income Tax Return, which was

duly exhibited, it was clear that the complainant(s) did not have

financial capacity to lend money as alleged.  

17. The appellant had also examined D.W.2­Thiru Iyyappan,

Assistant Manager, City Union Bank, Ramnagar Branch with

regard to bank transactions made by the sole proprietorship

firm, M/s Brinda Engineering.  

18. D.W.3­Mr. Subramaniam, Manager, Lakshmi Vilas Bank,

Ganapathy Branch was also examined on behalf of the defence.

The said witness also deposed that the complainant had signed

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the   application   form   to   introduce   the   accused   to   open   the

account in the bank.  

19. D.W.4­Mr.   Ganesan,   Village   Administrative   Officer,

Ganapathy Village was also examined and he deposed that the

land in S.F. No. 591/3 and 592/3 was in joint ownership, and,

in the aforesaid survey numbers, the names of 27 persons were

found.  

20. After analyzing all these pieces of evidence, the learned

Trial   Court   found   that   the   Income   Tax   Returns   of   the

complainant   did   not   disclose   that   he   lent   amount   to   the

accused, and that the declared income was not sufficient to give

loan of Rs.3 lakh.  Therefore, the case of the complainant that

he had given a loan to the accused from his agricultural income

was found to be unbelievable by the learned Trial Court.  The

learned Trial Court found that it was highly doubtful as to

whether the complainant had lent an amount of Rs.3 lakh to

the   accused.   The   learned   Trial   Court   also   found   that   the

17

complaint had failed to produce the promissory note alleged to

have been executed by the accused on 25th October 1998.   After

taking   into   consideration   the   defence   witnesses   and   the

attending circumstances, the learned Trial Court found that the

defence was a possible defence and as such, the accused was

entitled to benefit of doubt.  The standard of proof for rebutting

the   presumption   is   that   of   preponderance   of   probabilities.

Applying this principle, the learned Trial Court had found that

the accused had rebutted the presumption on the basis of the

evidence of the defence witnesses and attending circumstances.

21. The scope of interference in an appeal against acquittal is

limited.  Unless the High Court found that the appreciation of

the evidence is perverse, it could not have interfered with the

finding of acquittal recorded by the learned Trial Court.   

22. Insofar as the reliance placed by Mr. Prabhakar on the

judgment of this Court in the case of  Bir  Singh   v.  Mukesh

Kumar  (supra)   is   concerned,   in   the   said   case,   though   the

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accused   was   convicted   by   the   learned   Trial   Court,   which

conviction was maintained by the Appellate Court, the High

Court in its revisional jurisdiction interfered with the same and

acquitted the accused. This Court found that in exercise of

revisional   jurisdiction   under   Section   482   of   the   Code   of

Criminal Procedure, 1973, the High Court could not, in the

absence of perversity, upset concurrent findings of fact.  In any

case, in the said case, the accused had not led evidence with

regard to the financial capacity of the complainant.  This Court

held that once a cheque was signed and handed over by the

accused, it would attract presumption under Section 139 of the

N.I. Act in the absence of any cogent evidence to show that the

cheque was not issued in the discharge of a debt. 

23. In   the   case   of  Kalamani   Tex   and   another   v.   P.

Balasubramanian  (supra),   the   learned   Trial   Court   had

dismissed   the   complaint.     In   appeal,   at   the   behest   of   the

complainant,   the   same   was   allowed   and   the   accused   were

19

convicted for the offence punishable under Section 138 of the

N.I. Act.  In an appeal at the behest of the original accused, this

Court  while affirming  the order of  the High  Court  observed

thus:

“18.  Considering the fact that there has

been an admitted business relationship

between   the   parties,   we   are   of   the

opinion that the defence raised by the

appellants does not inspire confidence or

meet the standard of “preponderance of

probability”. In the absence of any other

relevant material, it appears to us that

the High Court did not err in discarding

the   appellants'   defence   and   upholding

the onus imposed upon them in terms of

Section 118 and Section 139 of NIA.”

24. It can thus be seen that in the facts of the said case, this

Court found that the defence raised by the appellants/accused

did   not   inspire   confidence   or   meet   the   standard   of

“preponderance of probability”.  

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25. In the present case, we are of the considered opinion that

the defence raised by the appellant satisfies the standard of

“preponderance of probability”.

