Bombay HC: 139 N.I.Act- Unaccounted cash loan cannot be treated as due liability u/s 138 N.I.Act

HEAD NOTE :

A cheque issued in discharge of alleged liability of repaying "unaccounted" cash amount cannot be said to be a cheque issued in discharge of a legally enforceable debt or liability within the meaning of explanation of section 138 of the said Act. Such an effort to misuse the provision of section 138 of the said Act has to be discouraged.

Bombay High Court

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPLICATION NO.4694 OF 2008

Sanjay Mishra                                                             .. Applicant

Versus

Ms.Kanishka Kapoor @ Nikki & Anr.                         .. Respondents

Mr.Ashok Mundargi, Sr. Counsel with Mr.Shailesh Kabtharia for the applicant.

Ms.A.T.Jhaveri, A.P.P for the State.

CORAM : A.S.OKA, J.

DATE : 24th February 2009.

JUDGMENT:

1.                  The submissions of the learned senior counsel appearing for the applicant were heard in support of this application under sub-section 4 of section 378 of the Code of Criminal Procedure, 1973.

2.     The applicant is the complainant. The applicant filed a complaint against the 1st respondent alleging commission of offence under section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as the said Act).

3.     With a view to appreciate the submissions made by the learned senior counsel appearing for the applicant, it will be necessary to refer to the facts of the case in brief. According to the case of the applicant the 1st respondent approached him in September 2004 through one Mrs.Kalayni Singh. The said Mrs.Kalyani Singh was known to the applicant. The 1^st respondent represented that she was in need of financial assistance and she agreed to return the amount advanced within a period of three months to the 1st respondent. The applicant advanced a friendly loan of Rs.15 lacs to the 1st respondent. She executed a hundi on 15^th September 2004 in the sum of Rs.15 lacs and also issued a cheque dated 28th December 2004 favouring the applicant. The said cheque was dishonoured and after issuing notice, the present complaint was filed by the applicant. The learned trial Judge passed an order of acquittal. The learned Judge held that the applicant has failed to establish that the cheque was issued by the 1st respondent in discharge of legal liability of the loan amount. The learned Judge observed that the 1^st respondent has denied her signatures on the bill of exchange as well as the cheque subject matter of the complaint. The learned Judge has taken into account  various circumstances borne out by the evidence on record and has passed order of acquittal. The learned Judge also considered the admission of the applicant that the amount advanced was an unaccounted amount which was not disclosed to the Income Tax Authority.

4.     The learned senior counsel appearing for the applicant submitted that there is evidence on record to show that the 1st respondent accepted the liability to repay the loan of Rs.15 lacs. He submitted that the defence that the cheque and bill of exchange has not been signed by the 1st respondent has not been substantiated. When attention of the learned senior counsel appearing for the applicant was invited to the categorical admission of the applicant that the entire amount subject matter of the loan was an unaccounted cash amount which was not disclosed in the Income Tax Return, he submitted that this is no ground to hold that the presumption under section 139 of the said Act stands rebutted. He submitted that even assuming that the amount advanced was an unaccounted money, at the most the applicant will face an action under the Income Tax Act, 1961 but this is not a ground to say that the presumption under section 139 of the said Act stood rebutted. He submitted that as the liability to repay a sum of Rs.15 lacs on the part of the 1st respondent was established, the learned Judge has committed an error by acquitting the 1^st respondent.

5.      He submitted that mere fact that the amount advanced is not disclosed in the Income Tax Returns by itself cannot rebut the presumption under section 139 of the said Act in every case. He has placed reliance on a decision of this Court dated 16th January 2009 in Criminal Application No.3964 of 2007 (R.R.Dubey Vs. Shamprakash Mishra & Ors.).

6.     I have given careful consideration to the submissions. I have perused a copy of the complaint and notes of evidence. In the cross-examination, the applicant has categorically stated thus:

".... The entire amount was given in cash. The entire amount was my cash amount. The cash amount was kept at my Chembur’s residence. At that time, it was unaccounted. I had not disclosed this amount to the Income Tax after giving the loan till date. There was no agreement for interest on the amount given. ....."

(Emphasis added)

The complaint was filed in the year 2005. The evidence of the applicant was recorded on 28th February 2006. The applicant admitted that the amount allegedly paid by him to the 1st respondent by way of loan was a cash amount kept at his residence and at that time it was an unaccounted amount. He categorically admitted that till date (i.e. till 28th February 2006) he has not disclosed the amount to the Income Tax. According to the case of the complainant, he had advanced loan on 14th September 2004 which was repayable within 90 days. Thus, on 14th September 2004 the amount allegedly paid by him to the 1st respondent was stated to be an unaccounted amount which was kept at the residence of the applicant. Moreover, till February 2006, when the evidence was recorded, the said amount was not disclosed in the Income Tax Returns of the applicant. Thus it continued to be an unaccounted amount.

