Krishna Gopal Khetan vs M/S Pearl Valley Silks Ltd & Others

Ashok G.Nijagannavar, J

This appeal is filed to set aside the judgment and order of acquittal dated 21.04.2009 passed in Crl.A. No.117/2008 by the XXXVI Additional City

Civil & Sessions Judge, Bangalore, for the offence punishable under Section 138 of Negotiable Instruments Act and to restore the judgment of

conviction and sentence dated 10.01.2008 passed in C.C. No.17243/2005 by the XV Additional Chief Metropolitan Magistrate, Bengaluru and to

convict the respondents for the aforesaid offence in accordance with law.

The genesis of the litigation in the present appeal is that a complaint under Section 138 of the Negotiable Instruments Act was filed by the

complainant before the XV Additional Chief Metropolitan Magistrate, Bengaluru. The learned Magistrate had found the respondents / accused guilty

and sentenced them to pay a fine amount of Rs.6,30,000/- and further ordered that out of the recovered fine amount, a sum of Rs.6,25,000/- shall be

paid to the complainant as compensation and balance amount of Rs.5,000/- shall go to the State. In the event of default of payment of fine amount by

the accused Nos.2 and 3, they shall undergo simple imprisonment for a period of one year each.

The order of conviction passed by the learned Magistrate was challenged in the appeal before the XXXVI Additional City Civil & Sessions Judge

(CCH-37), Bengaluru. Said appeal was allowed. The findings and order of conviction passed by the trial court was set aside. Being aggrieved by the

order of acquittal passed by the first appellate court, the complaint has preferred the appeal.

The case of the complainant is that the accused Nos.2 and 3 being the Managing Director and Director of accused No.1 Company had availed

hand loan of Rs.6,00,000/- from the complainant because of their financial difficulties and they had issued three postdated cheques all dated

13.01.2005 for a sum of Rs.2,00,000/- each drawn on Canara Bank, Avenue Road branch, Bengaluru, in favour of the complainant. The said cheques

were presented for encashment, but they were returned with an endorsement “Account closedâ€. Therefore, the complainant got issued a legal

notice dated 25.01.2005. On receiving the said notice, the accused have given untenable reply and have failed to pay the amount, thereby they have

committed the offence punishable under Section 138 of the N.I. Act.

Before the trial court, the complainant got examined himself as PW1 and got marked documents as per Exhibits-P1 to P17. After recording of 313

statement, the accused No.2 got examined as DW1 and witnesses were examined as DW3 and DW4. Documents were got marked as per Exhibits-

D1 to D16.

The trial court on analysis of the evidence adduced by the respective parties arrived at a factual finding that the accused had duly issued the

cheques in question for Rs.2,00,000/- each in favour of the complainant in discharge of their debt or liability. The said cheques were presented to the

Bank for payment within the period of its validity, but the cheques have been returned unpaid on the reason that the account was closed. Thereafter,

the statutory notice of dishonor was duly issued, for which, reply was given by the respondents / accused and further held that there is no convincing

rebuttal evidence by the accused that there was no debt or liability. The complainant has established that the accused had issued cheques, but they

have failed to make the payment despite service of legal notice.

Being aggrieved by the order of conviction passed by the trial Court, the accused had preferred appeal. On reappreciation of evidence, the first

appellate court has come to the conclusion that the accused have probablized the defense by placing cogent evidence and have successfully rebutted

the presumption under Section 139 of the Negotiable Instruments Act. With this observation, the first appellate court allowed the appeal and the order

of conviction passed by the trial court was set aside.

Heard learned counsels for the parties and perused the records.

It is the contention of the learned counsel for the appellant that the first appellate court has committed error in disbelieving the evidence of the

complainant. The accused having admitted the issuance of cheques and signatures have failed to make the payment. Hence, the trial court has

dismissed the complaint as there is ample evidence to draw the presumption under Section 139 of N.I. Act. The accused cannot contend that there

was no legally enforceable debt. The onus shifts on the accused to rebut the presumption that the cheques were not issued for discharge of any debt

or liability in terms of Section 138 of N.I. Act. There is convincing evidence to prove that the findings given by the trial court are proper and justified.

