Section 138 NI Act - If Signature On Cheque Is Admitted, Presumption Under Section 139 Will Be Raised : Supreme Court

The Supreme Court has observed that if the signature on the cheque is admitted, then presumption under Section 139 of the Negotiable Instruments Act that the cheque was issued in discharge of a legally enforceable debt will be raised. Upon such presumption being raised, it is incumbent upon the accused to rebut the same.

"..it is clear that signature on the cheque having been admitted, a presumption shall be raised under Section 139 that the cheque was issued in discharge of debt or liability", a bench comprising Chief Justice of India NV Ramana,  Justices Surya Kant and AS Bopanna observed.

The bench was considering the case Thriyambak S Hegde v. Sripad, which was an appeal against a judgment of the Karnataka High Court setting aside the conviction ordered by the Magistrate for the offence under Section 138 of the Negotiable Instruments Act.

The bench referred to the precedent in Basalingappa vs. Mudibasappa (2019), where the principles  on Sections 118 (a) and 139 of the NI Act were summarized in the following manner :

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.
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.
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.
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.
5. It is not necessary for the accused to come in the witness box to support his defence.

Applying the principles to the facts of the case, the Court set aside the High Court's acquittal and restored the conviction.

In the present matter, the case of the appellant is that the respondent who was known to him for the past few years approached him and informed that due to his financial difficulty he intends to sell the house situate in Sirsi town. The appellant agreed to purchase the same for the negotiated total sale consideration of four lakhs.

An agreement dated 6th June 1996 was executed by the respondent while receiving the advance amount of Rs.3,50,000/, however the appellant learnt later that the house stood in the name of the father of the respondent and he did not have the authority to sell it.

The appellant then demanded the return of Rs. 3,50,000/­ which he had paid as advance amount, and the respondent instead of paying the entire amount, issued a cheque of part amount of Rs. 1,50,000. When the appellant presented the cheque for realisation on it came to be dishonoured with the endorsement 'insufficient funds'.

This was followed by the appellant getting a notice issued informing the respondent about the cheque being dishonoured and demanding payment of the cheque amount, to which the respondent failed to respond.

The appellant then filed a complaint under Section 200 of CrPC on 14th July 1998 before the Judicial Magistrate, First Class at Sirsi seeking prosecution of the respondent under Section 138 of the Negotiable Instruments Act, 1881.

Order of Judicial Magistrate:

The JMFC convicted the respondent through the judgment dated 09.06.2005 for the offence punishable Section 138 the N.I. Act and sentenced him to undergo simple imprisonment for six months and to pay the fine of two lakhs, out of which 1,95,000 was to be paid to the appellant as compensation.

The Judicial Magistrate took note that the signature on the agreement and more particularly on the cheque being admitted, it raised presumption under Section 118 and 139 of the the N.I. Act, which had not been rebutted. Therefore, the respondent was convicted.

Appeal Against Judicial Magistrate's Order Before Sessions Judge:

The respondent filed an appeal before the District & Sessions Judge, Uttara Kannada, Karwar against Judicial Magistrate's order. The Sessions Judge dismissed the appeal through judgment dated 22.04.2006.

Before High Court:

The respondent challenged the order of the Sessions judge and filed a Revision Petition before the High Court. The Single Judge, allowed the Revision Petition and set aside the conviction order passed by the JMFC, which had been confirmed by the learned Sessions Judge.

Before the High Court, the respondent put forth the contention in his Revision Petition only at the time of argument, that the appellant did not pay the amount but his signature had been secured on the cheque and the agreement under peculiar circumstances. It was contended on his behalf that he was a party to a case in the Court of the Civil Judge, Sirsi wherein he had engaged the services of an advocate whose junior happened to be the relative of the appellant, who thus being in a dominant position had obtained the signature.

The Single Judge accepted the contention which was raised in the Revision for the first­ time during arguments and proceeded to hold that the appellant had not discharged the burden of proving that he had paid Rs. 3,50,000/ to the respondent and that the cheque had been issued towards payment of a part of the same. Further the Single Judge was also of the opinion that the agreement at cannot be believed, as well.

Before Supreme Court:

The Bench observed that applying the propositions of law, it is clear that signature on the cheque having been admitted, a presumption shall be raised under Section 139 of the Negotiable Instruments Act that the cheque was issued in discharge of debt or liability, and the question to be looked into is as to whether any probable defence was raised by the accused.