7.      It is true that merely because amount advanced is not shown in Income Tax Return, in every case, one cannot jump to the conclusion that the presumption under section 139 of the said Act stands rebutted. There may be cases where a small amount less than a sum of Rs.20,000/- is advanced in cash by way of loan which may be repayable within few days or within few months. A complainant may not show the said amount in the Income Tax Return as it is repayable within few days or few months in the same financial year. In such a case the failure to show the amount in the Income Tax Return may not by itself amount to rebuttal of presumption under section 139 of the said Act. If in a given case the amount advanced by the complainant to the accused is a large amount and is not repayable within few months, the failure to disclose the amount in Income-Tax return or Books of Accounts of the complainant may be sufficient to rebut the presumption under section 139 of the said Act.

8.     In the present case, the amount was allegedly advanced in September 2004. The amount is a large amount of Rs.15 lacs. This is a case where not only that there is a failure to disclose the amount of loan in the Income Tax Return of the applicant till the year 2006 but there is a categorical admission on the part of the applicant that the amount was an "unaccounted" amount.

9.     Before dealing with the aspect of rebuttal of presumption, it will be necessary to refer to the ingredients of section 138 of the said Act. It will be

necessary to refer to a recent decision of the Apex Court in the case of Krishna Janardhan Bhat Vs. Dattatraya G. Hegde [(2008) 4 SCC 54]. The case before the Apex Court arose out of a complaint under section 138 of the said Act. The applicant before the Apex Court was accused of an offence under section 138 of the Act. The submission before the Apex Court was that the essential requirement of section 138 was that there has to be a legally enforceable debt. The Apex Court referred to the provisions of section 271D of the Income Tax Act, 1961 which reads thus:

"271-D. Penalty for failure to comply with the provisions of section 269-SS.-

(1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269-SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner."

In paragraph 29 of the decision, the Apex Court referred to the ingredients of the offence under section 138. Paragraph 29 reads thus:

"29. Section 138 of the Act has three ingredients viz.:

(i) that there is a legally enforceable debt;

(ii) that the cheque was drawn from the account of bank for discharge in whole or in part of any debt or other liability which presupposes a legally enforceable debt; and

(iii) that the cheque so issued had been returned due to insufficiency of funds."

In paragraphs 30 and 31 the Apex Court dealt with the presumption under section 139 of the said Act. Paragraphs 30 and 31 read thus:

"30. The proviso appended to the said section provides for compliance with legal requirements before a complaint petition can be acted upon by a court of law. Section 139 of the Act merely raises a presumption in regard to the second aspect of the matter. Existence of legally recoverable debt is not a matter of presumption under section 139 of the Act. It merely raises a presumption in favour of a holder of the cheque that the same has been issued for discharge of any debt or other liability.

31. The courts below, as noticed hereinbefore, proceeded on the basis that section 139 raises a presumption in regard to existence of a debt also. The courts below, in our opinion, committed a serious error in proceeding on the basis that for proving the defence the accused is required to step into the witness box and unless he does so he would not be discharging his burden. Such an approach on the part of the courts, we feel, is not correct."

(Emphasis added)

10.             Thus, what has been held by the Apex Court is that section 139 of the said Act merely raises a presumption in regard to the second aspect of the matter, namely, that the cheque was drawn in discharge of debt or other liability. The Apex Court specifically held that the existence of legally recoverable debt is not a matter of presumption under section 139 of the said Act. The Apex Court specifically held that section 139 merely raises a presumption in favour of holder of cheque that the same has been issued for discharge of any debt or liability. Thus, even if presumption is not rebutted, in order to attract section 138 of the said Act, the debt has to be a "legally enforceable debt" as is clear from the explanation to section 138 which provides that for the purposes of the said section the debt or other liability means a legally enforceable debt or other liability.

11.   The Apex Court also reiterated well established legal position that for rebutting the presumption under section 139 of the said Act, it is not necessary in every case for the accused to step into the witness box. The Apex Court held that the standard of proof on the part of the accused and that of prosecution in a criminal case is different. The prosecution has to prove the guilt of an accused beyond reasonable doubt, but the standard of proof so as to prove a defence is "preponderance of probability". Inference of preponderance of probabilities can be drawn even by reference to circumstances. In paragraph 44 the Apex Court observed thus:

". The presumption of innocence is a human right (See Narendra Singh v. State of M.P., Ranjitsing Brahmajeetsing Sharma v. State of Maharashtra and Rajesh Ranjan Yadav v. CBI.) Article 6(2) of the European Convention on Human Rights provides: "Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law." Although India is not bound by the aforementioned Convention and as such it may not be necessary like the countries forming European countries to bring common law into land with the Convention, a balancing of the accused’s rights and the interest of the society is required to be taken into consideration. In India, however, subject to the statutory interdicts, the said principle forms the basis of criminal jurisprudence. For the aforementioned purpose the nature of the offence, seriousness as also gravity thereof may be taken into consideration. The courts must be on guard to see that merely on the application of presumption as contemplated under section 139 of the Negotiable Instruments Act, the same may not lead to injustice or mistaken conviction...." (Emphasis added)

