Court Shall Presume A Cheque To Be For Consideration

The Supreme Court of India in M.S. Narayana Menon @ Mani Vs. State of Kerala, AIR 2006 SC 3366 : (2006) 6 SCC 39 : 2006 (3) Suppl. SCR 124 : 2006 (6) SCALE 393 : JT 2006 (6) SC 72 : III (2006) BC 433 : [2006] 132 CompCas 450 : (2006) 6 CompLJ 39 : 2006 CriLJ 4607:  2006 (3) CTC 730 : 2006 (3) KLT 404 : 2006 (5) MhLj 676 : RLW 2006 (4) SC 2945 held that the Court shall presume a negotiable instrument to be for consideration unless and until after considering the matter before it, it either believes that the consideration does not exist or considers the non-existence of the consideration so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that the consideration does not exist.

A bench comprising of S.B. Sinha and P.P. Naolekar, JJ. observed that for rebutting such presumption, what is needed is to raise a probable defence.

Even for the said purpose, the evidence adduced on behalf of the complainant could be relied upon. It is not necessary for the defendant to disprove the existence of consideration by way of direct evidence.

the judgment said. 

Bharat Barrel & Drum Manufacturing Company v. Amin Chand Payrelal, [1999] 3 SCC 35, relied on.

Trial Court found accused share-broker guilty of committing offence under Section 138 of the Act. It is reversed by the first Appellate Court. Appeal against allowed by High Court.

On appeal to the Supreme Court it was held that a member of Stock Exchange is required to maintain books of accounts in a particular manner. The accused did not maintain statutory books of account in terms of bye-laws of the Stock Exchange and also did not produce the same before the Court.

The Cheque in question was allegedly issued by the accused in discharge of his debt. Thus, liability arose in terms of that transaction. Under the circumstances, accused required only to discharge initial onus of proof, he need not require to disprove the case of the prosecution. Onus on the accused is not as heavy as that on the prosecution.

Evidence adduced by the parties before the trial Court concludes that the accused had discharged his initial burden but the complainant had not been able to prove his case.

The accused clearly stated that the Cheque was issued by him by way of security and not in discharge of debt. The statement accepted as probable. Thus the Cheque in question cannot be held to have been issued in discharge of the debt. Hence, provisions of Section 138 of the Act not attracted.

Facts of the Case

The Appellant used to carry on transactions in shares through the Second Respondent, a member of Stock Exchange. They have been on business terms for some time. Allegedly, a sum of Rs. 3,00,033/-was due to the second respondent from the Appellant in relation to the said transactions.

The Appellant allegedly paid a sum of Rs. 5000/- in cash and issued another Cheque drawn on Vijaya Bank for the balance amount. When the Cheque was presented for encashment through the same banker, it was dishonoured as the funds in the account of the Appellant were found to be insufficient.

A complaint petition was filed by the Second Respondent against the Appellant purported to be for commission of an offence under Section 138 of the Negotiable Instruments Act. A notice was issued to him. His defence was that the first Cheque was a blank Cheque given by him to Respondent No. 2 by way of security.

The second Cheque was issued later and the same had been given for the purpose of discounting. The Trial Court held that the Appellant had failed to discharge the onus placed on him in terms of Section 139 of the Act. A verdict of guilt was recorded against the Appellant. He was sentenced to undergo rigorous imprisonment for one year.

On an appeal preferred thereagainst by the Appellant, the judgment of conviction and sentence was set aside by the appellate Court. However, appeal against the order of the appellate Court was allowed by the High Court. Hence the present appeal.

Appellant contended that the Trial Court and the High Court misconstrued and misinterpreted Section 139 of the Act and furthermore failed to take into consideration the principle of law that once the accused discharges the initial burden placed on him, the burden of proof would revert back to the prosecution; and that the High Court acted illegally and without jurisdiction in arriving at the finding that it was for the accused to prove his innocence by adducing positive evidence for rebutting the statutory presumption that he had not received the Cheque of the nature referred to under Section 138 of the Act for the discharge, in whole or in part, of any debt or other liability.

Respondent submitted that the Appellant did not dispute the statement of accounts in relation to the transactions and he had also acknowledged his liability in relation to some of the transactions and the dispute being only in relation to the quantum of debt; and that statutory presumption in terms of Section 139 of the Act although is a rebuttable one, the question will have to be determined upon taking into consideration another presumption drawn in terms of Section 118(a) thereof.

Allowing the appeal, the Apex Court held that

The High Court, in view of the findings of fact arrived at by the appellate court committed a manifest error in reversing the judgment of the first appellate Court. The Second Respondent evidently had not been able to explain the discrepancies in his books of accounts.

If except putting a suggestion to the witness, the Second Respondent has not been able to bring on records any material to show that the parties had any transactions other than those which had been entered into through the Stock Exchange, the explanation of the accused could not have been thrown over board.

The High Court has furthermore committed a manifest error of record in arriving at a finding that the Appellant himself or through his agent has acknowledged as correct the statements of accounts. Admittedly there had been no acknowledgement in respect of five statements of accounts.

In view of the said error of record, the findings of the High Court to the effect that the Appellant had not been able to substantiate his contention as regard the correctness of the accounts, must be rejected.