1. Loan transaction — Cheque dishonour — Conviction under Section 138, Negotiable Instruments Act. (Para 3 , 4 , 5 )
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2024 Supreme(SC) 1374
SUPREME COURT OF INDIA
Sudhanshu Dhulia, Ahsanuddin Amanullah, JJ.
M/S S. S. Production and Anr. – Petitioners
P1: M/S S. S. Production
P2: Tr. S. Subbiah
Versus
Tr. Pavithran Prasanth – Respondent
Special Leave Petition (Criminal) nos. 13981-13985 of 2024 [@ Diary No.52267 of 2023]
Decided On : 01-10-2024
Advocates Appeared:
For the Petitioner(s): Mr. Sameer Aslam, Adv. Ms. M. Venmani, AOR
For the Petitioner(s): Mr. Sameer Aslam, Adv. Ms. M. Venmani, AOR
The presumption of debt validity under Section 138 obligates the accused to provide evidence to rebut it, shifting the burden of proof to them when the complainant's claims remain unchallenged.
Headnote:(A) Negotiable Instruments Act, 1881 - Section 138 - Dishonour of cheques due to insufficient funds - Accused convicted for issuing cheques in discharge of legally enforceable debt; defence of loan for film production rejected for lack of evidence - Presumptions under Sections 118 and 139 maintained; burden of proof on petitioners not fulfilled - Concurrent sentences considered appropriate given multiple cheque cases and same nature of transaction. (Paras 4, 8, 12, 14)
(B) Legal Presumptions - Under Section 138, the burden lies initially on the complainant, but the accused can rebut this through evidence - Statutory presumptions of consideration and debt apply - Mere denial of allegations does not shift the burden unless substantiated with counter-evidence. (Paras 41, 44)
Facts of the case:
The petitioners borrowed Rs.41,28,000/- from the complainant, issuing five cheques, which were dishonoured for insufficient funds. Complaints under Section 138 were filed after legal notices, resulting in conviction by the lower courts.
Findings of Court:
Conviction and sentence upheld, with six months of imprisonment and compensation orders directed to run concurrently, as they pertained to the same financial transactions.
Issues: The legitimacy of the loan and effectiveness of the defence were central to the appeals.
Ratio Decidendi: The court reiterated that the burden of proof lies with the accused to rebut the presumed enforceability of the debt; the absence of clear evidence to support claims of loan misuse maintained the convictions.
Result: Special leave petitions dismissed; convicted to serve sentences.
Judgement Key Points
Key Points: - Under Section 138, the presumption of debt validity obligates the accused to provide evidence to rebut it, shifting the burden of proof to them when the complainant's claims remain unchallenged (!) (!) (!) . - The accused can rebut the presumption by presenting evidence showing the cheque was not issued in discharge of a legally enforceable debt, with the burden requiring a preponderance of probabilities (!) (!) (!) . - Mere denial by the accused is insufficient to shift the burden; substantiated counter-evidence or a probable defence must be established through cross-examination or documentation (!) (!) (!) .
What is the presumption under Section 138 of the Negotiable Instruments Act and who bears the burden of proof?
How must the accused rebut the presumption under Section 138?
What standard of proof applies to the accused to rebut the presumption under Section 138?
Legal Category Hierarchy
Table of Contents
2. Absence of legally enforceable debt — Lack of proof of financial capacity — Cheques issued for joint venture rather than loan. (Para 6 , 7 )
3. Failure to adduce evidence to rebut statutory presumption — Receipt of funds admitted — Lack of proof regarding joint venture. (Para 8 , 9 , 10 , 11 , 12 )
4. Statutory presumption under Section 139, NI Act, shifts burden to accused to prove non-existence of debt by preponderance of probabilities. (Para 8 , 12 )
5. Petition dismissed — Conviction upheld — Sentences ordered to run concurrently — Compensation recoverable as public debt. (Para 13 , 14 , 15 )
6. Must a complainant initially prove financial capacity to lend money in Section 138 NI Act proceedings?
No. The complainant need not initially show financial capacity unless the accused raises this issue in the reply to the statutory notice. The accused must then demonstrate the lack of capacity through independent materials or cross-examination. (Para 8 )
7. How can an accused rebut the statutory presumption that a cheque was issued for a legally enforceable debt?
The accused can rebut the presumption by leading defence evidence or showing a preponderance of probabilities that the debt did not exist, using circumstantial evidence or the complainant's own materials. (Para 12 )
8. When can sentences for multiple cheque dishonours be ordered to run concurrently?
Sentences may run concurrently if the offences arise from a single transaction or loan arrangement, subject to the court's judicial discretion under Section 31 CrPC. (Para 14 )
JUDGMENT :
Ahsanuddin Amanullah, J.
Delay condoned.
2. The present petition assails the common Final Judgment and Order dated 15.06.2023 in Crl. R. C. Nos.394-396, 403 & 406 of 2020 (hereinafter referred to as the ‘Impugned Order’) passed by the High Court of Judicature at Madras (hereinafter referred to as the ‘High Court’), whereby the five Criminal Revision cases filed by the petitioners were dismissed and the conviction and sentence, as awarded by separate Judgments and Orders dated 31.10.2017 passed by the Metropolitan Magistrate (Fast Track Court III), Saidapet, Chennai (hereinafter referred to as the ‘Trial Court’) in C.C. Nos.137-141 of 2016 and confirmed by separate Judgments and Orders dated 31.10.2019 passed by the VII Additional Sessions Judge, City Civil Court, Chennai (hereinafter referred to as the ‘First Appellate Court’) in Crl. A. Nos.380- 384 of 2017, were upheld.
BRIEF FACTS:
3. The sole respondent is the complainant. The petitioner no.2 is the proprietor of petitioner no.1 and both are arrayed as accused. It was alleged that the petitioner no.2 was in the business of Cinema Production and for his urgent business needs, he had approached the complainant and borrowed a total sum of Rs.41,28,000/- (Rupees Forty-One Lakhs Twenty-Eight Thousand) in five instalments as a hand loan on 29.08.2015 and promised to repay the same on demand with interest at the rate of 2% per month. Separate Promissory Notes dated 29.08.2015 were executed for each of the instalments in favour of the complainant.
4. In order to discharge the liability of Rs.42,08,000/- (Rupees Forty- Two Lakhs Eight Thousand), a total of five cheques were issued by the accused, which on being presented by the complainant, were returned with the endorsement ‘funds insufficient’. Statutory Notice was issued by the complainant pursuant to which he lodged five complaints in respect of the five dishonoured cheques against the petitioners. The Trial Court convicted the accused under Section 138 1[‘138. Dishonour of cheque for insufficiency, etc., of funds in the account.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice. Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.’] of the Negotiable Instruments Act, 1881 (hereinafter referred to as the ‘Act’) and sentenced them to six months of Simple Imprisonment and to pay the cheque amounts as compensation, in each of the complaints. This order of conviction and sentence has been upheld by the First Ap