In paragraph 45 the Apex Court held thus:

"45. We are not oblivious of the fact that the said provision has been inserted to regulate the growing business, trade, commerce and industrial activities of the country and the strict liability to promote greater vigilance in financial matters and to safeguard the faith of the creditor in the drawer of the cheque which is essential to the economic life of a developing country like India. This, however, shall not mean that the courts shall put a blind eye to the ground realities. Statute mandates raising of presumption but it stops at that. It does not say how presumption drawn should be held to have rebutted. Other important principles of legal jurisprudence, namely, presumption of innocence as human rights and the doctrine of reverse burden introduced by section 139 should be delicately balanced. Such balancing acts, indisputably would largely depend upon the factual matrix of each case, the materials brought on record and having regard to legal principles governing the same." (Emphasis added)

The Apex Court held that presumption of innocence forms part of human rights and therefore the doctrine of reverse burden introduced by section 139 has to be delicately balanced.

12. Now turning back to the facts of the present case, assuming that the presumption under section 139 of the said Act regarding existence of debt or liability is not rebutted, in order to attract section 138, the debt or liability has to be a "legally recoverable" debt or liability. As held by the Apex Court in the case of Krishna Bhat (supra) there is no presumption under section 139 of the said Act that the debt is a legally recoverable debt. In the case of Goa Plast (P) Ltd. Vs. Chico Ursula D’Souza [(2004) 2 SCC 235] the Apex Court reiterated that a debt or liability subject matter of section 138 means a legally enforceable debt or liability.

13. In the present case, there is a categorical admission that the amount allegedly advanced by the applicant was entirely a cash amount and that the amount was "unaccounted". He admitted not only that the same was not disclosed in the Income Tax Return at the relevant time but till recording of evidence in the year 2006 it was not disclosed in the Income Tax Return. By no stretch of imagination it can be stated that liability to repay unaccounted cash amount is a legally enforceable liability within the meaning of explanation to section 138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt.

14. In the case of Dalmia Cement (Bharat) Ltd Vs. Galaxy Traders & Agencies Ltd & Ors. [(2001) 6 SCC 463], the Apex court has referred to the object of section 138. Paragraph 3 of the said decision reads thus:

"3. The Act was enacted and section 138 thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to negotiable instruments is the law of commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, including a cheque, the trade and commerce activities, in the present day world, are likely to be adversely affected as it is impracticable for the trading community to carry on with it the bulk of the currency in force. The negotiable instruments are in fact the instruments of credit being convertible on account of legality of being negotiated and are easily passable from one hand to another. To achieve the objectives of the Act, the legislature has, in its wisdom, thought it proper to make such provisions in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special penalties and procedure in case the obligations under the instruments are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants. Efforts to defeat the objectives of law by resorting to innovative measures and methods are to be discouraged, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country." (Emphasis added)

15.  The Apex Court has held that the laws relating to the said Act are required to be interpreted in the light of the object intended to be achieved by it despite there being deviation from general law. The Apex Court expressed that the object of section 138 of the said Act was to ensure that commercial and mercantile activities are conducted in smooth and healthy manner. The explanation to section 138 of the said Act clearly provides that a debt or other liability referred to in section means a legally enforceable debt or other liability. The alleged liability to repay an unaccounted cash amount admittedly not disclosed in the Income Tax Return cannot be a legally recoverable liability. If such liability is held to be a legally recoverable debt, it will render the explanation to section 138 of the said Act nugatory. It will defeat the very object of section 138 of the Act of ensuring that the commercial and mercantile activities are conducted in a healthy manner. The provision of section 138 cannot be resorted to for recovery of an unaccounted amount. A cheque issued in discharge of alleged liability of repaying "unaccounted" cash amount cannot be said to be a cheque issued in discharge of a legally enforceable debt or liability within the meaning of explanation of section 138 of the said Act. Such an effort to misuse the provision of section 138 of the said Act has to be discouraged.

16. Considering the aforesaid admission of the applicant, the conclusion recorded by the learned trial Judge that the applicant has failed to establish that the cheque was issued towards discharge of a legally recoverable debt is correct.

17.  No case is made out for grant of leave. Application is rejected.

(A.S. Oka, J)

Whether food Articles stored as NOT FOR SALE can attract Provision of P.F. Act and should be quashed by High Court u/s 482 Cr.P.C.

