Negotiable Instruments Act, 1881 – Ss. 118(a), 138 & 139 – Dishonour of a Cheque – Presumption – Onus of Proof – 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.
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 :  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
IN THE SUPREME COURT OF INDIA
S.B. Sinha & P.P. Naolekar JJ.
Appeal (crl.) 1012 of 1999
PETITIONER: M.S. Narayana Menon @ Mani
RESPONDENT: State of Kerala & Anr.
J U D G M E N T
S.B. SINHA, J :
The Second Respondent was a member of the Cochin Stock Exchange. The Appellant used to carry on transactions in shares through the Second Respondent in the said Stock Exchange. They have been on business terms for some time. A complaint petition was filed on 19.11.1992 by the Second Respondent herein against the Appellant purported to be for commission of an offence under
Section 138 of the Negotiable Instruments Act
(for short “the Act”), on the following allegations:
The Second Respondent had been carrying on business of stock and share brokers under the name and style of “Midhu and Midhun’s Co.”. It is a sole proprietory concern. The Appellant also used to do transactions in shares through him in his capacity as a share broker. It has not been disputed that the Appellant had closed the account and, thus, when the cheque in question being dated 31.7.1992 (Ex. P-1) drawn on Ernakulam Banerji Road branch of the Syndicate Bank, was presented for encashment by the complainant through his bankers, namely, the Cochin Stock Exchange Extension Counter of the Syndicate Bank, it was returned on 4.8.1982 with the remarks “account closed”.
Allegedly, a sum of Rs. 3,00,033/- was, thus, owing and due to him from the Appellant in relation to the said transactions. The Appellant is said to have paid a sum of Rs. 5000/- in cash and issued another cheque being dated 17.8.1992 drawn on Ernakulam Broadway Branch of the Vijaya Bank for a sum of Rs. 2,95,033/-. The said cheque being Exhibit P-3 was presented for encashment on 18.8.1992 through the same bankers, but it was dishonoured on 19.8.1992 as the funds in the account of the Appellant were found to be insufficient.
A notice was issued by the complainant on 27.8.1992 informing the Appellant about the dishonour of the said cheque. He sent a reply to the said notice. The defence of the Appellant had been that the first cheque was a blank cheque given by him to Respondent No. 2 by way of security. The second cheque was issued in February, 1992 and the same had been given for the purpose of discounting.
The Respondent is said to have not issued any contract note pertaining to the transactions the Appellant had with him.
At the trial, Respondent No. 2 has examined five witnesses including himself. The Appellant examined three witnesses. Respondent No. 2, however, did not produce the original books of accounts in order to prove the transactions he had with the Appellant.
The prosecution of the Appellant was confined to the dishonour of the cheque dated 17.8.1992 only.
In the said proceedings, the Appellant herein raised a plea that the Respondent No. 2 was in dire financial assistance and a cheque for a sum of Rs. 2,95,033/- was given by way of loan so as to enable him to tide over his difficulties. He also adduced his evidence before the Trial Court. The Trial Court in its judgment dated 15.7.1994 opined that the Appellant herein had failed to discharge the onus placed on him in terms of Section 139 of the Act stating:
“To the evidence adduced in this case, I have to hold that the accused failed to rebut the presumptions available to Ext. p3 cheque. The case of P.W.1 that the cheque was issued by the accused on the date mentioned therein for discharging a liability due to him, is supported by Ext. D2 to D9. The case of the complainant that the accused paid Rs. 5,000/- and thereafter he issued Ext. P3 cheque, is only to be accepted under this circumstance. I find that the cheque was issued by the accused for discharging a liability legally due to the complainant, point answered accordingly.”
A verdict of guilt against the Appellant under Section 138 of the Act on the basis of the said findings was recorded. He was sentenced to undergo rigorous imprisonment for one year.
On an appeal preferred thereagainst by the Appellant herein, the said judgment of conviction and sentence was, however, set aside. The appellate court analysed the evidences on records in great details and concluded that explanation offered by the Appellant was more probable.
The complainant, however, aggrieved by and dissatisfied therewith filed a criminal appeal before the High Court which has been allowed by reason of a judgment dated 24.5.1999 which is impugned herein.
Submission of Mr. L. Nageswara Rao, learned senior counsel appearing on behalf of the Appellant is 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.
The High Court, according to the learned counsel, 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.
Mr. E.M.S. Anam, learned counsel appearing on behalf of the Respondent, on the other hand, argued that statutory presumption raised to the effect that an accused 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.
According to the learned counsel, the Appellant did not dispute the statement of accounts in relation to certain transactions. He had also acknowledged his liability in relation to some of the transactions. In that view of the matter, it was urged, that the dispute being only in relation to the quantum of debt, the impugned judgment of the High Court must be sustained against the Appellant as he rebutted the presumption arising against him under Section 118(a) read withSection 139 of the Act.
Before adverting to the propositions of law adverted to by the learned counsel, we may notice certain broad facts.
Issuance of three cheques being Ex. P-1, 2 and 3 by the Appellant is not in dispute. One of the cheques being Exhibit P-1, according to the accused, however, was a blank one.
Cochin Stock Exchange has been constituted under the Securities Contracts (Regulation) Act, 1956. It is governed by the provisions of the Securities and Exchange Board of India Act, 1992 as also the Securities Contracts (Regulation) Rules, 1957 framed under the 1956 Act.
The transactions carried out by the brokers in the Cochin Stock Exchange are governed by the bye-laws framed by it as also the regulations made under the provisions of the aforementioned Act. Indisputably, dealings in the stock exchange are governed by the bye-laws made under the statute which were marked as Exhibit D-15 in terms whereof inter alia trading sessions, meaning thereby, meetings of the members of the Cochin Stock Exchange must be held on the floor of the Exchange itself; entry wherefor is restricted only to its members. All transactions by the investors and speculators must be made through the members of the Exchange. Whereas the Second Respondent was a member of the Stock Exchange, the Appellant was not. They belong to different districts in the State of Kerala. Indisputably, the Appellant had been taking the services of the Second Respondent for transacting his business of purchase and sale of shares.
All bargains on securities carried on for a period of 14 days is known as settlement. A statement of accounts is furnished by a broker to the investor in prescribed form being Form A together with a contract note. The contract note contains accounts of the securities purchased or sold, its quantity, rate as also the date of transaction. The same is issued so as to enable an investor to compare the entries in the contract note with those made in the statement of accounts enabling him to confirm or deny the particulars contained therein. The dispute between the parties appears to be covered by settlement Nos. 15 to 22 during the years 1991-92. The Second Respondent in his evidence admitted that Exhibits D-2 to D-9 corresponded to P-10 series which pertained to settlement Nos. 15/91 to 22/92 showing transactions entered into by and between him and the Appellant for a sum of Rs. 3,00,033/-.
According to the Appellant, Exhibits D-2 to D-9 did not reflect the correct accounts of the transactions and the entries made therein are false. His further plea was that the date of the cheque (being Exhibit P-3) was not in his own handwriting which had been issued to the complainant so as to enable him to facilitate the complainant to discount the same and overcome his economic exigencies.
The learned appellate court noticed that it had been accepted that if Exhibits D-2 to D-9 accounts corresponding to Exhibit P-10 series cannot be relied on as true and correct accounts incorporating the particulars of various transactions, the complainant’s case will fall to the ground as the story of issuance of the cheque by the Appellant could not have been founded thereupon. As regards the contention of the Second Respondent that the Appellant was estopped and precluded from disputing the correctness of Exhibit P-10 series as he having accepted and acknowledged the correctness thereof, it was held: