IMPORTANT POINT
For rebutting the presumption u/s 139 r/w 118 of Negotiable Instruments Act what is needed is to raise a probable defence and for said purpose even the evidence adduced on behalf of complainant could be relied upon and standard of proof is pre ponderance of probabilities.

Headnote:Negotiable Instruments Act, 1881 — Sections 138, 139 r/w 118 — Dishonour of cheque — Presumption — For rebutting the presumption what was needed was to raise a probable defence — Standard of proof would be pre-ponderance of probabilities and inference of pre-ponderence of probabilities could be drawn not only from material on record but also by reference to circumstances upon which he relied — Appellant-accused used to do transactions in share through complainant who was member of stock exchange — Cheque for Rs. 2,95,033 isssued by appellant was dishonoured with remarks “funds insufficient” — Defence of appellant in trial was that cheque was given by way of loan as to enable him to tide over his difficulties — Trial Court convicted appellant — On appeal, appellate Court set aside the conviction holding that explanation offered by accused was more probable — In an appeal filed by complainant, High Court allowed appeal and restored conviction — Appeal — Dispute between parties was covered by settlement Nos. 15 to 22 which corresponded to P-10 series showing transactions entered for a sum of Rs. 3,00,033/- — Appellate Court found that P-10 series of statement of account which were not traceable to statutory rules governing stock exchange transactions had no probative value — Complainant had not been able to explain discrepancies in his books of accounts — High Court committed manifest error in reversing the judgment — Lower appellate Court found that nothing was due and cheque was issued by way of security and said defence was accepted as probable — Where two views were possible, appellate Court should not interfere with finding of acquittal — Impugned judgment was liable to be set aside.
       Held : The High Court, in view of the findings of fact arrived at by the appellate court, in our opinion, committed a manifest error in reversing the said judgment. 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 Cochin 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 appearing in Exhibit P-10 series dated 16.12.1991, 20.12.1991, 28.12.1991, 10.1.1992, 24.1.1992, 7.2.1992 and 21.2.1992. Admittedly there had been no acknowledgement in respect of five statements of accounts being Exhibits D-2 to D-6. 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 of Exhibit P-10 series must be rejected.(Paras 24 and 25)
       Applying the said definitions of proved or disproved to principle behind Section 118(a) of the Act, 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. 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.(Para 30)
       The standard of proof evidently is pre-ponderance of probabilities. Inference of pre-ponderance of probabilities can be drawn not only from the materials on records but also by reference to the circumstances upon which he relies.(Para 33)
       The Second Respondent herein was a member of a Stock Exchange. The transactions in relation to the Stock Exchange are regulated by the statutes and statutory rules. If in terms of the provisions of a statute, a member of a Stock Exchange is required to maintain books of accounts in a particular manner, he would be required to do so, as non-compliance of the mandatory provisions of the Rules may entail punishment. It is not in dispute that transactions comprising purchases and sales of shares by investors is a matter of confidence. Both parties would have to rely upon one another. For the said purpose, the courts of law may also take judicial notice of the practice prevailing in such business. The learned Appellate Judge rightly did so.(Para 35)
       The definite case of the second Respondent was that the cheque dated 17.8.1992 was issued by the Appellant in discharge of his debt. The said liability by way of debt arose in terms of the transactions. For proving the said transactions, the Second Respondent filed books of accounts. The books of accounts maintained by the Second Respondent were found to be not reflecting the correct state of affairs. A discrepancy of more than Rs. 14,00,000/- was found. (Para 36)
       It was for the Appellant only to discharge initial onus of proof. He was not necessarily required to disprove the prosecution case. Whether in the given facts and circumstances of a case, the initial burden has been discharged by an accused would be a question of fact. It was matter relating to appreciation of evidence. The High Court in its impugned judgment did not point out any error on the part of the appellate court in that behalf. (Para 37)
       We in the facts and circumstances of this case need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be a part of debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The Appellant clearly said that nothing is due and the cheque was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefor cannot be held to have been issued in discharge of the debt as, for example, if a cheque is issued for security or for any other purpose the same would not come within the purview of Section 138 of the Act. (Para 55)
       We have gone through the oral evidences. The Second Respondent has even failed to prove that the Appellant had paid to him a sum of Rs. 5000/- by cash. (Para 56)
       In any event the High Court entertained an appeal treating to be an appeal against acquittal, it was in fact exercising the revisional jurisdiction. Even while exercising an appellate power against a judgment of acquittal, the High Court should have borne in mind the well-settled principles of law that where two views are possible, the appellate court should not interfere with the finding of acquittal recorded by the court below. We, therefore, are of the opinion that the impugned judgment cannot be sustained which is set aside accordingly. (Paras 57 and 58)