Head Note:

In the present case, according to the prosecution, the appellant, a Superintendent of Jail, had stored Rice and Haldi and, therefore, his act comes within the mischief of Section 7 and 16 of the Act. In view of the aforesaid, what needs to be decided is as to whether the expression ‘store’ as used in Section 7 and Section 16 of the Act would mean storage simplicitor or storage for sale. We have referred to the provisions of Section 7, Section 10 and Section 16 of the Act and from their conjoint reading, it will appear that the Act is intended to prohibit and penalise the sale of any adulterated article of food. In our opinion, the term ‘store’ shall take colour from the context and the collocation in which it occurs in Section 7 and 16 of the Act. Applying the aforesaid principle, we are of the opinion, that ‘storage’ of an adulterated article of food other than for sale does not come within the mischief of Section 16 of the Act.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 541-542 OF 2014

RUPAK KUMAR                                                                             …APPELLANT

VERSUS

STATE OF BIHAR & ANR.                                                      …RESPONDENTS

JUDGMENT: CHANDRAMAULI KR. PRASAD,J.

         The petitioner is aggrieved by the order whereby his prayer for quashing the order taking cognizance under Section 16(1)(a) of the Prevention of Food Adulteration Act and issuing process has been declined.

          Short facts giving rise to the present special leave petitions are that when the petitioner was posted as the Superintendent of District Jail, Bihar Sharif, the Food Inspector visited the jail premises and collected samples of various materials including Haldi and Rice. Those articles were stored for consumption of the prisoners. The samples so collected were sent for examination and analysis and, according to the report of the Public Analyst, Haldi and Rice were not found in conformity with the prescribed standard and, therefore, held to be adulterated. Accordingly, two separate prosecution reports were submitted alleging commission of an offence under Section 16 of the Prevention of Food Adulteration Act, 1954 (hereinafter referred to as ‘the Act’). The learned Chief Judicial Magistrate took cognizance of the offence under Section 16(1)(a) of the Act and by order dated 18th of March, 2006 directed for issuance of process in both the cases. The petitioner assailed both the orders in separate revision applications filed before the Sessions Judge; but both were dismissed. Thereafter, the petitioner preferred two separate applications, being Criminal Miscellaneous No. 15527 of 2010 and Criminal Miscellaneous No. 15471 of 2010 under Section 482 of the Code of Criminal Procedure before the High Court. The High Court, by the orders impugned in the present special leave petitions, has dismissed both the criminal miscellaneous applications. It is in these circumstances the petitioner has filed the present

special leave petitions.

            Leave granted.

           Mr. Nagendra Rai, senior counsel appearing on behalf of the appellant raises a very short point. He submits that the appellant at the relevant time was the Superintendent of Jail and food items which have been found to be adulterated were not stored for sale but were meant for consumption of the inmates. He submits that according to the prosecution report, these food items were not stored for sale and, therefore, the allegations made do not come within the mischief of Section 16(1)(a) of the Act.

             We have bestowed our consideration to the submission advanced and we find substance in the same. Section 7 of the Act, inter alia, prohibits manufacture and sale of certain articles of food, the same reads as follows:

“Section 7. Prohibitions of manufacture, sale, etc. of certain articles of food. – No person shall himself or by any person on his behalf manufacture for sale, or store, sell or distribute-

                                                                   i.             any adulterated food;

                                                                 ii.             any misbranded food;

                                                              iii.            any article of food for the sale of which a licence is prescribed, except in accordance with the conditions of the licence;

                                                               iv.             any article of food the sale of which is for the time being prohibited by the Food (Health) Authority in the interest of public health;

                                                                 v.             any article of food in contravention of any other provision of this Act or of any rule made thereunder; or

                                                               vi.             any adulterant.

Explanation-For the purposes of this section, a person shall be deemed to store any adulterated food or misbranded food or any article of food referred to in clause (iii) or clause (iv) or clause (v) if he stores such food for the manufacture therefrom of any article of food for sale.”

             From a plain reading of the aforesaid provision, it is evident that Section 7 prohibits a person to ‘manufacture for sale’ or ‘store’ or ‘sell’ or ‘distribute’, inter alia, any adulterated food. Contravention of Section 7 by any person is punishable under Section 16 of the Act. Section 10 of the Act talks about the power of Food Inspector and under this Section, he is empowered to take sample of any article of food from any person selling such article. It is apt to reproduce Section 10(1) and 10(2), which read as follows:

“Section 10. Powers of food inspectors. - (1) A Food Inspector shall have power-

a)     to take samples of any article of food from-

a)

(i)                            any person selling such article;

(i)

(ii)                           any person who is in the course of conveying, delivering or preparing to deliver such article to a purchaser or consignee;

(iii)                         a consignee after delivery of any such article to him; and

b)     to send such sample for analysis to the public analyst for the local area within which such sample has been taken;

c)      with the previous approval of the Local (Health) Authority having jurisdiction in the local area concerned, or with the previous approval of the Food (Health) Authority, to prohibit the sale of any article of food in the interest of public health.

Explanation-For the purposes of sub-clause (iii) of clause (a), “consignee” does not include a person who purchases or receives any article of food for his own consumption.

