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
1
“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.
2
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.
3
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.
4
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
5
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
6
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.
8
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
9
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.
13
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
16
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
18
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”.
20
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
23
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,
24
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.
25
(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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