The learned counsel for the respondents / accused argued in support of the impugned judgment of acquittal passed by the first appellate court

contending that the complainant has failed to establish that the cheques were issued towards payment of legally enforceable debt, thus the first

appellate court was justified in dismissing the complaint. Exhibits-P1, P2 and P3 â€" cheques are signed by respondent No.2 / accused as Managing

Director of respondent No.1 Company, but respondent No.2 has expired. The respondent No.3 is not a Director of respondent No.1 Company and he

is not a signatory to the cheques. The said cheques were given as security while purchasing silk items. The respondent No.2 has given reply to the

legal notice as per Exhibit-D8. PW1 has admitted in the cross-examination regarding payment done by the accused. There is no evidence whatsoever

to hold that the cheques were issued towards payment of legally payable debt. Thus, the appeal deserves to be dismissed.

Having heard the submissions of the learned counsels for both parties, the question that would arise for consideration of this Court would be:

Whether the first appellate court was justified in dismissing the complaint on the reason that the cheques were not issued towards legally

enforceable debt?

In a decision reported in 2019 (5) SCC 418 in the case of Basalingappa vs. Mudibasappa, the Hon’ble Apex Court has observed as under:

“21. After referring to various other judgments of this Court, this Court in Rangappa case held that the presumption mandated by

Section 139 of the Act does indeed include the existence of a legally enforceable debt or liability, which, of course, is in the nature of a

rebuttable presumption. In para 26, the following was laid down: (Rangappa case, SCC p. 453)

“26. In light of these extracts, we are in agreement with the respondent-claimant that the presumption mandated by Section 139 of the Act

does indeed include the existence of a legally enforceable debt or liability. To that extent, the impugned observations in Krishna Janardhan

Bhat [Krishna Janardhan Bhat v. Dattatraya G. Hegde, (2008) 4 SCC 54 : (2008) 2 SCC (Cri) 166] may not be correct. However, this does

not in any way cast doubt on the correctness of the decision in that case since it was based on the specific facts and circumstances therein.

As noted in the citations, this is of course in the nature of a rebuttable presumption and it is open to the accused to raise a defence wherein

the existence of a legally enforceable debt or liability can be contested. However, there can be no doubt that there is an initial presumption

which favours the complainant.â€​

Elaborating further, this Court in Rangappa case held that Section 139 of the Act is an example of a reverse onus and the test of

proportionality should guide the construction and interpretation of reverse onus clauses on the defendant-accused and the defendant-

accused cannot be expected to discharge an unduly high standard of proof. In paras 27 and 28, the following was laid down: (Rangappa

case SCC pp. 453-54)

“27. Section 139 of the Act is an example of a reverse onus clause that has been included in furtherance of the legislative objective of

improving the credibility of negotiable instruments. While Section 138 of the Act specifies a strong criminal remedy in relation to the

dishonour of cheques, the rebuttable presumption under Section 139 is a device to prevent undue delay in the course of litigation. However,

it must be remembered that the offence made punishable by Section 138 can be better described as a regulatory offence since the bouncing

of a cheque is largely in the nature of a civil wrong whose impact is usually confined to the private parties involved in commercial

transactions. In such a scenario, the test of proportionality should guide the construction and interpretation of reverse onus clauses and the

defendant-accused cannot be expected to discharge an unduly high standard of proof.

In the absence of compelling justifications, reverse onus clauses usually impose an evidentiary burden and not a persuasive burden.

Keeping this in view, it is a settled position that when an accused has to rebut the presumption under Section 139, the standard of proof for

doing so is that of “preponderance of probabilitiesâ€. Therefore, if the accused is able to raise a probable defence which creates doubts

about the existence of a legally enforceable debt or liability, the prosecution can fail. As clarified in the citations, the accused can rely on

the materials submitted by the complainant in order to raise such a defence and it is conceivable that in some cases the accused may not

need to adduce evidence of his/her own.â€​

On referring to some of the decisions, the Hon’ble Apex Court has held that:

“25.1. Once the execution of cheque is admitted Section 139 of the Act mandates a presumption that the cheque was for the discharge of

any debt or other liability.

25.2. The presumption under Section 139 is a rebuttable presumption and the onus is on the accused to raise the probable defence. The

standard of proof for rebutting the presumption is that of preponderance of probabilities.

25.3. To rebut the presumption, it is open for the accused to rely on evidence led by him or the accused can also rely on the materials

submitted by the complainant in order to raise a probable defence. Inference of preponderance of probabilities can be drawn not only from

the materials brought on record by the parties but also by reference to the circumstances upon which they rely.â€​

In the present case, it is the specific defense of the respondents / accused that there were business dealings between the complainant and accused

regarding supply of silk waste materials. In that connection, the accused had issued three blank cheques on 15.09.1999. In the year 2000, the

complainant supplied three consignments as per Exhibits-D1 to D3 and the amount of the said consignments was paid by the accused through

cheques. After making payment through cheques, the accused had called upon the complainant to return the cheques given as security, but the

complainant failed to return the said cheques on the pretext that the cheques were misplaced. Then the accused closed the bank account in the month

of April 2000 and the closure of the account was intimated to the complainant as per Exhibit-D8 under Certificate of Posting (Exhibit-D9). The

accused has also given reply to the demand notice of the complainant as per Exhibit-D10.