(2) Any food inspector may enter and inspect any place where any article of food is manufactured, or stored for sale, or stored for the manufacture of any other article of food for sale, or exposed or exhibited for sale or where any adulterant is manufactured or kept, and take samples of such article of food or adulterant for analysis: Provided that no sample of any article of food, being primary food, shall be taken under this sub-section if it is not intended for sale as such food.”

                A conjoint reading of the aforesaid provisions makes it clear that the Food Inspector has the power to take sample of any article of food from any person selling such article under sub-section (1) whereas sub-section (2) confers on him the power to enter and inspect any place where any article of food is manufactured, stored or exposed for sale and take samples of such articles of food for analysis. Section 16 provides for penalties. Section 16(1)(a)(i) and 16(1)(a)(ii), which are relevant for the purpose read as follows:

“Section 16. Penalties. -(1) Subject to the provisions of sub-section (IA) if any person-

(a) whether by himself or by any other person on his behalf, imports into India or manufactures for sale or stores, sells or distributes any article of food—

(i)    which is adulterated within the meaning of sub-clause (m) of clause (ia) of section 2 or misbranded within the meaning of clause (ix) of that section or the sale of which is prohibited under any provision of this Act or any rule made thereunder or by an order of the Food (Health) Authority;

(ii)  other than an article of food referred to in sub-clause (i), in contravention of any of the provisions of this Act or of any rule made thereunder ; or

xxx                          xxx                                xxx”

                 According to this section any person, who by himself or by any other person on his behalf, manufactures for sale or stores or sells any adulterated article is liable to be punished.

                  In the present case, according to the prosecution, the appellant, a Superintendent of Jail, had stored Rice and Haldi and, therefore, his act comes within the mischief of Section 7 and 16 of the Act. In view of the aforesaid, what needs to be decided is as to whether the expression ‘store’ as used in Section 7 and Section 16 of the Act would mean storage simplicitor or storage for sale. We have referred to the provisions of Section 7, Section 10 and Section 16 of the Act and from their conjoint reading, it will appear that the Act is intended to prohibit and penalise the sale of any adulterated article of food. In our opinion, the term ‘store’ shall take colour from the context and the collocation in which it occurs in Section 7 and 16 of the Act. Applying the aforesaid principle, we are of the opinion, that ‘storage’ of an adulterated article of food other than for sale does not come within the mischief of Section 16 of the Act. In view of the authoritative pronouncement of this Court in the case of Municipal Corporation of Delhi v. Laxmi Narain Tandon, (1976) 1 SCC 546, this submission does not need further elaboration. In the said case it has been held as follows:

“14. From a conjoint reading of the above referred provisions, it will be clear that the broad scheme of the Act is to prohibit and penalize the sale, or import, manufacture, storage or distribution for sale of any adulterated article of food. The terms “store” and “distribute” take their colour from the context and the collocation of words in which they occur in Sections 7 and 16. “Storage” or “distribution” of an adulterated article of food for a purpose other than for sale does not fall within the mischief of this section…………………”

              In the case in hand, it is not the allegation that the appellant had stored Haldi and Rice for sale. Therefore, in our opinion, the allegations made do not constitute any offence and, hence, the prosecution of the appellant for an offence under Section 16(1)(a) of the Act shall be an abuse of the process of the Court.

             In the result we allow these appeals, set aside the impugned orders and quash the appellant’s prosecution in both the cases.

………………………………………………………………J

(CHANDRAMAULI KR. PRASAD)

………………………………………………………………J

(PINAKI CHANDRA GHOSE)

NEW DELHI,

MARCH 04, 2014.

N.I.Act: Section 138 & 139- Presumption that cheque was issued in discharge of debt or liability- Presumption how to be displaced

Head Note:

1.   The accused in a trial under Section 138 of the Act has two options. He can either show that consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed. To rebut the statutory presumptions an accused is not expected to prove his defence beyond reasonable doubt as is expected of the complainant in a criminal trial. The accused may adduce direct evidence to prove that the note in question was not supported by consideration and that there was no debt or liability to be discharged by him.

2.   To disprove the presumptions, the accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist. Apart from adducing direct evidence to prove that the note in question was not supported by consideration or that he had not incurred any debt or liability, the accused may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant.

Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

Criminal Appeal No. 2045 OF 2008

(Arising out Special Leave Petition (Criminal) No. 955 of 2007)

M/s. Kumar Exports … Appellant

Versus

M/s. Sharma Carpets … Respondent

J U D G M E N T : J.M. Panchal, J.

1.      Leave granted.

2.     The instant appeal is directed against judgment dated November 23, 2006, rendered by the learned Single Judge of Punjab and Haryana High Court, in Criminal Appeal No. 946 SBA of 2004, by which the judgment dated December 6, 2003, passed by the learned Judicial Magistrate I Class, Karnal, in Criminal Complaint No. 178 of 2001, acquitting the appellant under Section 138 of the Negotiable Instruments Act, 1881 (‘the Act’ for short), is set aside and after convicting the appellant under Section 138 of the Act the matter is remitted to the learned Magistrate to pass appropriate order of sentence.