The Bench noted that it has been contended that the very materials produced by the appellant and the answers relating to lack of knowledge of property details in his cross­ examination would indicate that the transaction is doubtful and no evidence is tendered to indicate that the amount was paid. Therefore it was not necessary for the respondent to tender rebuttal evidence but the case put forth would be sufficient to indicate that the respondent has successfully rebutted the presumption.

Presumption as provided in law would remain Till its rebutted: The Bench noted that since the signature on the agreement and the dishonoured cheque was not disputed, the presumption as provided in law had arisen, and presumption would remain till it is rebutted. 

"The question however is as to whether, either from the material available on record or the nature of contentions put forth it could be gathered that the presumption had been rebutted by the respondent." the Bench has said.

Contention Of Appellant Being In Dominant Position Brought For First Time Before High Court: The Bench has noted that the contention of the respondent that the relative of the appellant was the junior in the office of his advocate, and due to such dominant position, the respondent was made to sign on the agreement and the cheque though the money had not been paid, was urged for the first time before the High Court.

Further appellant's admission that his cousin is an advocate does not lead to the conclusion that he had admitted that he was in a dominant position.

Disapprove Manner In Which High Court Examined Matter On Contentions Not Raised Before Trial Court:

The Bench has noted that the Single Judge while accepting the respondent's story has referred to certain discrepancies in the agreement 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.

According to the Bench, such consideration, was not germane and was beyond the scope of the nature of litigation, and validity of the agreement in the manner as has been examined by the Single Judge may have arisen if the same was raised as an issue and had arisen for consideration in a suit for specific performance of the agreement.

The Bench has disapproved the manner in which the Single Judge has proceeded to examine the matter on contentions which were not raised as a foundation before the Trial Court. The agreement had been relied upon only to the limited extent to indicate that there was a transaction between the parties due to which the amount to be repaid had been advanced. To that extent the document had been proved in evidence and such evidence had not been discredited in the cross­ examination.

The Bench has further observed that even though the respondent argued that appellant 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, if there was no transaction whatsoever between the parties.

First Opportunity To Put Forth Contention Not Availed: The Bench observed that the respondents story of being forced to sign the documents was put forth for the first time before the High Court, even when appellant had issued notice intimating the dishonouring of the cheque and demanding payment, 

Therefore, the first opportunity available to put forth his contention if true was not availed. Further, even in the proceedings before the Judicial Magistrate or in the appeal filed before the learned Sessions Judge, the contention wasn't raised.

Respondent's Story An Afterthought, Appears to Be Contrary To Records: The Bench noted that the story as put forth apart from being an afterthought, ex facie appears to be contrary to the records since the contention on behalf of the respondent is that the dominant position of the junior advocate in the office of Mr. Rama Joshi was used to secure the signature when the respondent had engaged the said advocates in an earlier civil case.

However according to the records, it is seen that Mr. Rama Joshi is the same advocate who had defended the respondent in this litigation. If what was being stated was the true fact, the respondent would have brought the same to the notice of the said advocate and in such situation would not have engaged the same advocate against whose junior he had a grievance and engage him to represent the case relating to dishonour cheque which was of the same subject matter.

The Bench concluded that the case put forth by the respondent does not satisfy the requirement of rebuttal even if tested on the touchstone of preponderance of probability. Therefore, in the present facts it cannot be held that the presumption which had arisen in favour of the appellant had been successfully rebutted by the respondent herein.

The Bench therefore restored the judgment of the JMFC and confirmed the order of conviction. The Bench however gave its thoughtful consideration to the appropriate sentence that is required to be imposed at this stage, and whether it is necessary to imprison the respondent at this point in time or limit the sentence to imposition of fine.

While noting that the transaction in question is not an out and out commercial transaction, the Bench opined that what cannot be lost sight of is that more than two and half decades have passed from the date on which the transaction had taken place. Therefore if an enhanced fine is imposed it would meet the ends of justice,

The Bench set aside the high court's order in criminal revision petition, restored the conviction ordered by the Judicial Magistrate but modified the order of simple imprisonment and fine of 2 lakhs to only payment of fine of 2,50,000 within three months.

The Bench also increased the compensation awarded to appellant from fine amount to Rs 2,40,000/.