The complainant had filed affidavit in lieu of examination-in-chief reiterating the averments made in the complaint. In the cross-examination, the

complainant has admitted that the accused No.3 has not signed Exhibits-P2 to P4 â€" cheques. Further, he has stated that in the month of July 2004,

he had given loan of Rs.6,00,000/- in cash, but he has admitted that the said amount given to the accused is not shown in his Income Tax Returns.

Further, it has come in evidence that the complainant had closed his Company - M/s. K.G. Silks in the year 2001 and he had supplied degummed silk

waste three times in the year 2000 to the accused Company and the accused have made payment in respect of said three credit bills through cheques.

In further cross-examination, he has clearly admitted that there is no dues or amount payable towards the supply of degummed silk in three

consignments. The admission of PW1 confirms that there was no arrears of amount payable in the business transactions. There is no convincing

evidence to show that the accused had borrowed Rs.6,00,000/- in July 2004.

The accused No.2 has filed affidavit in lieu of oral evidence and got examined as DW1. He has produced 16 documents which are marked as

Exhibits-D1 to D16. It is pertinent to note that in Exhibit-D6, DW1 has denied some of the suggestions made by the complainant in the cross-

examination. Nothing is elicited to prove that DW1 had borrowed the loan from the complainant apart from business transactions.

DW2 and DW4 have stated in their affidavit evidence that the complainant had agreed to supply silk waste materials on credit basis and against

credit sale in favour of accused No.1 Company - M/s. Pearl Valley Silks Ltd., and the accused No.2 handed over three blank cheques to the

complainant as security towards credit supply of silk waste material. Both witnesses have been cross-examined, but noting is elicited to prove that the

said three cheques were issued towards legally payable debt.

DW3 â€" Manager of Canara Bank, Avenue Road branch, Bengaluru, has stated that the accused had current account in the name of the

Companyâ€" M/s. Pearl Valley Silks Ltd. The account number was 50240. On 10.04.2000, the accused Company had written a letter to close the

account and as per the said letter, the account was closed. In the cross-examination, he has stated that in Exhibit-D16, there are details about the

unused cheques returned by the accused and the accused had not informed the Bank about the misuse of three chques given to the complainant as

security.

It is pertinent to note that even though the complainant had earlier denied any business transactions between him and the accused, later he has

admitted in the cross-examination about the transactions in the year 2000 regarding supply of silk waste material. Exhibits-D1 to D3 are the credit

bills. Thus, it is evident that there was business dealings between the complainant and accused No.1 - Company regarding supply of silk waste

materials. Exhibit-D6 is the counterfoils of cheque leaves. There is a mention about the issuance of three cheques bearing Nos.585268 to 585270 in

favour of K.G.Khetan for Rs.2,00,000/- each. The said cheques were issued on 16.09.1999, but according to the complainant he had advanced the

loan in the year 2004. Exhibit-D8 is the letter written by accused No.2 â€" Managing Director of accused No.1 Company requesting the complainant

to return three cheques bearing Nos.585268 to 585270 and also informing about the payments done by him to the complainant through other cheques

drawn on Bank of India for a total sum of Rs.10,08,200/-. But, there is no reply by the complainant to this letter dated 15.07.2000 (Exhibit-D8). If at all

there was a separate loan transaction, the complainant would have immediately responded to Exhibit-D8 â€" letter, but no such efforts have been

done.

On reappreciation of evidence, the first appellate court after considering entire evidence, has rightly come to the conclusion that the appellant has

failed to establish that the accused had issued three cheques towards payment of legally payable debt and the conclusion drawn by the trial court is not

legal. On reappreciation of evidence, this Court is satisfied that the accused had raised probable defense and the findings of the first appellate court

are proper and justified.

For the foregoing reasons, the judgment and order of conviction passed by the trial Court is unsustainable. There are no valid grounds to interfere

with the order of the first appellate court. Accordingly, I pass the following:

ORDER

The Criminal Appeal is dismissed. The judgment of acquittal rendered by the first appellate court in Crl.A. No.117/2008 is confirmed.