3.     Jai Bhagwan Sharma, proprietor of M/s. Sharma Carpets, the respondent herein, deals in carpets. Rajinder Kumar, proprietor of M/s. Kumar Exports, the appellant herein, is carrying on business at Panipat. It is the case of the respondent that the appellant purchased handtufted woolen carpets from him on August 6, 1994, cost of which was Rs.1,90,348.39. According to the respondent, the appellant issued two cheques, i.e., one cheque bearing No. 052912 dated August 25, 1994 for a sum of Rs.1,00,000/- and another cheque bearing No. 052913 dated September 25, 1994 for an amount of Rs.90,348.39 drawn on Panipat branch of Union Bank of India, for discharge of his liability. The case of the respondent is that the cheques were deposited in the bank by him for encashment, but those cheques were received back unpaid with remarks “insufficient funds”. It is the case of the respondent that the fact that the cheques were dishonoured for insufficient funds was brought to the notice of the appellant and on the request of the appellant, the cheques were again presented for encashment in the bank on January 5, 1995, but they were again dishonoured due to lack of funds in the account of the firm of the appellant. What is claimed by the respondent is that under the circumstances he had served statutory notice dated January 19, 1995 calling upon the appellant to make payment of the amount due but neither the appellant had replied the said notice nor made payment of the amount due. The respondent, therefore, filed Criminal Complaint No. 178 of 2001 in the court of the learned Judicial Magistrate 1st Class, Karnal and prayed to convict the appellant under Section 138 of the Act.

4.     On service of summons the appellant appeared before the Court. His defence was that the bill produced by the respondent indicating sale of woolen carpets was a fictitious one and that blank cheques with his signatures were taken from him by the respondent to enable the respondent to purchase the raw material for him. According to the appellant the cheques were in the form of advance payment for supply of carpets, but the respondent had failed to deliver the goods to him. The appellant alleged that the respondent had stopped manufacturing carpets and as the cheques were not issued in discharge of any liability, he was not liable to be convicted under Section 138 of the Act.

5.      In order to prove his case the respondent examined himself as CW-3 and produced the cheques dishonoured at Ex. CW-2/A and CW-2/B, statutory notice at Ex. C-4, carbon copy of bill at CW-2/C, etc. He examined two witnesses to prove the presentation and dishonour of the cheques. No other witness was examined by him in support of his case pleaded in the complaint against the appellant. The appellant examined himself to substantiate his defence as DW-1. He also examined one Mr. Om Prakash, serving as a clerk in the Sales Tax Department, as DW-2, who stated before the Court that the respondent’s firm had filed sales tax return for the Assessment Year 1994-95 declaring that no sale or purchase of woolen carpets had taken place and, therefore, no sales tax was deposited. The said witness also produced an affidavit filed by the respondent as Ex.D-1 wherein the respondent had stated on oath that no sale or purchase of woolen carpets had taken place during the Assessment Year 1994-95.

6.     On appreciation of evidence the learned Magistrate held that the execution of the cheques was admitted by the appellant and that it was proved by the respondent that those cheques were dishonoured on account of insufficient funds. However, the learned Magistrate concluded that it was not proved by the respondent that the cheques were issued by the appellant for discharge of a debt or liability. The learned Magistrate noticed that the bill produced at Ex. CW-2/C did not bear the signature of the appellant as buyer to acknowledge its acceptance or correctness. The learned Magistrate also noted that no corroborative evidence in the form of account books was produced by the respondent and it was, therefore, doubtful whether in fact the respondent had delivered any goods to the appellant. The learned Magistrate referred to the testimony of witness from the Sales Tax Department and concluded that as no transaction of sale of woolen carpets was effected by the respondent during the Assessment Year 1994-95, the defence pleaded by the appellant was probablised. In view of abovementioned conclusions, the learned Magistrate acquitted the appellant by judgment dated December 6, 2003.

7.      Feeling aggrieved, the respondent preferred Criminal Appeal No. 946 SBA of 2004 in the High Court of Punjab and Haryana at Chandigarh. The learned Single Judge, who heard the appeal, was of the opinion that in terms of Section 139 of the Act there was a presumption that the cheques received by the respondent were for the discharge of a debt or liability incurred by the appellant that execution of cheques was admitted by the appellant and that the appellant did not place material to rebut such presumption as a result of which, he was liable to be convicted under Section 138 of the Act. The learned single Judge concluded that if the defence put forth by the appellant was true, he would have issued instructions to ‘stop payment of the cheques’ instead of allowing the cheques to be presented and dishonoured. He was also of the view that the affidavit of complainant (appellant herein) that there was no transaction during 1994-95, was not a relevant circumstance. Accordingly, the learned Single Judge convicted the appellant under Section 138 of the Act and remitted the matter to the trial court for passing appropriate order of sentence, after hearing the appellant and the respondent. Feeling aggrieved, the appellant has approached this Court by way of filing the instant appeal.