Judgement Key Points

Certainly. Based on the provided legal document, the key points are as follows:

To rebut the presumption under Section 139 of the Negotiable Instruments Act, it is sufficient to raise a probable defense. The standard of proof is the preponderance of probabilities, and evidence on behalf of the complainant can be relied upon for this purpose (!) .
The presumption under Section 118(a) of the Act is that every negotiable instrument is made or drawn for consideration, unless proven otherwise. The burden of proof initially lies on the defendant to show that the consideration does not exist or is improbable, but this burden can be discharged by raising a probable defense based on circumstantial or direct evidence (!) (!) (!) .
Once the defendant discharges the initial burden, the burden shifts back to the plaintiff to prove the existence of consideration beyond a reasonable doubt. The standard of proof remains preponderance of probabilities, and the court may draw inferences from the circumstances and evidence presented (!) (!) (!) .
In cases involving stock exchange transactions, the parties rely heavily on books of accounts and official records. Discrepancies or the failure to produce statutory books can undermine the probative value of the accounts presented by the complainant. The absence of proper maintained books and unexplained discrepancies can lead to the conclusion that the accounts are unreliable (!) (!) (!) (!) .
The explanation offered by the accused, such as issuing a cheque as security or for a purpose other than discharging a debt, can be considered probable if supported by credible evidence and consistent with business practices. Such explanations can negate the presumption that the cheque was issued in discharge of a debt (!) .
When two plausible views exist based on the evidence, appellate courts should refrain from interfering with the findings of the lower courts, especially when the findings are based on appreciation of evidence and credibility assessments (!) (!) .
The high court's review of the facts must be careful to avoid substituting its own view unless the lower court's findings are manifestly unreasonable or based on incorrect record. Reversal of findings requires clear and cogent reasons, particularly regarding discrepancies or credibility issues (!) (!) .
The burden of proof in criminal cases related to dishonor of cheques is on the prosecution, but once the initial presumption is raised, the accused can rebut it by showing that the probability of non-existence of consideration is high. The court must evaluate whether the defense has successfully raised such a probable defense (!) (!) .
The legal presumption is an evidentiary tool, and it does not shift the burden of proof to the accused beyond the initial stage. It remains open for the accused to produce evidence that makes the non-existence of consideration reasonably probable, which can lead to the presumption being rebutted (!) (!) .
Overall, the case emphasizes that in cases of dishonored cheques, the defendant's credible and probable explanations, supported by business practices and proper evidence, can effectively rebut the presumption of consideration and discharge the initial burden, leading to an acquittal if the prosecution fails to prove its case beyond a reasonable doubt.

JUDGMENT

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:

2. The Second Respondent had been carrying on business of stock and share brokers under the name and style of "Midhu and Midhuns 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".

3. 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.

4. 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.

5. The Respondent is said to have not issued any contract note pertaining to the transactions the Appellant had with him.

6. 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.

7. The prosecution of the Appellant was confined to the dishonour of the cheque dated 17.8.1992 only.

8. 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."

9. 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.

10. 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

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2006 Supreme(SC) 561

IMPORTANT POINTFor rebutting the presumption u/s 139 r/w 118 of Negotiable Instruments Act what is needed is to raise a probable defence and for said purpose even the evidence adduced on behalf of complainant could be relied upon and standard of proof is pre ponderance of probabilities.

Cases Referred (10)

IMPORTANT POINT
For rebutting the presumption u/s 139 r/w 118 of Negotiable Instruments Act what is needed is to raise a probable defence and for said purpose even the evidence adduced on behalf of complainant could be relied upon and standard of proof is pre ponderance of probabilities.