Rangappa v. Sri Mohan (2010)

It settles the scope of the presumption in s. 139, and it does so by correcting an earlier decision. The question is narrow to state and decisive in practice: does the presumption that the holder received the cheque for the discharge of a debt or liability extend to the existence of a legally enforceable debt or liability?

Krishna Janardhan Bhat had suggested it did not. This three-Judge Bench held that it does. That single holding governs the burden of proof in every prosecution under s. 138.

The judgment is equally valuable for what it says about the standard of rebuttal, and about the character of the offence. It is the authority for the proposition that the offence is regulatory, that s. 139 is a reverse onus clause, and that an accused facing a reverse onus clause must not be held to an unduly high standard.

The judgment reproduces s. 138 in its current form, and the figures are the most examined in the paper:

• the offence is committed where a cheque drawn on an account maintained by the drawer, for payment to another out of that account, for the discharge in whole or in part of any debt or other liability, is returned by the bank unpaid because the amount standing to the credit of that account is insufficient to honour it, or because it exceeds the amount arranged to be paid from that account by agreement with the bank;
• the punishment is imprisonment for a term which may extend to two years, or fine which may extend to twice the amount of the cheque, or both;
• proviso (a): presentment within six months from the date on which the cheque is drawn, or within the period of its validity, whichever is earlier;
• proviso (b): notice in writing demanding payment, within thirty days of receipt of information from the bank about the return of the cheque as unpaid;
• proviso (c): failure of the drawer to pay within fifteen days of receipt of that notice;
• the Explanation: debt or other liability means a legally enforceable debt or other liability.

Section 139 provides that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in s. 138 for the discharge, in whole or in part, of any debt or other liability.

The Court stated the enquiry in a sentence worth learning: ordinarily, in cheque bouncing cases, what the courts have to consider is whether the ingredients of the offence enumerated in s. 138 have been met, and if so, whether the accused was able to rebut the statutory presumption contemplated by s. 139.

It also clarified, contrary to the trial court's finding, that s. 138 can indeed be attracted when a cheque is dishonoured on account of stop payment instructions sent by the accused to his bank in respect of a post-dated cheque, irrespective of insufficiency of funds in the account — a position settled in Goa Plast (Pvt.) Ltd. v. Chico Ursula D'Souza.

The Court drew together the law on the sister presumption in s. 118(a), which presumes consideration.

From Mallavarapu Kasivisweswara Rao v. Thadikonda Ramulu Firm: under s. 118(a) the court is obliged to presume, until the contrary is proved, that the promissory note was made for consideration; the initial burden lies on the defendant to prove the non-existence of consideration by bringing on record such facts and circumstances as would lead the court to believe its non-existence, either by direct evidence or by preponderance of probabilities showing that the existence of consideration was improbable, doubtful or illegal.

From Bharat Barrel & Drum Manufacturing Company v. Amin Chand Pyarelal, the fullest statement, and the passage to reproduce in an answer on burden of proof:

• Once execution of the promissory note is admitted, the presumption under s. 118(a) arises that it is supported by consideration.
• The presumption is rebuttable. The defendant can prove the non-existence of consideration by raising a probable defence.
• If the defendant discharges that initial onus by showing that the existence of consideration was improbable or doubtful, or that it was illegal, the onus shifts to the plaintiff, who must then prove consideration as a matter of fact, and on failure is disentitled to relief.
• The defendant's burden may be discharged by direct evidence or by bringing on record the preponderance of probabilities from the circumstances on which he relies; and the plaintiff is then entitled to rely on all the evidence in the case, including his own.
• Where the defendant fails to discharge the initial onus, the plaintiff is invariably entitled to the benefit of the presumption.
• A court may not insist that the defendant disprove consideration by direct evidence, since negative evidence is neither possible nor contemplated, and even if led is to be viewed with doubt.
• A bare denial of the passing of consideration is no defence at all. Something probable must be brought on record to shift the onus.

From M.M.T.C. Ltd. v. Medchl Chemicals & Pharma (P) Ltd., on stop payment: even where a cheque is dishonoured by reason of stop payment instructions, by virtue of s. 139 the court must presume that the cheque was received for the discharge of a debt or liability. The accused can show that the stop payment instructions were not issued because of insufficiency or paucity of funds. If he shows that there were sufficient funds to clear the cheque at the time of presentation, and that the stop payment notice was issued for other valid causes, including that there was no existing debt or liability at the time of presentation, the offence would not be made out. The burden of so proving is on the accused.

The presumption mandated by s. 139 does include the existence of a legally enforceable debt or liability. To that extent the observations in Krishna Janardhan Bhat may not be correct — though that does not cast doubt on the correctness of the decision in that case, which rested on its own facts.

The presumption is of course rebuttable, and it is open to the accused to raise a defence in which the existence of a legally enforceable debt or liability can be contested. But there can be no doubt that there is an initial presumption which favours the complainant.

Section 139 is a reverse onus clause, included in furtherance of the legislative objective of improving the credibility of negotiable instruments. While s. 138 specifies a strong criminal remedy in relation to the dishonour of cheques, the rebuttable presumption under s. 139 is a device to prevent undue delay in the course of litigation.

But the offence is regulatory in character. The offence made punishable by s. 138 can better be 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 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.

The standard is therefore preponderance of probabilities. 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. The accused may rely on the materials submitted by the complainant to raise such a defence, and it is conceivable that in some cases he may not need to adduce evidence of his own.

Why the accused failed on the facts

The Court agreed with the High Court that no probable defence had been raised:

• the defence of the loss of a blank cheque was taken up belatedly;
• the accused had mentioned a different date in the stop payment instructions to his bank;
• the stop payment instructions had not even mentioned that the cheque had been lost;
• the trial record showed the accused appeared to be aware that the cheque was with the complainant; and
• the accused had failed to reply to the statutory notice, which led to the inference that there was merit in the complainant's version.

Nor could he contest the existence of a legally enforceable debt. That he had made regular payments to the complainant in relation to the construction of his house did not preclude the possibility that the complainant had spent his own money for the same purpose; the complaint disclosed the prima facie existence of a legally enforceable debt, since the complainant maintained that his money was used for the construction expenses. The accused having admitted the signature on the cheque, the statutory presumption came into play and had not been rebutted, even on the complainant's own materials.

The conviction was upheld and the appeal disposed of accordingly.

The presumption under s. 139 extends to the existence of a legally enforceable debt or liability. It is rebuttable, and being a reverse onus clause in a regulatory offence it imposes on the accused an evidentiary and not a persuasive burden: he need only raise a probable defence on the preponderance of probabilities, and he may do so on the complainant's own materials. A bare denial, a belated explanation or a failure to reply to the statutory notice will not suffice.