8.     We heard the learned counsel for the parties at length and considered the record of the case.

9.     In order to determine the question whether offence punishable under Section 138 of the Act is made out against the appellant, it will be necessary to examine the scope and ambit of presumptions to be raised as envisaged by the provisions of Sections 118 and 139 of the Act. In a suit to enforce a simple contract, the plaintiff has to aver in his pleading that it was made for good consideration and must substantiate it by evidence. But to this rule, the negotiable instruments are an exception. In a significant departure from the general rule applicable to contracts, Section 118 of the Act provides certain presumptions to be raised. This Section lays down some special rules of evidence relating to presumptions. The reason for these presumptions is that, negotiable instrument passes from hand to hand on endorsement and it would make trading very difficult and negotiability of the instrument impossible, unless certain presumptions are made. The presumption, therefore, is a matter of principle to facilitate negotiability as well as trade. Section 118 of the Act provides presumptions to be raised until the contrary is proved (i) as to consideration, (ii) as to date of instrument, (iii) as to time of acceptance, (iv) as to time of transfer, (v) as to order of indorsements, (vi) as to appropriate stamp and (vii) as to holder being a holder in due course. Section 139 of the Act provides that 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. Presumptions are devices by use of which the courts are enabled and entitled to pronounce on an issue notwithstanding that there is no evidence or insufficient evidence. Under the Indian Evidence Act all presumptions must come under one or the other class of the three classes mentioned in the Act, namely, (1) “may presume” (rebuttable), (2) “shall presume” (rebuttable) and (3) “conclusive presumptions” (irrebuttable). The term ‘presumption’ is used to designate an inference, affirmative or disaffirmative of the existence a fact, conveniently called the “presumed fact” drawn by a judicial tribunal, by a process of probable reasoning from some matter of fact, either judicially noticed or admitted or established by legal evidence to the satisfaction of the tribunal. Presumption literally means “taking as true without examination or proof”. Section 4 of the Evidence Act inter-alia defines the words ‘may presume’ and ‘shall presume as follows: -

“(a) ‘may presume’ – Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved or may call for proof of it.

(b) ‘shall presume’ – Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved.”

In the former case the Court has an option to raise the presumption or not, but in the latter case, the Court must necessarily raise the presumption. If in a case the Court has an option to raise the presumption and raises the presumption, the distinction between the two categories of presumptions ceases and the fact is presumed, unless and until it is disproved.

10.             Section 118 of the Act inter alia directs that it shall be presumed, until the contrary is proved, that every negotiable instrument was made or drawn for consideration. Section 139 of the Act stipulates that unless the contrary is proved, it shall be presumed, that the holder of the cheque received the cheque, for the discharge of, whole or part of any debt or liability. Applying the definition of the word ‘proved’ in Section 3 of the Evidence Act to the provisions of Sections 118 and 139 of the Act, it becomes evident that in a trial under Section 138 of the Act a presumption will have to be made that every negotiable instrument was made or drawn for consideration and that it was executed for discharge of debt or liability once the execution of negotiable instrument is either proved or admitted. As soon as the complainant discharges the burden to prove that the instrument, say a note, was executed by the accused, the rules of presumptions under Sections 118 and 139 of the Act help him shift the burden on the accused. The presumptions will live, exist and survive and shall end only when the contrary is proved by the accused, that is, the cheque was not issued for consideration and in discharge of any debt or liability. A presumption is not in itself evidence, but only makes a prima facie case for a party for whose benefit it exists.

11.   The use of the phrase “until the contrary is proved” in Section 118 of the Act and use of the words “unless the contrary is proved” in Section 139 of the Act read with definitions of “may presume” and “shall presume” as given in Section 4 of the Evidence Act, makes it at once clear that presumptions to be raised under both the provisions are rebuttable. When a presumption is rebuttable, it only points out that the party on whom lies the duty of going forward with evidence, on the fact presumed and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed, the purpose of the presumption is over. The accused in a trial under Section 138 of the Act has two options. He can either show that consideration and debt did not exist or that under the particular circumstances of the case the non-existence of consideration and debt is so probable that a prudent man ought to suppose that no consideration and debt existed. To rebut the statutory presumptions an accused is not expected to prove his defence beyond reasonable doubt as is expected of the complainant in a criminal trial. The accused may adduce direct evidence to prove that the note in question was not supported by consideration and that there was no debt or liability to be discharged by him. However, the court need not insist in every case that the accused should disprove the non-existence of consideration and debt by leading direct evidence because the existence of negative evidence is neither possible nor contemplated. At the same time, it is clear that bare denial of the passing of the consideration and existence of debt, apparently would not serve the purpose of the accused.