26. Insofar as the reliance on the judgment of this Court in the

case of  Rohitbhai   Jivanlal   Patel   v.   State   of   Gujarat  and

Anr.  (supra) is concerned, in the said case, the learned Trial

Court had acquitted the accused, the High Court, in appeal,

reversed the acquittal and convicted the accused for the offence

punishable under Section 138 of the N.I. Act.   Affirming the

order of the High Court, this Court held that merely by denial or

merely by creation of doubt, the accused cannot be said to have

rebutted the presumption as envisaged under Section 139 of

the N.I. Act.   This Court held that unless cogent evidence was

led   on   behalf   of   the   accused   in   defence   of   his   case,   the

presumption under Section 139 of the N.I. Act could not be

rebutted.     As   such,   the   said   judgment   also   would   not   be

applicable to the facts of the present case. 

21

27. In that view of the matter, we are further of the considered

view that the High Court was not justified in reversing the order

of acquittal of the appellant.  

28. That leaves us to consider the Civil Appeals.   Insofar as

the   Civil   Appeals   are   concerned,   the   High   Court,   by   two

different judgments and orders, has reversed the judgments

and   orders   of   the   learned   Trial   Court   dismissing   the   suits,

thereby decreeing them.  It is a settled proposition of law that

the standard of proof in criminal proceedings differs with that in

civil proceedings. 

29. A   distinguishing   fact   between   the   criminal   proceedings

and the civil proceedings in the present case is that, while in

the criminal proceedings the complainant had failed to produce

the promissory notes, in the civil proceedings, the complainant

had proved the promissory notes.  The High Court found that

the Civil Appeals were required to be decided on the basis of the

preponderance of probabilities.  The High Court found that the

22

complainant had established that he was working as a LIC

Agent,   that   his   father   was   owning   extensive   agricultural

properties and that he was deriving agricultural income.   The

High Court, on the basis of the evidence placed on record,

relying   on   the   preponderance   of   probability,   came   to   a

conclusion that the plaintiff had the financial ability to lend the

sum of Rs.3 lakh as on 20th October 1998.  The High Court also

found that the appellant’s wife was not examined as a witness

in the said case so as to probabilize the defence plea.   The High

Court found that the best available evidence was withheld by

the defendants/appellants herein and as such, the principle of

adverse inference was also applicable.   

30. Though it was sought to be argued before the High Court

that in view of the judgment in the criminal proceedings, the

suit(s) was also liable to be dismissed, the High Court rightly

observed   that   the   adjudication   in   civil   matters   is   based   on

preponderance of probabilities whereas adjudication in criminal

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cases is based on the principle that the accused is presumed to

be innocent and the guilt of the accused should be proved to

the hilt and the proof should be beyond all reasonable doubt.  

31. We,   therefore,   find   no   reason   to   interfere   with   the

judgments and orders passed by the High Court in the Civil

Appeals.  However, in the facts and circumstances of the case,

we are inclined to modify the decree.  During the pendency of

the proceedings before this Court, the appellants have deposited

an amount of Rs.7 lakh and Rs. 2 lakh pursuant to the orders

of this Court dated 20th  February, 2009 passed in Criminal

Appeal No. 1978 of 2013 (arising out of Special Leave Petition

(Criminal) No.1456 of 2009 and connected matter and dated

13th  August, 2012 passed in Civil Appeal No.10501 of 2013

(arising out of Special Leave Petition (Civil) No.23036 of 2012).

The said amount has been directed to be invested in a Fixed

Deposit Receipts from time to time.   We are, therefore, of the

view that, in the facts and circumstances of the present case,

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the decree needs to be modified restricting it to the amount

already deposited by the appellants in both the proceedings

with interest accrued thereon.  

32. In the result, we pass the following order:

(i) Criminal Appeal Nos. 1978 of 2013 and 1990 of 2013

are allowed and the common judgment of conviction

dated 28th  October 2008 and order of sentence dated

30th  October   2008   respectively   are   quashed   and   set

aside.  The judgments and orders dated 10th July 2011

passed by the learned Trial Court is confirmed. 

(ii) Civil Appeal Nos. 10500 of 2013 and 10501 of 2013 are

dismissed. However, the decrees of the High Court are

modified,   thereby   restricting   them   to   the   amount

already deposited by the appellants in this Court in the

civil   and   criminal   proceedings,   along   with   interest

accrued thereon.  

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(iii) The respondents in both the Civil Appeals would be

entitled to withdraw 50% of the amount each from the

amount deposited in this Court with interest accrued

upto date. 

33. There shall be no order as to costs.  Pending application(s),

if any, shall stand disposed of.

     …….........................J.       

     [B.R. GAVAI]

…….........................J.       

     [M.M. 

SUNDRESH]

NEW DELHI;

JANUARY 18, 2023 

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