Something which is probable has to be brought on record for getting the burden of proof shifted to the complainant. To disprove the presumptions, the accused should bring on record such facts and circumstances, upon consideration of which, the court may either believe that the consideration and debt did not exist or their non-existence was so probable that a prudent man would under the circumstances of the case, act upon the plea that they did not exist. Apart from adducing direct evidence to prove that the note in question was not supported by consideration or that he had not incurred any debt or liability, the accused may also rely upon circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again on to the complainant. The accused may also rely upon presumptions of fact, for instance, those mentioned in Section 114 of the Evidence Act to rebut the presumptions arising under Sections 118 and 139 of the Act. The accused has also an option to prove the non-existence of consideration and debt or liability either by letting in evidence or in some clear and exceptional cases, from the case set out by the complainant, that is, the averments in the complaint, the case set out in the statutory notice and evidence adduced by the complainant during the trial. Once such rebuttal evidence is adduced and accepted by the court, having regard to all the circumstances of the case and the preponderance of probabilities, the evidential burden shifts back to the complainant and, thereafter, the presumptions under Sections 118 and 139 of the Act will not again come to the complainant’s rescue.

12. The defence of the appellant was that he had agreed to purchase woolen carpets from the respondent and had issued the cheques by way of advance and that the respondent did not supply the carpets. It is the specific case of the respondent that he had sold woolen carpets to the appellant on 6.8.1994 and in discharge of the said liability the appellant had issued two cheques, which were ultimately dishonoured. In support of his case the respondent produced the carbon copy of the bill. A perusal of the bill makes it evident that there is no endorsement made by the respondent accepting the correctness of the contents of the bill. The bill is neither signed by the appellant. On the contrary, the appellant examined one official from the Sales Tax Department, who positively asserted before the Court that the respondent had filed sales tax return for the Assessment Year 1994-95 indicating that no sale of woolen carpets had taken place during the said Assessment Year and, therefore, sales tax was not paid. The said witness also produced the affidavit sworn by the respondent indicating that during the year 1994-95 there was no sale of woolen carpets by the respondent. Though the complainant was given sufficient opportunity to cross-examine the said witness, nothing could be elicited during his cross-examination so as to create doubt about his assertion that no transaction of sale of woolen carpets was effected by the respondent during the year 1994-95. Once the testimony of the official of the Sales Tax Department is accepted, it becomes evident that no transaction of sale of woolen carpets had taken place between the respondent and the appellant, as alleged by the respondent. When sale of woolen carpets had not taken place, there was no existing debt in discharge of which, the appellant was expected to issue cheques to the respondent. Thus the accused has discharged the onus of proving that the cheques were not received by the holder for discharge of a debt or liability. Under the circumstances the defence of the appellant that blank cheques were obtained by the respondent as advance payment also becomes probable and the onus of burden would shift on the complainant. The complainant did not produce any books of account or stock register maintained by him in the course of his regular business or any acknowledgement for delivery of goods, to establish that as a matter of fact woolen carpets were sold by him to the appellant on August 6, 1994 for a sum of Rs.1,90,348.39. Having regard to the materials on record, this Court is of the opinion that the respondent failed to establish his case under Section 138 of the Act as required by law and, therefore, the impugned judgment of the High Court is liable to be set aside.

13.This Court has also noticed a strange and very disturbing feature of the case. The High Court, after convicting the appellant under Section 138 of the Act, remitted the matter to the learned Magistrate for passing appropriate order of sentence. This course, adopted by the learned Single Judge, is unknown to law. The learned Single Judge was hearing an appeal from an order of acquittal. The powers of the Appellate Court, in an appeal from an order of acquittal, are enumerated in Section 386(a) of the Code of Criminal Procedure, 1973. Those powers do not contemplate that an Appellate Court, after recording conviction, can remit the matter to the trial court for passing appropriate order of sentence. The judicial function of imposing appropriate sentence can be performed only by the Appellate Court when it reverses the order of acquittal and not by any other court. Having regard to the scheme of the Code of Criminal Procedure, 1973 this Court is of the view that after finding the appellant guilty under Section 138 of the Act, the judicial discretion of imposing appropriate sentence could not have been abdicated by the learned Single Judge in favour of the learned Magistrate. Having found the appellant guilty under Section 138 of the Act it was the bounden duty of the High Court to impose appropriate sentence commensurate with the facts of the case. Therefore, we do not approve or accept the procedure adopted by the High Court. Be that as it may, in this case, we have found that reversal of acquittal itself was not justified.

14.For the foregoing reasons the appeal is allowed. The judgment and order dated November 23, 2006, rendered by the learned Single Judge of Punjab and Haryana High Court at Chandigarh in Criminal Appeal No. 946 SBA of 2004 convicting the appellant under Section 138 of the Act, is set aside and judgment dated December 6, 2003, rendered by the learned Judicial Magistrate I Class, Karnal in Criminal Complaint No. 178 of 2001 acquitting the appellant, is restored.

……………………….J.

[R.V. Raveendran]

……………………….J.

[J.M. Panchal]

New Delhi;

December 16, 2008.